PER SUSHMA CHOWLA, JM The appeal by the assessee is against the order of CIT(A), Panchkula dated 16.12.2009 relating to assessment year 2006-07 against the order passed under section 143(3) of the I.T. Act.

2. The assessee has raised the following grounds of appeal:

1. That the CIT(A) has erred to uphold the i llegal order of Assessing Officer, segregating the surrendered income from business amounting to Rs. 5 lakhs as deemed income, taxing the same after refusing set off u/s 70 and

71 of the I.T. Act, specially after accepting the rejected books of account and allowing loss of Rs. 5,37,300, deleting all additions.

2. That the learned CIT(A) grossly erred in upholding the wrong fact that the appellant did not disclose the source of income of the appellant company qua surrendered cash and wrong law applied for treating surrendered amount as deemed income based on irrelevant judgment and different facts.

3. That the lower authorities have il legally and arbitrarily created new head of income deemed income in as such as there is sea difference, between deemed income and deemed to be income as used u/s 5 and 69 of the Act.

4. That the cash of f ive lakhs surrendered in the absence of books has been illegally not treated as part of business income / income from other sources, against facts and law negating the fiction of law applied to non-income claims.

3. The brief facts of the case are that survey operations was carried out at the business premises of the assessee on 1.9.2005. During the course of survey, cash of Rs. 5 lakhs was found and the books of account for the year under consideration were found to be not complete upto date. The assessee surrendered additional income of Rs. 5 lakhs relating to Assessment Year 2006-07 and Rs. 10 lakhs relating to Assessment Year 2005-06. The assessee company was running into losses and after adjustments of additional income surrendered during the course of survey, net income for the year under consideration was declared at a loss of Rs. 24,182/-. During the course of assessment proceedings, the Assessing Officer made certain additions on account of certain disallowances and the total loss declared by the assessee at Rs. 5,37,300/- was reduced to Rs. 2,22,765/-. The said loss was assessed as income from business and the additional income surrendered during the course of survey was assessed as income u/s 69A of the I.T. Act. The Assessing Officer did not allow the set off of the addit ional income against the business loss determined for the year under consideration, in turn relying on the ratio laid down in Fakir Mohmed Haji Hasan Vs. CIT Vs. CIT [247 ITR 290 (Guj)] wherein it was held that the deemed income covered under the scheme of section 69, 69-B and 69-C of the Act is to be treated separately and it is not income from salary, house property, profit and gains from business or capital gain, nor is it income from other sources. The CIT(A) upheld the order of Assessing Officer.

4. The learned AR for the assessee submitted that the Assessing Officer had included the additional income as deemed income in the hands of the assessee though the same was offered as income from job work. Our attention was drawn to the statement of the Manager of the assessee company recorded during survey, where surrender of Rs. 15 lakhs was made in connection with the cash found from the office and in respect of certain repairs in factory building and flooring and advances to the employees. The copy of the statement recorded is placed at pages 2 to 6 of the paper book. The learned AR further submitted that the said amount was surrendered on account of job work as is evidenced by the entries in the cash book. The learned AR elaborated upon the scheme of Income and its Taxation as provided in sections 4 & 14 of the i.t. act and proposed that in case any amount is not covered under the heads of income enumerated in section 14 of the Act, the same would not be exigible to tax. Reliance was placed on the ratio laid down by the Apex Court in Nalinikant Ambalal Mody Vs. CIT [61 ITR 428 (SC)]. The learned AR placed reliance on CIT & Another Vs. S.K.Srigiri & Bros. [298 ITR 13 (Karn.)] for the proposition that surrendered income during survey is business income. The alternate plea of the learned AR was that even if it assessed as income from other sources, set off is to be allowed u/s 71 of the Act. It is further pointed out by learned AR that in Assessment Year 2005-06, the addit ional income offered by assessee was assessed as Business income. The learned DR placed reliance on the orders of authorities below.

5. We have heard the rival contentions and perused the records. The copy of the statement recorded by Survey team is placed at pages 2 to 9 of the paper book. The manager of the assessee company Shri Sandeep Monga replied as under:- Since the books have not been written up-to-date, no cash as per cash book is available. Cash found Rs. 5 lacs from the office my income from other sources. I do agree that there are certain repairs in factory building and flooring. Advance to employees of above Rs. One lac has not been recorded in the books as on 31.3.2005. Packing material of about 50,000/- has also been purchased outside the books of account. Two air conditioner / machinery and furniture etc. found during survey has also not been recorded in the books. There is one unsecured loan of Rs. 70,000/- in the name of Shri Ashok Kumar for which company has no l iability to pay. After considering all the above deficiencies in documents and accounts and cash etc. I hereby, declare companys additional income of Rs. 15 lacs (Rs. Ten lacs in Assessment Year 2005-06 and Rs. Five lacs in Assessment Year 2006-07 in the case of M/s Kim Pharma (P) Ltd, Ambala. The additional income declared of Rs.

15 lacs is over and above companies current income as per regular books of account.

6. The assessee company declared additional income of Rs. 15 lakhs

i.e. in relation to Assessment Year 2005-06 - Rs. 10 lakhs and for Assessment Year 2006-07 - Rs. 5 lakhs. The said additional income was shown as income from business and after set off of regular business losses declared income at Rs. 37,327/- for the year under appeal. The Assessing Officer requisitioned the assessee to show cause as to why the income surrendered during the course of survey operation amounting to Rs. 5 lakhs on account of unexplained cash should not be treated as income u/s 69A of the I.T. Act. Various queries were raised by the Assessing Officer in respect of manufacturing and trading results shown by the assessee. The Assessing Officer recomputed the loss from business at Rs. 2,22,765/- as against loss of Rs. 5,37,300/- shown by the assessee as income from business. In connection with the surrender of Rs. 5 lakhs on account of unexplained cash found during the course of survey, it was explained by the assessee during the course of assessment proceedings, that Excess cash found and surrendered at the business premises and belong to the company and source of unexplained excess is only from the company business no material found at the time of survey to show that the company had any other source of income ----.

7. The assessee had surrendered additional income of Rs. 5 lakhs on account of unaccounted cash found at the premises of assessee during survey. However, no evidence was brought on record either during the survey operations or during the assessment proceedings regarding the source of the said cash of Rs. 5 lakhs being available with the assessee. In the statement recorded during the survey operation, the General Manager of the assessee company had admitted the said cash out of income from other sources. The said income was included as deemed income u/s 69A of the Act in the hands of the assessee. The question raised in the present appeal is whether such surrendered income is income from business adjustable against the current losses of the business carried on by the assessee. The plea of the assessee is that the income surrendered during survey is income from business and adjustable against the business losses determined for the year. The alternate plea of the assessee is even if the said surrendered income is includible as income from other sources, setoff of current business losses is al lowable u/s 71 of the Act. The Assessing Officer had included the income as deemed income u/s 69A of the Act and denied the benefit of setoff of current business losses u/s 71 of the Act. relying on the ratio laid down by Gujrat High Court Fakir Mohmed Haj Hasan in Vs. CIT (supra).

8. The Hon'ble Gujrat High Court in Fakir Mohmed Haj Hasan Vs. CIT (supra)had held as under:- It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income from assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under section 14, it would not be possible to classify such deemed income under any of these heads including income from other sources which have to be sources known or explained. When the income cannot be so classified under any one of the head of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such head of income will not arise. If it is possible to peg the income under any one of those head by virtue of a satisfactory explanation being given, then these provisions of section 69, 69a, 69b and 69C will not apply, in which event the provisions regarding deductions, etc applicable to the relevant head of income under which such income falls wil l automatically be attracted. The opening words of section 14 save as otherwise provided by this Act clearly leave scope for deemed income of all nature covered under the scheme of section 69, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from other source because the provisions of Section 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion, etc. and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these case, the source not being know, such deemed income will not fall even under the head income from other sources. Therefore, the corresponding deduction which are applicable to the income under any of these heads, will not be attracted in the case of deemed incomes which are covered under the provisions of section 69, 69a and 69C in view of the scheme of those provisions.

9. In the facts of the present case before us, we find that unaccounted cash was found during the course of survey operation in the possession of the assessee company and the same was surrendered as additional income for the year under appeal. The assessee has failed to explain the nature and source of the said cash found which was not recorded in the books of account, though while surrendering the additional income it was admitted by the Manager of the assessee company, in the statement recorded during the course of survey that the said additional income is its income from other sources. The Hon'ble Gujrat High Court in Fakir Mohmed Haj Hussain Vs CIT had held as under : The scheme of sections 69, 69A, 69B, and 69C of the Income-tax Act, 1961, would show that in cases where the nature and source of acquisit ion of Money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not 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 of account or the unexplained expenditure may be deemed to be the income of such assessee. In the absence of the explanation / evidence regarding the sources of the additional income being satisfactorily explained by the assessee and applying the ratio of the Hon'ble Gujrat High Court in Fakir Mohmed Haji Hasan Vs. CIT (supra), we hold that the addit ional income offered is deemed income assessable u/s 69A of the Act and no deduction is allowable against such deemed income assessed u/s 69A of the Act in the hands of the assessee. Following the ratio laid down by the Gujrat High Court in Fakir Mohmed Haji Hasan Vs. CIT (supra), once the assessee has fai led to explain the nature and source of cash found available with it and the same is assessed as deemed income u/s 69A of the Act, therefore, the corresponding deductions under the head Profits and gains are not available to the assessee. The business loss determined for the year is not allowed to be setoff against such deemed income included in the books of account. The alternative plea of the assessee of assessing the income under the head income from other sources and allowing set off of losses u/s 71 of the Act also fail in view of the above.

9. The learned AR for the assessee had placed reliance in CIT & Another Vs. S.K.Srigiri & Bros. (supra) for the proposition that even in cases of survey, the additional income surrendered is includible as income from business. In the facts of that case, we find that the Tribunal after considering the records and statement given by the partners of the assessee firm, on facts, came to the conclusion that assessee had received additional income from business only and not from other sources. The said conclusion of the Tribunal was upheld by the Hon'ble Karnataka High Court in CIT & another vs. S.K.Srigiri & Bros. (supra) and the remuneration paid to the partners was held allowable against the additional income form business. The said precedent has been taken note of by the Hon'ble Gujrat High Court.

10. In the facts of the present case, we find that assessee during the course of survey had surrendered the income as income from other sources though a plea has been raised by the assessee that the income was surrendered as income from job work but no evidence to prove the stand of the assessee has been brought on record. The assessee had also surrendered additional income of Rs. 10 lacs in Assessment Year 2005-06 on account of sundry credits, repairs to building and advances to staff, which being relatable to business carried on by assessee was included as income from business. However, in respect of cash found during survey, which was not reflected in the books of account, no source was declared by the assessee and in the absence of nature of source of cash being proved, the same is not assessable as income from business. In the circumstances, we uphold the order of the CIT(A) in including the additional income as deemed income u/s 69A of the Act and not allowing the benefit of the business losses determined against the said deemed income. The grounds of appeal raised by the assessee are dismissed

11. In the result appeal of the assessee is dismissed. Order Pronounced in the Open Court on this 30 t h day of April ,2010. Sd/- Sd/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 30 t h April, 2010 Copy to:

1. The Appellant

2. The Respondent

3. The CIT

4. The CIT(A)

5. The DR