M/s. All well & Company, Pune V. Assistant Commissioner of Income tax, Pune

ITA 1005/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8800 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 21-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Business income; Principle of natural justice; Question of law; CHAPTER IV
• Section: 143(3); 40(b); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI R. S. SYAL, VP AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NO.1005/PUN/2017 / ASSESSMENT YEAR : 2009-10 M/S. ALL WELL & COMPANY, 24-D, M.G. ROAD, LONAWALLA, DIST. PUNE-410401. PAN: ABBFS8039F .. /APPLICANT / V/S. ACIT, CIRCLE-8, PUNE. .. / RESPONDENT ASSESSEE BY : SHRI PRAMOD SHINGATE REVENUE BY : SHRI S. P. WALIMBE / DATE OF HEARING : 09.07.2020 / DATE OF PRONOUNCEMENT : 24.07.2020 / ORDER PER PARTHA SARATHI CHAUDHURY, JM: THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE LD. CIT(APPEAL)-9, PUNE DATED 10.02.2017 FOR THE ASSESSMENT YEAR 2009-10 AS PER THE FOLLOWING GROUNDS OF APPEAL ON RECORD: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN TREATING A SUM OF RS.50,00,000/- AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME BY REJECTING APPELLANT CONTENTION THAT, A SUM OF RS.50,00,000/- DECLARED IN COURSE OF SURVEY ON ACCOUNT OF EXCESS STOCK FOUND, IS INCOME FROM BUSINESS AND NOT INCOME FROM OTHER SOURCES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN TREATING THE DECLARED AMOUNT OF EXCESS STOCK OF RS.50,00,000/- AS INCOME FROM OTHER SOURCES THEREBY REDUCING THE BOOK PROFIT FROM RS.58,88,728/- TO RS.9,70,808/- AND FURTHER ERRED IN RESTRICTING THE REMUNERATION TO PARTNERS AT RS.4,40,823/- INSTEAD OF RS.24,07,991/- AS CLAIMED BY THE APPELLANT. APPELLANT PRAYS FOR ENHANCED REMUNERATION ON THE AMOUNT OF EXCESS STOCK DECLARED IN THE SURVEY ACTION. 2 ITA NO.1005/PUN/2017 THE APPELLANT CRAVES FOR TO LEAVE, ADD, ALTER, MODIFY, DELETE ABOVE GROUND OF APPEAL BEFORE OR AT THE TIME HEARING, IN THE INTEREST OF NATURAL JUSTICE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF HARDWARE AND PAINTS. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.34,79,240/-. A SURVEY ACTION WAS CARRIED OUT ON 04.02.2009. DURING THE SURVEY ACTION, EXCESS UNACCOUNTED STOCK WAS FOUND AND ON THE BASIS OF WHICH THE ASSESSEE OFFERED AN ADDITIONAL INCOME OF RS.50,00,000/- OVER AND ABOVE THE BOOK RESULTS OF THE FIRM FOR ASSESSMENT YEAR 2009-10. IN THE RETURN, THE ASSESSEE DISCLOSED THE ADDITIONAL INCOME OF RS.50,00,000/- TREATING THE SAME AS BUSINESS INCOME AND AS PART OF BOOK RESULTS AND ACCORDINGLY CLAIMED PARTNERS REMUNERATION ON THE SAME. THE ASSESSING OFFICER DENIED TO ACCEPT IT AS BUSINESS INCOME AS THE ASSESSEE FAILED TO EXPLAIN THE SOURCE OF INVESTMENT IN UNDISCLOSED STOCK WHICH WAS OFFERED AS ADDITIONAL INCOME AND ACCORDINGLY EXCLUDED FROM THE BOOK PROFITS OF THE FIRM IN VIEW OF THE PROVISIONS OF EXPLANATION 3 TO SECTION 40(B) OF THE ACT AND DISALLOWED THE REMUNERATION TO THE PARTNERS ON THE SAME. THUS, THE ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED AT ASSESSED INCOME OF RS.54,46,400/- BY DISALLOWING PARTNERS REMUNERATION ON THE ADDITIONAL INCOME OF RS.50,00,000/-. 3. DURING FIRST APPELLATE PROCEEDINGS, THE LD. CIT(APPEAL), AS PER DISCUSSION GIVEN IN PARA 5 ONWARDS OF HIS ORDER, CONFIRMED THE ADDITION AS MADE BY THE ASSESSING OFFICER AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE PERUSED THE CASE RECORDS AND HEARD THE RIVAL CONTENTIONS, ANALYZED THE FACTS AND CIRCUMSTANCES OF THIS CASE AND CONSIDERED THE JUDICIAL PRONOUNCEMENTS PLACED ON RECORD BEFORE US. IN THIS CASE, THE GRIEVANCE OF THE 3 ITA NO.1005/PUN/2017 ASSESSEE IS WITH REGARD TO THE TREATMENT OF A SUM OF RS.50,00,000/- AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME WHEREIN IT WAS CONTENDED BY THE ASSESSEE THAT A SUM OF RS.50,00,000/- DECLARED IN THE COURSE OF SURVEY ON ACCOUNT OF EXCESS STOCK FOUND AS INCOME FROM BUSINESS AND NOT INCOME FROM OTHER SOURCES. 5. THE OTHER GRIEVANCE OF THE ASSESSEE WHICH IS INTER-CONNECTED WITH THE FIRST ISSUE THAT WHILE TREATING THE EXCESS STOCK OF RS.50,00,000/- AS INCOME FROM OTHER SOURCES THEREBY REDUCING THE BOOK PROFITS FROM RS.58,88,728/- TO RS.9,70,808/-. FURTHER, THE REVENUE RESTRICTED THE REMUNERATION TO PARTNERS AT RS.4,40,823/- INSTEAD OF RS.24,07,991/-. THE ASSESSING OFFICER HAS DEALT WITH THIS ISSUE FROM PARA 3 OF HIS ORDER AND GIVEN FINDING AT PARA 6 AND 7 OF HIS ORDER MAKING THE AFORESAID ADDITION. THE LD. CIT(A) HAS REITERATED THE FINDINGS OF THE ASSESSING OFFICER AND AS PER DISCUSSION GIVEN IN PARA 5.2 ONWARDS OF HIS ORDER, HAS DECIDED THIS ISSUE AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 6. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE THROUGH VIDEO CONFERENCE SUBMITTED THAT THIS ISSUE IS ALREADY DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT, PUNE BENCH IN THE CASE OF SHRI RADHESHAM TOTARAM NARAYANI VS. ACIT VIDE ITA NO.1491/PUN/2015 FOR THE ASSESSMENT YEAR 2010-11 DATED 21.03.2018 AND IN THE CASE OF PHARANDE PROMOTERS & BUILDERS VIDE ITA NO.1754/PUN/2016 AND ITA NO.2195/PUN/2016 FOR THE ASSESSMENT YEAR 2011-12 DATED 25.06.2019 AND ALSO THE ORDER OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. BAGDI ENTERPRISES VS. ITO IN INCOME TAX APPEAL NO.80 OF 2003 DATED 12.06.2017. THESE CASES HAVE BEEN PLACED IN THE PAPER BOOK FILED BEFORE US. 4 ITA NO.1005/PUN/2017 7. IN THE TRIBUNALS ORDER PLACED ON RECORD IN ITA NO.2195/PUN/2016 (SUPRA) APPEAL BY THE REVENUE, THE PUNE BENCH OF THE TRIBUNAL OBSERVED AS FOLLOWS :- 13. GROUND NO.1 RELATES TO THE DELETION OF ADDITION OF RS.85,70,665/- COMPUTED ON THE BASIS OF SURVEY DECLARATION. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER MADE ADDITION OF RS.85,70,665/- ON ACCOUNT OF SURVEY DECLARATION. THE ASSESSEE DISCLOSED PROFITS OF RS.6,15,88,919/- FOR THE YEAR UNDER CONSIDERATION. THE SAID AMOUNT WAS QUANTIFIED ON THE DATE OF SURVEY I.E. 17.02.2011. AS PER THE ASSESSEE, THE SAID OFFER OF PROFITS IS BASED ON THE FINALIZED ACCOUNTS AS ON 31.03.2011. AS PER THE ASSESSEE, RS. 5,89,94,404/- IS THE RIGHT AMOUNT OF PROFITS AFTER CONSIDERING THE VARIOUS DEDUCTIONS AS GIVEN IN PARA 5.3 OF THE ORDER OF THE CIT(A). THE CIT(A) CONSIDERED THE ABOVE EXPLANATION OF THE ASSESSEE AND CONSIDERED THE FACTS THAT THE OFFER OF ADDITIONAL INCOME WAS BASED ON THE ACCOUNTS FINALIZED AS ON 17.02.2011 UNLIKE THE RETURN FINALIZED BASED ON FINALIZED ACCOUNT ON 31.03.2011. THE 42 DAYS GAP WILL CERTAINLY ALTER THE PROFITS FIGURES. THE CIT(A) CONSIDERED THE FINALIZED ACCOUNTS OF THE ASSESSEE AND ACCEPTED THE RECONCILIATION FURNISHED BY THE ASSESSEE. HE ALSO HELD, IN THE ABSENCE OF INCRIMINATING MATERIAL, THE OFFER OF INCOME MADE BY THE ASSESSEE DURING THE SURVEY ACTION IS NOT SUSTAINABLE LEGALLY ON THE MINOR DIFFERENCES OFFERED BY THE ASSESSEE. ACCORDINGLY, RELYING ON THE HONBLE SUPREME COURT JUDGEMENT IN THE CASE OF PULLANGODE RUBBER PRODUCE CO. LTD. [(1973) 91 ITR 18 (SC)], THE CIT(A) HELD AS UNDER :- 5.3 .......... IT IS OBSERVED BY THE HONBLE APEX COURT IN THE CASE OF PULLANGODE RUBBER AND CO. LTD. THAT ADMISSION IS AN EXTREMELY IMPORTANCE PIECE OF EVIDENCE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIVE. IT IS OPEN TO THE ASSESSEE WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT AND THE ASSESSEE SHOULD BE GIVEN A PROPER OPPORTUNITY TO SHOW AS TO HOW AND IN WHAT CIRCUMSTANCES THAT ADMISSION WAS MADE AND THAT THE CORRECT STATE OF FACTS ARE DIFFERENT THAN THE ADMISSION. THE SIMILAR VIEWS HAVE BEEN TAKEN BY THE OTHER HONBLE COURT THAT THE STATEMENT. THUS, CONSIDERING THE TOTALITY OF THE FACTS AND POSITION OF THE LAW AND EXPLAINED BY THE VARIOUS HONBLE COURTS, THE AO IS DIRECTED TO DELETE THE ADDITION. THUS, APPEAL ON THIS GROUND IS ALLOWED. 14. ON HEARING BOTH THE SIDES, WE FIND THE REVENUE HAS NOT MADE OUT THE CASE THAT THE ORDER OF THE CIT(A) ON THIS ISSUE REQUIRES ANY AMENDMENT. WE FIND THAT THE RETURN OF INCOME FILED ON THE BASIS OF THE FINAL ACCOUNTS OF ASSESSEE FOR THE YEAR UNDER CONSIDERATION. THEREFORE, THE RECONCILIATION FURNISHED BY THE ASSESSEE IS REQUIRED TO BE CONSIDERED BY THE ASSESSING OFFICER WHILE MAKING THE ADDITIONS. THE ASSESSING OFFICER FAILED TO FIND ANY MISTAKES IN SUCH RECONCILIATION FURNISHED BY THE ASSESSEE. THEREFORE, WE ARE OF THE OPINION, THE FINDING OF THE CIT(A), GIVEN IN PARA 5.3 OF THE APPELLATE ORDER, IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 8. SIMILARLY, WITH REGARD TO THE DISALLOWANCE OF PARTNERS REMUNERATION IT WAS DECIDED AS FOLLOWS :- 5 ITA NO.1005/PUN/2017 15. GROUND NO.2 RELATES TO THE DELETION OF ADDITION OF RS.10,59,997/- ON ACCOUNT OF DISALLOWANCE OF PARTNERS REMUNERATION . THE CIT(A) DELETED THE SAID ADDITION AS PER THE DISCUSSION GIVEN IN PARA 6.3 OF HIS ORDER AND THE SAME ARE EXTRACTED HEREUNDER :- 6.3 I HAVE CONSIDERED CAREFULLY THE FACTS OF THE CASE AND SUBMISSIONS OF THE APPELLANT ON THE ISSUE. HERE QUESTION COME UP FOR DECISION IS WHETHER FOR THE PURPOSE OF COMPUTATION OF ALLOWABLE REMUNERATION TO THE PARTNERS, THE BOOK PROFIT COMPRISES THE ENTIRE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT OR ONLY PROFITS AND GAINS IN BUSINESS ASSESSED UNDER CHAPTER IVD OF THE I.T. ACT. THE HONBLE MUMBAI ITAT IN THE CASE OF SURESH A. SHROFF AND COMPANY HAS HELD THAT THE CHAPTER IVD NOWHERE PROVIDES THAT NET PROFIT SHOULD BE THE ONLY INCOME FROM BUSINESS AND PROFESSION ALONE AND NOT FROM OTHER SOURCES. SECTION 29 PROVIDES HOW THE INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION SHOULD BE COMPUTED AND THIS HAS TO BE DONE AS PROVIDED UNDER SECTION 30 TO 43D. THUS, FOR THE PURPOSE OF SECTION 40(B)(V) R.W. EXPLANATION THERE CANNOT BE SEPARATE METHOD OF ACCOUNTING FOR ASCERTAINING NET PROFIT AND/ OR BOOK PROFIT. IN OTHER WORDS, ACCORDING TO THE SAID EXPLANATION BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT INCLUDING INCOME FROM OTHER SOURCES AND NOT ONLY THE PROFIT COMPUTED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. IN THE INSTANT CASE THE AO HAS DISALLOWED THE REMUNERATION OF THE PARTNERS ON UNACCOUNTED CASH RECEIVED IN RESPECT OF THE THREE UNITS OF RS.28,00,000/-. THIS INCOME IS ARISING TO THE ASSESSEE FROM THE BUSINESS OF THE ASSESSEE ITSELF. IN VIEW OF THE FACTS OF THE CASE AND JUDICIAL PRONOUNCEMENT OF THE HONBLE COURTS AS DISCUSSED ABOVE, THE AO IS DIRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF REMUNERATION TO PARTNERS. THE APPEAL ON THIS GROUND IS ALLOWED. 16. CONSIDERING THE ABOVE LEGAL PROPOSITION AND THE ELIGIBLE PAYMENT OF REMUNERATION PAID TO THE PARTNERS, WE ARE OF THE OPINION, THE CIT(A) RIGHTLY RELIED ON THE BINDING ORDER OF THE TRIBUNAL (SUPRA). THEREFORE, WE ARE OF THE OPINION, THE ORDER OF THE CIT(A) IS FAIR AND REASONABLE ON THIS ISSUE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 9. THE HONBLE BOMBAY HIGH COURT ON THIS ISSUE OF SUBSTANTIAL QUESTION OF LAW RAISED BEFORE THE HONBLE HIGH COURT HELD AS FOLLOWS :- (A) WHETHER THE CLAIM UNDER SECTION 40(B) OF THE I.T. ACT IS ALLOWABLE ON AMOUNT SURRENDERED IN THE COURSE OF SURVEY U/S. 133-A OF I.T. ACT, PARTICULARLY WHEN THE SURRENDER AMOUNT WAS SHOWN AS BUSINESS INCOME AND ASSESSED AS BUSINESS INCOME? 10. FURTHER, THE HONBLE BOMBAY HIGH COURT HELD AS FOLLOWS :- 9. IT IS UNDISPUTED THAT THE ASSESSING OFFICER HAS BROUGHT TO TAX THE AMOUNT OF RS.1,50,000/- SHOWN AS OTHER INCOME IN PROFIT AND LOSS ACCOUNT AS INCOME FROM BUSINESS UNDER SECTION 28 OF THE ACT. THE ASSESSMENT ORDER DOES NOT CLASSIFY THE SAME AS INCOME FROM OTHER SOURCES OR UNDER ANY OTHER HEAD. ONCE THE AFORESAID POSITION IS ACCEPTED, THEN FOR THE PURPOSE OF COMPUTING BOOK PROFIT AS DEFINED IN SECTION 40(B) OF THE ACT, THE OTHER INCOME OF RS.1,50,000/- HAS ALSO TO BE CONSIDERED TO BE PART OF INCOME FROM BUSINESS ARRIVED AT IN ACCORDANCE WITH THE 6 ITA NO.1005/PUN/2017 CHAPTER IV-D OF THE ACT. IT IS NOT OPEN TO THE REVENUE TO CONTEND THAT THE AMOUNT OF RS.1,50,000/- IS PART OF BUSINESS INCOME WHILE COMPUTING THE TAX PAYABLE BUT NOT SO FOR THE PURPOSES OF SECTION 40(B) OF THE ACT. THE CHARACTER OF THE INCOME DOES NOT CHANGE DEPENDENT UPON THE SECTION TO BE APPLIED. THIS ISSUE HAS NOT BEEN EXAMINED AT ALL BY THE AUTHORITIES UNDER THE ACT. IT GOES TO THE ROOT OF THE DISPUTE. 10. THEREFORE, IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, THE SUBSTANTIAL QUESTION OF LAW AT (A) ABOVE IS ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF APPELLANT/ASSESSEE AND AGAINST THE REVENUE. 11. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF THE TRIBUNAL (SUPRA) AND THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT (SUPRA), WE ALLOW THE GROUNDS OF APPEAL OF THE ASSESSEE. ACCORDINGLY, ALL THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 24 TH DAY OF JULY, 2020. SD/- SD/- ( R. S. SYAL ) ( PARTHA SARATHI CHAUDHURY ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 24 TH JULY, 2020 SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-9, PUNE. 4. THE PR. CIT-5, PUNE. 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.