Income Tax Appeal No. 125 of 2011 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 125 of 2011 Date of decision: 24.5.2011 Home Tex through its partner Rajan Mehra --- Appellant Versus Commissioner of Income Tax Karnal --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Pankaj Jain, Advocate for the appellant-assessee. --- AJAY KUMAR MITTAL, J. This is assessee’s appeal filed under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) against the order dated 6.11.2009, passed by the Income Tax Appellate Tribunal, Delhi “C” Bench (in short “the Tribunal”) in ITA No. 3272/DEL/2008, relating to the assessment year 2005-06. 2. The following substantial questions of law have been claimed for determination of this Court: “(i) Whether on the true and correct interpretation of the `provisions of section 145 the findings are sustainable for charging the income from undisclosed sources under Income Tax Appeal No. 125 of 2011 2 Chapter VI without discharging the departmental onus to prove the source of such other income? (ii) Whether the Tribunal’s order is sustainable for the additions made to the income of the assessee as income from other undisclosed sources can be considered as income from the business which is eligible for deduction u/s 80 IB of the Act, 1961? 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the assessee-firm that came to be formed in the year 1992 is exclusively engaged in manufacturing and export of textiles goods and all the partners of the firm are not carrying on any other business except that being partners in the firm. The assessee filed return for the assessment year 2005-06 declaring an income of Rs. 66,61,927/-. On 9.3.2005, a survey was carried out at the premises of the assessee-firm. The return was processed under Section 143(1) of the Act on 30.11.2005 and after the scrutiny proceedings were completed under Section 143(3) on 6.12.2007, the assessing officer finalised the assessment at an amount of Rs. 88,31,400/- by order dated 6.12.2007. The Commissioner of Income- tax (Appeals) {in short “the CIT(A)”}, dismissed the appeal of the assessee, vide order dated 16.9.2008. 4. The assessee took the matter in further appeal before the Tribunal. The Tribunal also did not take any exception to the findings recorded by the assessing officer and affirmed by the CIT(A), vide order dated 6.11.2009 and it is how the present appeal at the instance of the assessee. Income Tax Appeal No. 125 of 2011 3 5. Learned counsel for the assessee submitted that the undisclosed income was on account of surrender of additional stock found during the course of survey and, therefore, the same was to be considered for calculating deduction under Section 80 IB of the Act. According to the learned counsel, the surrendered amount was in the nature of business income and, therefore, the assessee was entitled to deduction under Section 80 IB on the surrendered amount. Support was drawn by the learned counsel from the judgments of Rajasthan High Court in Commissioner of Income Tax vs. Mehta Gwar Gum and Company High court of Rajasthan (Raj.) (2008) 12 DTR (Raj.) 219; Gujarat High Court in Commissioner of Income Tax vs. Suman Paper and Boards Ltd. (2009) 18 DTR (Guj.) 297 and of Himachal Pradesh High Court in Commissioner of Income Tax vs. Allied Industries, (2009) 31 DTR (HP) 323. 6. We have given our thoughtful consideration to the submissions made by the counsel for the assessee but are not impressed with the same. A similar argument raised before the Tribunal was repelled with the following observations: “11. We have considered the rival contentions, deliberated upon the various case laws cited by learned AR and towards which our attention was diverted with reference to the factual matrix of instant case. From the record, we found that during the course of survey, excess stock was found on physical verification, while surrendering Rs. 40 lakhs, the assessee has furnished a letter which reads as under:- Income Tax Appeal No. 125 of 2011 4 “Survey u/s 133A(1) was conducted by the Income- tax Department on our business premises today i.e. 9.3.2005. Inventory of stocks in the premises was prepared and the same was valued with our help. The stock as per books of accounts and as per inventory is as under:- “Stock as per books of accounts : 161805.00 As per inventory : 4161705.00 Difference in stock : 3999900.00 We hereby surrender Rs. 40,00,000.00 on account of excess stock as per physical verification voluntarily and without any pressure or force. The surrender of additional income is being made subject to no penalty and prosecution. No adjustment will be made against the surrendered income. The surrender of additional income is over and above the regular income as per books of accounts. Advance tax on the additional income will be deposited by 15.3.2005. Post dated cheque No. 1181332 dated 15.3.2005 for Rs. 15,00,000.00 of the Bank of India, G.T. Road, Panipat Branch is being given in lieu of advance tax. The surrender of additional income is for F.Y. 2004-2005 relevant to A.Y. 2005-2006.” 12. It is quite evident from the above letter submitted by assessee that Rs. 40 lakhs income was surrendered only on account of excess stock found as per physical Income Tax Appeal No. 125 of 2011 5 verification. It was also stated in the letter that no adjustment will be made against the surrendered income and such surrendered income is over and above the regular income as per books of account. Advance tax on the additional income was also proposed to be deposited vide post dated cheques. Since in the letter itself the assessee has accepted that this additional income was over and above the regular income as per books of account, the regular income which is arising out of industrial undertaking can only be subject to deduction u/s 80 IB and no other income surrendered on account of additional stock found during the course of survey can be considered for deduction u/s 80 IB. More particularly, in view of the decision of Hon’ble Supreme Court in the case of Liberty India (supra) wherein even the income from DEPB and duty drawback which are received by the industrial undertaking as an incentive in the course of their business were held to be not eligible for claim of deduction u/s 80 IB, nothing is left for granting deduction in respect of such income surrendered during the course of survey which is attributable to the excess stock found during the survey. Nothing was brought on record by the learned AR to show that amounts so invested in the excess stock was derived from industrial undertaking. It is not only the income of the business which can be claimed for deduction u/s 80 IB but it is only that income which is derived from industrial undertaking and comes Income Tax Appeal No. 125 of 2011 6 within the first degree of nexus between profit and industrial undertaking as found by the Hon’ble Supreme Court in the case of Liberty India (supra), that can be made available for allowing the deduction u/s 80 IB of the IT Act. We, therefore, do not find any infirmity in the orders of lower authorities for declining claim of deduction u/s 80 IB in respect of extra income surrendered during survey on account of excess stock physically found as compared to the stocks indicated in the regular books of account.” 7. The Tribunal had specifically recorded that the assessee had failed to show that the amount which was invested in the excess stock and was surrendered at the time of survey was derived from industrial undertaking. In the absence of any such finding or nexus established by the assessee, the Tribunal had rightly declined the claim of deduction under Section 80 IB of the Act in respect of excess income surrendered during survey on account of excess stock which was not reflected in the regular books of accounts. Learned counsel for the assessee was unable to show any perversity or illegality in the findings which may warrant interference by this Court. 8. So far as the judgments relied upon by the counsel are concerned, suffice it to notice that in those cases a finding came to be recorded that the income which was unaccounted in the books of accounts was the result of business activities and, therefore, the said income of the assessee was deductible under Section 80 IB of the Act. The judgments relied upon, therefore, being on different facts Income Tax Appeal No. 125 of 2011 7 do not advance the case of the assessee. No substantial question of law, thus, arises for the consideration of this Court. Finding no merit in the appeal, the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) May 24, 2011 ACTING CHIEF JUSTICE *rkmalik*