M/S Kim Pharma (P) Ltd v. Commissioner Of Income Tax, Panchkula And Another

ITA No. 106 of 2011 (O&M) IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 106 of 2011 (O&M)Date of Decision: 27.4.2011 M/s Kim Pharma (P) Ltd. ....Appellant. Versus Commissioner of Income Tax, Panchkula and another ...Respondents. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Aman Bansal, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the assessee underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order dated 30.4.2010 passed by the Income Tax AppellateTribunal, Chandigarh Bench “SMC”, Chandigarh (hereinafter referred toas “the Tribunal”) in ITA No. 189/CHD/10, for the assessment year2006-07, claiming the following substantial questions of law:- “A.Whether the impugned orders passed by the ld.Authorities below are legally sustainable in the eyesof law?Authorities below are legally sustainable in the eyesof law? B.Whether the action on the part of the ld. Authoritiesbelow to segregate the surrendered income frombusiness income and treat it as deemed income andbelow to segregate the surrendered income frombusiness income and treat it as deemed income and taxing the same after refusing set off u/ss 70 and 71of the Act is legally sustainable in the eyes of law? C.Whether the action on the part of the ld. Authoritiesbelow not to treat the income surrendered duringsurvey as “income from business” and adjustableagainst the business losses determined for the year,is legally sustainable in the eyes of law?” 2.Briefly stated, the facts necessary for adjudication asnarrated in the appeal are that a survey was conducted under Section133A of the Act at the business premises of the assessee on 1.9.2005.During the course of search, a cash amount of Rs.5,00,000/- was foundand the books of accounts for the year under consideration were notfound to be complete uptodate. The assessee surrendered additionalincome of Rs.10,00,000/- relating to the assessment year 2005-06 andRs.5,00,000/- for the assessment year 2006-07. The Assessing Officervide order dated 26.12.2008 made additions on account of certaindisallowances and the total loss declared by the assessee atRs.5,37,300/- was reduced to Rs.2,22,765/-. The said loss wasassessed as 'income from business' and the surrendered income wasassessed as an income under Section 69A of the Act. Feelingaggrieved, the assessee filed an appeal before the Commissioner ofIncome Tax (Appeals) [in short “the CIT(A)”] who vide order dated16.12.2009 dismissed the appeal. On further appeal by the assessee,the Tribunal vide order dated 30.4.2010 upheld the order of the CIT(A)and dismissed the appeal which gave rise to the assessee to approachthis Court by way of the instant appeal. 3.We have heard learned counsel for the assessee. 4.Learned counsel for the assessee submitted that theamount surrendered by the assessee was business income andassessable as such. He relied upon a decision of the Karnataka HighCourt in Commissioner of Income-Tax and another v. S.K. Srigiriand Bros. [2008] 298 ITR 13 (Karn). 5.The point for determination in this appeal is, whetherRs.5,00,000/- which was surrendered by the assessee during thecourse of survey under Section 133A of the Act would form part ofbusiness income or was assessable under Section 69A of the Act. TheAssessing Officer, the CIT(A) and the Tribunal after considering thefactual aspect noticed that the amount surrendered during the surveywas not reflected in the books of account and no source from where itwas derived was declared by the assessee and, therefore, it wasdeemed income of the assessee under Section 69A of the Act. Thefindings recorded by the Tribunal in this regard are as under:- 5.The point for determination in this appeal is, whetherRs.5,00,000/- which was surrendered by the assessee during thecourse of survey under Section 133A of the Act would form part ofbusiness income or was assessable under Section 69A of the Act. TheAssessing Officer, the CIT(A) and the Tribunal after considering thefactual aspect noticed that the amount surrendered during the surveywas not reflected in the books of account and no source from where itwas derived was declared by the assessee and, therefore, it wasdeemed income of the assessee under Section 69A of the Act. Thefindings recorded by the Tribunal in this regard are as under:- “In the facts of the present case, we find thatassessee during the course of survey hadsurrendered the income as income from othersources though a plea has been raised by theassessee that the income was surrendered asincome from job work but no evidence to prove thestand of the assessee has been brought on record.The assessee had also surrendered additionalincome of Rs.10 lacs in assessment year 2005-06 onaccount of sundry credits, repairs to building and advances to staff, which being relatable to businesscarried on by assessee was included as income frombusiness. However, in respect of cash found duringsurvey, which was not reflected in the books ofaccount, no source was declared by the assesseeand in the absence of nature of source of cash beingproved; the same is not assessable as income frombusiness. In the circumstances, we uphold the orderof the CIT(A) in including the additional income asdeemed income u/s 69A of the Act and not allowingthe benefit of the business losses determined againstthe said deemed income. The grounds of appealraised by the assessee are dismissed.” 6.The Tribunal had relied upon a decision of the Gujarat HighCourt in Fakir Mohmed Haji Hasan v. Commissioner of Income-Tax[2001] 247 ITR 290. In that case, interpreting the scope and describingthe scheme of Sections 69, 69A, 69B and 69C of the Act, it wasobserved:- “The scheme of sections 69, 69A, 69B and 69C ofthe Income-tax Act, 1961, would show that in caseswhere the nature and source of investments made bythe assessee or the nature and source of acquisitionof money, bullion etc., owned by the assessee or thesource of expenditure incurred by the assessee arenot explained at all, or not satisfactorily explained,then, the value of such investments and money or the value of articles not recorded in the books ofaccount or the unexplained expenditure may bedeemed to be the income of such assessee. Itfollows that the moment a satisfactory explanation isgiven about such nature and source by theassessee, then the source would stand disclosed andwill, therefore, be known and the income would betreated under the appropriate head of income forassessment as per the provisions of the Act.However, when these provisions apply because nosources is disclosed at all on the basis of which theincome can be classified under one of the heads ofincome under section 14 of the Act, it would not bepossible to classify such deemed income under anyof these heads including income from “other sources”which have to be sources known or explained.When the income cannot be so classified under anyone of the heads of income under section 14, itfollows that the question of giving any deductionsunder the provisions which correspond to such headsof income will not arise. If it is possible to peg theincome under any one of those heads by virtue of asatisfactory explanation being given, then theseprovisions of sections 69,69A, 69B and 69C will notapply, in which event, the provisions regardingdeductions etc. applicable to the relevant head of -6- income under which such income falls willautomatically be attracted. -6- income under which such income falls willautomatically be attracted. The opening words of section 14 “save asotherwise provided by this Act” clearly leave scopefor “deemed income” of the nature covered under thescheme of sections 69, 69A, 69B and 69C beingtreated separately, because such deemed income isnot income from salary, house property, profits andgains of business or profession, or capital gains, noras it income from “other sources” because theprovisions of sections 69,69A, 69B and 69C treatunexplained investments, unexplained money, bullionetc. and unexplained expenditure as deemedincome where the nature and sources of investment,acquisition or expenditure, as the case may be, havenot been explained or satisfactorily explained.Therefore, in these cases, the source not beingknown, such deemed income will not fall even underthe head “income from other sources” . Therefore,the corresponding deductions which are applicable tothe incomes under any of these various heads, willnot be attracted in the case of deemed incomeswhich are covered under the provisions of sections69,69A, 69B and 69C of the Act in view of thescheme of those provisions.” The said decision fully applies to the facts of the present case. 8. In S.K. Srigiri and Bros's case (supra) before theKarnataka High Court, a finding of fact was recorded that the assesseereceived additional income from business only and, therefore, it wasentitled to deduction on account of remuneration paid to the partners.Such is not the situation here. 9.In view of the above, no substantial question of law arisesin this appeal. The appeal is accordingly dismissed. (AJAY KUMAR MITTAL) JUDGE April 27, 2011gbs (ADARSH KUMAR GOEL)JUDGE