IN THE ITAT, LUCKNOW BENCH
A.D. JAIN, V.P. & T.S. KAPOOR, A.M.
Kanpur Organics (P) Ltd. v. Dy. CIT
I.T.A. No. 675/Luck/2018
A.Y. 2016-17
10 January, 2020
In favour of assessee
Assessee by: Rakesh Garg, Advocate
Department by: S.K. Madhuk, Commissioner (Departmental Representative)
T.S. Kapoor, A.M.
This is an appeal filed by the assessee against the order of the learned Commissioner (Appeals)-IV, Kanpur dated 25-9-2018 pertaining to the assessment year 2016-17.
2. At the time of hearing, the learned Authorised Representative invited our attention to its petition for admission of additional ground of appeal and stated that the said ground is purely a legal ground and which could not be included in the grounds of appeal, as attached with the memorandum of appeal and prayed that in view of the judgment of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC) : 1998 TaxPub(DT) 0342 (SC) the same may be admitted and adjudicated as the issue raised in the additional ground is a legal one and is coming out of the facts and material placed on record.
3. The learned Departmental Representative did not object to the admission of the additional ground of appeal and therefore, it was admitted and the learned Authorised Representative was directed to advance his arguments on the additional ground. For the sake of completeness, the additional ground taken by the assessee is reproduced below :--
'Because the Commissioner (Appeals) has erred on facts and in law in invoking the provisions of section 69A read with 115BBE ignoring the fact that the amount of Rs. 1.51 crores (being unaccounted sale proceeds) surrendered at the time of survey/search towards business income and offered to tax by crediting the same to the profit and loss account thereby upholding the addition as well as the denial of deduction under section 80JJA, which provisions are not applicable to the facts of the case, the treatment of the same as income under section 69A is misconceived, the deduction claimed under section 80JJA denied be allowed.'
4. Explaining the facts of the case, the learned Authorised Representative submitted that the assessee is engaged in manufacturing and sale of organics manures and its income is exempt under section 80JJA of the Act. It was submitted that a search and seizure operation under section 132 of the Act was conducted on the company as well as its directors and during the course of recording of statement, the director of the company had admitted that the entries in the diary, amounting to approximately Rs. 1.51 crores, represented unrecorded sale and therefore, it was surrendered and was taken into profit and loss account and return of income was filed accordingly. It was submitted that the assessing officer held the surrendered amount to be deemed income under section 69A of the Act and held that the same was taxable under section 115BBE of the Act and therefore, he reduced the said surrendered amount from the sales of the assessee and did not allow any expenditure against the same. It was stated that the assessing officer further rejected the books of account and estimated the net profit of the assessee at 8.41 per cent. on the balance amount of sales. It was further explained that the Commissioner (Appeals) though upheld the addition under section 115BBE but deleted the other addition, which the assessing officer had made by estimating the profits. It was further submitted that the learned Commissioner (Appeals) also accepted the fact that the assessee was otherwise eligible for deduction under section 80JJA of the Act and therefore, he held that estimation of profits after rejection of books of account was a futile exercise. The learned Authorised Representative in this respect invited our attention to the fact that the assessing officer held the amount of surrender as income and not sales, which is wrong as in the statement recorded by the authorities during survey, the director of the assessee had clearly stated that the amount recorded in the diary is sales unrecorded in the books of account and in this respect our specific attention was invited to question No. 35 and its answer placed at page 24 of the paper book. The learned Authorised Representative submitted that the assessee had therefore, rightly included the surrendered amount in the sales figure as the amount recorded in the diary represented unrecorded sales only. The learned Authorised Representative further submitted that the learned Commissioner (Appeals) has also wrongly held the amount surrendered as undisclosed income whereas the same represented unrecorded sales. Inviting our attention to the provisions of section 115BBE read with section 69A the learned Authorised Representative submitted that section 115BBE can be applied if the ingredients of section 69A are proved. The learned Authorised Representative submitted that section 69A specifically states that where the assessee is found to be owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or other valuable article is not recorded in the books of account and the assessee offers no explanation about the nature and source of acquisition of such money, bullion, jewellery or other valuable article, or the explanation offered by him is not to the satisfaction of the assessing officer, only then the addition under section 69A can be made. It was submitted that in the present case, the assessee had offered the explanation regarding the entries recorded in the diary to be part of unrecorded sales and the assessing officer also did not raise any objection to the explanation of the assessee therefore, the addition itself was not warranted under section 69A and therefore, the consequential section 115BBE was not applicable.