BHARAT ASSOCIATES,BUNDI V. ACIT (OSD), BUNDI

ITA 1293/JPR/2024

AI Insights

Bharat Associates, a partnership firm, appealed against the order of the CIT(A), which had confirmed the additions and disallowances made by the Assessing Officer (AO) following a survey operation. The firm had declared an undisclosed income during the survey and claimed expenses which were disallowed by the AO. The main issues in the appeal included the legality of the additions made, the disallowance of remuneration under section 40(b), and the applicability of section 115BBE. The Tribunal's decision addressed these issues by interpreting the relevant sections of the Income Tax Act and examining the facts presented during the survey and subsequent assessments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 102532 (ITAT-JAIPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANITA RINES H; LD
• Assessee Lawyers: MAHENDRA GARGIEYA; DEVANG GARGIEYA; LD. ARS
• Keywords: Set aside; Business income; Charitable institution; CHAPTER IV
• Section: 143(3); 250; 139(1); 131; 28; 133A; 244A; 37(1); 40(b)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH “A”, JAIPUR BEFORE SHRI GAGAN GOYAL, ACCOUNTANT MEMBER AND SHRI NARINDER KUMAR, JUDICIAL MEMBER ITA No. 1293/JPR/2024 (A. Y. 2016-17) Bharat Associates, Gayatri Nagar, Bundi, Bundi 323001. PAN No. AAMFB 3655N ..... Appellant Vs. ACIT (OSD), Bundi …..Respondent Appellant by : Mr. Mahendra Gargieya, Adv., & Mr. Devang Gargieya, Adv., Ld. ARs Respondent by : Mrs. Anita Rinesh, JCIT, Ld. DR Date of hearing : 17/04/2025 Date of pronouncement : 17/04/2025 O R D E R PER GAGAN GOYAL, A.M: This appeal by the assessee is directed against the order of CIT(A), Jaipur - 04 dated 23.08.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal:- 1. The impugned additions and disallowances made in the order u/s. 143(3) dated 29.11.2016 are bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be deleted. 2 2. Rs. 62,28,947/- as undisclosed income: The Ld. CIT(A) erred in law as well as on the facts of the case in erroneously confirming the addition made by the AO of Rs. 62,28,947/-considering the entire gross receipt surrendered during survey as income, absolutely without allowing the cost incurred and against the very concept of income. The addition so made and confirmed by the CIT (A), being totally contrary to the provisions of law and facts of the case, kindly be deleted in full. 3. Rs. 18,90,381/- u/s. 40(b) disallowing remuneration: The Ld. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance/addition made by the AO of Rs.18,90,381/ u/s. 40(b) of the Income Tax Act, 1961. The disallowance/ addition so made and confirmed by the CIT (A), being totally contrary to the provisions of law and facts of the case, kindly be deleted in full. 4. The Ld. AO further erred in law as well as on the facts of the case in imposing tax, surcharge, cess etc. as per provision of S. 115BBE of the Act. The invoking of S.115BBE is contrary to the provisions of law, on facts and without jurisdiction. The tax liability so created and confirmed by the CIT (A), May kindly be deleted in full. 5. The Ld. AO further erred in law as well as on the facts of the case in charging interest u/s. 234B, 234C & 234D of the Act and as also in withdrawing interest u/s. 244A of the Act. The Appellant totally denies its liability of charging and withdrawal of any such interest. The interest so charged/withdrawn, being contrary to the provisions of law and facts, kindly be deleted in full. 6. The appellant prays your honour to add, amend or alter any of the grounds of the appeal on or before the date of hearing. 2. The brief facts of the case are that the assessee partnership firm filed its return of income on 30.09.2016 u/s. 139(1) of the Act declaring total income at Rs. 52,96,720/-. There was a survey conducted by the department in the case of the assessee on 09.03.2016 u/s. 133A of the Act. The assessee declared Rs. 97,21,000/- during the survey operations, but the assessee in its return declared an undisclosed income of Rs. 97,21,000/-and claimed expenses on account of construction amounting to Rs. 62,28,497/-. The case of the assessee was selected under the category of compulsory scrutiny as the assessee has declared the 3 income below the surrendered amount and falls in the category for compulsory scrutiny. The case of the assessee was assessed after adding back the amount of Rs. 62,28,497/-, disallowance of Rs. 18,90,381/- u/s. 40(b) of the Act and certain other disallowances u/s. 37(1) of the Act amounting to Rs. 15,620/-. The assessee being aggrieved with this order of the AO preferred the appeal before the Ld. CIT (A), who in turn confirmed the order of the AO and dismissed the appeal of the assessee. The assessee, being further aggrieved with the same, preferred the present appeal before us. 3. We have gone through the order of the AO, order of the Ld. CIT (A) and submissions of the assessee. It is observed that the assessee has taken as many as six grounds in total before us. Ground No. 1, 5 and 6 are not pressed, consequential in nature and general in nature respectively, hence dismissed. Ground Nos. 2, 3 and 4 are substantive in nature, which required our adjudication. Ground No. 2 relates to the income declared amounting to Rs. 97.21 Lacs during the survey operation and parallelly claimed expenses of Rs. 62,28,947/-. This act of the assessee is against the basic scheme of the survey operations as defined in section 133A of the Act. Further, the same is against the provisions of section 292C of the Act. Both the provisions reproduced herein for ready reference as under: Section - 133A, Income-tax Act, 1961 - FA, 2024 Power of survey. 133A. (1) Notwithstanding anything contained in any other provision of this Act, an income-tax authority may enter— 4 (a) any place within the limits of the area assigned to him, or (b) any place occupied by any person in respect of whom he exercises jurisdiction, or (c) any place in respect of which he is authorised for the purposes of this section by such income-tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place, at which a business or profession or an activity for charitable purpose is carried on, whether such place be the principal place or not of such business or profession or of such activity for charitable purpose, and require any proprietor, trustee, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession or such activity for charitable purpose— (i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place, (ii) to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and (iii) to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act. Explanation.—For the purposes of this sub-section, a place where a business or profession or activity for charitable purpose is carried on shall also include any other place, whether any business or profession or activity for charitable purpose is carried on therein or not, in which the person carrying on the business or profession or activity for charitable purpose states that any of his books of account or other documents or any part of his cash or stock or other valuable article or thing relating to his business or profession or activity for charitable purpose are or is kept. (2) An income-tax authority may enter any place of business or profession referred to in sub- section (1) only during the hours at which such place is open for the conduct of business or profession and, in the case of any other place, only after sunrise and before sunset. (2A) Without prejudice to the provisions of sub-section (1), an income-tax authority acting under this sub-section may for the purpose of verifying that tax has been deducted or collected at source in accordance with the provisions under sub-heading B of Chapter XVII or under sub- heading BB of Chapter XVII, as the case may be, enter, after sunrise and before sunset, any office, or any other place where business or profession is carried on, within the limits of the area assigned to him, or any place in respect of which he is authorised for the purposes of this section 5 by such income-tax authority who is assigned the area within which such place is situated, where books of account or documents are kept and require the deductor or the collector or any other person who may at that time and place be attending in any manner to such work,— (i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place, and (ii) to furnish such information as he may require in relation to such matter.] (3) An income-tax authority acting under this section may, — (i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies there from, (ia) impound and retain in his custody for such period as he thinks fit any books of account or other documents inspected by him: Provided that such income-tax authority shall not— (a) impound any books of account or other documents except after recording his reasons for so doing; or (b) retain in his custody any such books of account or other documents for a period exceeding fifteen days (exclusive of holidays) without obtaining the approval of the Principal Chief Commissioner or the Chief Commissioner or the Principal Director General or the Director General or the Principal Commissioner or the Commissioner or the Principal Director or the Director therefor, as the case may be, (ii) make an inventory of any cash, stock or other valuable article or thing checked or verified by him, (iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act: Provided that no action under clause (ia) or clause (ii) shall be taken by an income-tax authority acting under sub-section (2A). 6 (4) An income-tax authority acting under this section shall, on no account, remove or cause to be removed from the place wherein he has entered, any cash, stock or other valuable article or thing. (5) Where, having regard to the nature and scale of expenditure incurred by an assessee, in connection with any function, ceremony or event, the income-tax authority is of the opinion that it is necessary or expedient so to do, he may, at any time after such function, ceremony or event, require the assessee by whom such expenditure has been incurred or any person who, in the opinion of the income-tax authority, is likely to possess information as respects the expenditure incurred, to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act and may have the statements of the assessee or any other person recorded and any statement so recorded may thereafter be used in evidence in any proceeding under this Act. (6) If a person under this section is required to afford facility to the income-tax authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish any information or to have his statement recorded either refuses or evades to do so, the income-tax authority shall have all the powers undersub-section (1) of section 131 for enforcing compliance with the requirement made : Provided that no action under this section shall be taken by an income-tax authority without the approval of the Principal Director General or the Director General or the Principal Chief Commissioner or the Chief Commissioner. Explanation. —In this section, — (a) \"Income-tax authority\" means— (i) a Principal Commissioner or Commissioner, a Principal Director or Director, a Joint Commissioner or Joint Director, an Assistant Director or a Deputy Director or an Assessing Officer, or a Tax Recovery Officer; and (ii) includes an Inspector of Income-tax, for the purposes of clause (i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5), who is subordinate to the Principal Director General or the Director General or the Principal Chief Commissioner or the Chief Commissioner, as may be specified by the Board; (b) \"proceeding\" means any proceeding under this Act in respect of any year which may be pending on the date on which the powers under this section are exercised or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year. Section - 292C, Income-tax Act, 1961 - FA, 2024 7 Presumption as to assets, books of account, etc. 292C. (1) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132or survey under section 133A, it may, in any proceeding under this Act, be presumed— (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.] (2) Where any books of account, other documents or assets have been delivered to the requisitioning officer in accordance with the provisions of section 132A, then, the provisions of sub-section (1) shall apply as if such books of account, other documents or assets which had been taken into custody from the person referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) of section 132A, had been found in the possession or control of that person in the course of a search under section 132. 4. In view of the above provisions, there is no ambiguity left for either side, i.e. the assessee and the revenue. The provisions w.r.t. section 133A and 292C of the Act are beyond any scope of any ambiguity. As per the scheme of section 133A of the Act it authorizes revenue authorities on the one hand to examine the books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person, on the other hand there is a full opportunity to the assessee to come forward with a true picture of such documents, money, bullion, jewellery or other valuable article or thing belong or 8 belongs to such person. This includes production of evidence and claim of expenses and liabilities against such income and/or assets. 5. In the present matter before us, the amount of expenses or liability fastened to the income/assets surrendered is not there on record and there is no claim put forward by the assessee during the survey operations going on at his premises. Based on these facts, if one applies to the provisions of section 292C of the Act, it further clarifies the legal position and justifies the action of the AO and is further confirmed by Ld. CIT (A). In view of this, this disallowance of Rs. 62,28,947/- made by the AO is confirmed and Ground No. 2 raised by the assessee is dismissed. 6. Ground No. 3 pertains to disallowance u/s. 40(b) of the Act amounting to Rs. 18, 90,381/-. We have gone through the order of the AO and the Ld. CIT(A) on this issue and found to be erroneous as remuneration/salary/commission is to be worked out as prescribed in section 40(b) of the Act as under: (b) in the case of any firm assessable as such, — (i) any payment of salary, bonus, commission or remuneration, by whatever name called (hereinafter referred to as \"remuneration\") to any partner who is not a working partner; or (ii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is not authorised by, or is not in accordance with, the terms of the partnership deed; or (iii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is authorised by, and is in accordance with, the terms of the partnership deed, but which relates to any 9 period (falling prior to the date of such partnership deed) for which such payment was not authorised by, or is not in accordance with, any earlier partnership deed, so, however, that the period of authorization for such payment by any earlier partnership deed does not cover any period prior to the date of such earlier partnership deed; or (iv) any payment of interest to any partner which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of twelve per cent simple interest per annum; or (v) any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder :— (a) on the first Rs. 3,00,000 of the book-profit or in case of a loss Rs. 1,50,000 or at the rate of 90 per cent of the b whichever is more; (b) on the balance of the book-profit at the rate of 60 per cent: Provided that in relation to any payment under this clause to the partner during the previous year relevant to the assessment year commencing on the 1st day of April 1993, the terms of the partnership deed may, at any time during the said previous year, provide for such payment. Explanation 1. —Where an individual is a partner in a firm on behalf, or for the benefit, of any other person (such partner and the other person being hereinafter referred to as \"partner in a representative capacity\" and \"person so represented\", respectively), — (i) interest paid by the firm to such individual otherwise than as partner in a representative capacity, shall not be taken into account for the purposes of this clause; (ii) Interest paid by the firm to such individual as partner in a representative capacity and interest paid by the firm to the person so represented shall be taken into account for the purposes of this clause. Explanation 2. —Where an individual is a partner in a firm otherwise than as partner in a representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person. 10 Explanation 3.—For the purposes of this clause, \"book-profit\" means the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit. Explanation 4. —For the purposes of this clause, \"working partner\" means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner;] 7. In view of explanation 3 above to the section 40(b) of the Act, remuneration is to be calculated based on book profit as calculated in the manner laid down in chapter IV D, i.e. business profit as declared by the assessee and further addition of disallowances/additions under the head business made. In this case as additions of Rs.62,28,947/- has already been confirmed (supra) and ad- hoc disallowances as discussed in the assessment order amounting to Rs. 15,620/- is to be added back for the purposes of working of book profit for remuneration allowability. In view of the above discussion ground no. 3 taken by the assessee is allowed and the AO is directed to allow the claim of the assessee of remuneration after adding back the amounts discussed (supra) in this para of the order. 8. Ground No. 4 pertains to applicability of section 115BBE of the Act. As there is a consistent view of this Bench that income declared during the survey is to be taxed u/s. 28 of the Act and not chargeable to tax u/s. 68/69A/69B/69C etc., consequentially there is no application of section 115BBE of the Act can be made in this case and further clarified that any addition confirmed (supra) is to be taxed as business income u/s. 28 of the Act. In view of this ground no. 4 taken by the 11 assessee is allowed and application of section 115BBE of the Act by the AO is set aside. Order is pronounced in the open court on the 17th day of April 2025. Sd/- Sd/- (NARINDER KUMAR) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Jaipur, िदनांक/Dated: 17/04/20252 Copy of the Order forwarded to: 1. अपीलाथ /The Appellant , 2. \u000eितवादी/ The Respondent. 3. आयकर आयु\u0015 CIT 4. िवभागीय \u000eितिनिध, आय.अपी.अिध., Sr.DR., ITAT, 5. गाड फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar) ITAT, Jaipur Details Date Initials Designation 1 Draft dictated on PC on 17.04.2025 Sr.PS/PS 2 Draft Placed before author 17.04.2025 Sr.PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member JM/AM 5. Approved Draft comes to the Sr.PS/PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS/PS 7. File sent to the Bench Clerk Sr.PS/PS 8 Date on which the file goes to the Head clerk 9 Date of Dispatch of order "