Gujarat Infrapipes Pvt.Ltd., Baroda V. The Income tax Officer, Ward-1(3), Baroda

ITA 1036/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1840 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 14-09-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 09-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Unexplained expenditure; Business income; Depreciation; Deemed to accrue or arise in india; Surrender of tenancy right; Capital Gains
• Section: 69C; 43B; 133A; 115JB; 143(1); 69B; 143(2); 139(1); 131; 56; 11

Judgement Text

IN THE INCOME_TAX APPELLATE TRIBUNAL D BENCH, AH MEDABAD BEFORE SHRI R.V.EASWAR, VICE PRESIDENT AND SHRI A.N.PAHUJA, ACCOUNTANT MEMBER ITA NO. 1036/AHD/2007 (ASSESSMENT YEAR : 2003-04) GUJARAT INFRAPIPES PVT. LTD. 89, G.I.D.C. P.O. RAMANGAMDI, BARODA. [PAN:AABCG07955] VS. I.T.O.WARD-1(3), BARODA. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI TUSHAR P. HEMANI, A.R. REVENUE BY : SHRI C.K.MISHRA, D.R. ( )/ ORDER A.N.PAHUJA : THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATE D 13.12.2006 OF LD. CIT(A)-I, BARODA , RAISES THE FO LLOWING GROUNDS: 1. THE LEARNED INCOME TAX OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE APPELLANT'S CASE IN ASSESSING THE TOTAL INCOME OF THE APPELLANT AT RS.L 4,35,0007- INSTEAD OF RS. NIL RETURNED BY THE APPELLANT. 2. THE LEARNED INCOME TAX OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE APPELLANT'S CASE IN DISALLOWING RS. 1,41,716/- BEING CONTRIBUTION TO PF. U/S. 43-B OF THE ACT. 3. THE LEARNED INCOME TAX OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE APPELLANT'S CASE IN TAXING DISCREPANCY IN THE S TOCK AS 'DEEMED INCOME' U/S.69C OF THE ACT. 4. THE LEARNED INCOME TAX OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE APPELLANT'S CASE IN NOT ALLOWING SET OFF OF DEP RECIATION FOR THE CURRENT YEAR AS WELL AS BROUGHT FORWARD. 6*. THE APPELLANT CRAVES TO LEAVE ADD/ALTER OR AMEN D THE GROUNDS HEREIN ABOVE TAKEN. * INCORRECTLY NUMBERED, THEREBEING NO GROUND NO. 5 . 2. AT THE OUTSET, LD. A.R. ON BEHALF OF THE ASSESSE E DID NOT PRESS GROUND NO.1 IN THE APPEAL, ACCORDINGLY THIS GROUND IS DISMISSED. 3. GROUND NO.2 RELATES TO DISALLOWANCE OF RS.1,41,7 16/- ON ACCOUNT OF BELATED EMPLOYEES CONTRIBUTION TOWARDS PF. FACTS, IN BRIEF , AS PER RELEVANT ORDERS ARE THAT ITA NO. 1036/AHD/2007 2 RETURN DECLARING NIL INCOME UNDER THE NORMAL PROVIS IONS AND BOOK PROFIT OF RS.3,64,494/- U/S 115JB OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) ACT, FILED ON 27.11.2003 BY THE ASSESSEE, MAN UFACTURING PIPE FITTINGS, AFTER BEING PROCESSED ON 18.3.2004 U/S 143(1) OF THE ACT WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 27.7. 2004. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE DID NOT DEPOSIT EMPLOYER AND EMPLOYEES CO NTRIBUTION TOWARDS PF FOR THE MONTHS OF APRIL, MAY, JULY, SEPTEMBER TO NOVEMBER, 2002 AND FEBRUARY, MARCH 2003 WITHIN THE TIME STIPULATED UNDER THE RELEVANT ENACTMENT . ACCORDINGLY, THE AO WHILE RELYING UPON THE DECISION IN THE CASE OF CIT VS. SOUTH INDIA CORPORATION LTD. (2000) 242 ITR 114 (KER) AND HITECH (INDIA) PVT. LT D. 227 ITR 446 (AP), DISALLOWED THE CLAIM FOR EMPLOYERS CONTRIBUTION OF RS.70,858/ - U/S 43B OF THE ACT AND ADDED AN AMOUNT OF RS.70,858/- ON ACCOUNT OF EMPLOYEES CONT RIBUTION IN TERMS OF PROVISIONS OF SEC. 36(1)(VA) READ WITH SEC. 2(24)(X) OF THE AC T. 4. ON APPEAL, THE LD. CIT(A) ALLOWED THE EMPLOYERS CONTRIBUTION PAID BEFORE THE DUE DATE OF FILING OF RETURN U/S 43B OF THE ACT REL YING, INTER ALIA, ON THE DECISION OF THE I.T.A.T. IN THE CASE OF ADDL. CIT V. VESTAS RRB IND IA LTD., 92 ITD 1 (DEL.) . AS REGARDS EMPLOYEES CONTRIBUTION, THE LD. CIT(A) UPH ELD THE DISALLOWANCE IN TERMS OF SEC. 36(1)(VA) READ WITH SEC. 2(24)(X) OF THE ACT HOLDING THAT THE DECISIONS RELIED UPON BY THE ASSESSEE WERE NOT APPLICABLE. 5. THE ASSESSEE IS NOW IN APPEAL AGAINST THE AFORES AID FINDING OF THE LD. CIT(A). AT THE OUTSET, BOTH THE PARTIES AGREED THAT THE ISS UE IS SQUARELY COVERED BY THE DECISION DATED 02.3.2009 OF THE I.T.A.T. IN THE CA SE OF GUJARAT CONTAINERS LTD. V. ACIT IN ITA NO.2609/AHD/2008 FOR THE ASSESSMENT YEA R 2004-05. 6. WE HAVE HEARD BOTH THE SIDES AND HAVE GONE THROU GH THE FACTS OF THE CASE. WE FIND THAT I.T.A.T. IN THEIR AFORESAID DECISION D ATED 02.3.2009 WHILE RELYING UPON UPON THE DECISION IN THE CASE OF CIT V. P.M.ELECTRO NICS LTD., 220 ITR635 (DELHI), ALLOWED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS: IN VIEW OF THE FOREGOING AND ESPECIALLY WHEN IT HAS NOT BEEN DISPUTED BY THE REVENUE BEFORE US THAT THE AFORESAID CONTRIBUTIONS TOWARDS PF & ESI HAVE BEEN ITA NO. 1036/AHD/2007 3 PAID BEFORE THE DUE DATE OF FILING OF RETURN U.S 13 9(1) OF THE ACT, IN THE LIGHT OF VIEW TAKEN BY THE HONBLE DELHI HIGH COURT IN THE CASE O F CIT VS. P.M.ELECTRONICS,220 CTR(DEL) 635 AND THE DECISION OF HONBLE APEX COURT IN THE CASE OF VINAY CEMENT LTD.(SUPRA), WE HAVE NO HESITATION IN HOLDING THAT THE EMPLOYEES CONTRIBUTION TOWARDS PF, HAVING BEEN MADE BY THE ASSESSEE WITHIN THE DUE DATE OF FILING OF THE RETURN FOR THE YEAR UNDER CONSIDERATION, THERE IS N O GROUND FOR DISALLOWING THE SAME. THUS, GROUND NO. 2 RAISED IN THE APPEAL IS ALLOWE D. 6.1 IN VIEW OF AFORESAID FINDINGS OF THE I.T.A. T. WE HAVE NO HESITATION IN HOLDING THAT THE EMPLOYEES CONTRIBUTION TOWARDS PF HAVING BEEN MADE BY THE ASSESSEE WITHIN THE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE ACT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THERE IS NO GROUND FOR DISALLO WING THE SAME. THEREFORE, GROUND NO.2 IN THE APPEAL IS ALLOWED. 7. NEXT GROUND NOS. 3 AND 4 RELATE TO ASSESSMENT OF INCOME OF RS. 14,35,000/- SURRENDERED BY THE ASSESSEE DURING THE COURSE OF SU RVEY UNDER THE HEAD INCOME FROM OTHER SOURCES AND THE CLAIM FOR SET OFF OF DE PRECIATION FOR THE CURRENT YEAR AND EARLIER YEAR AGAINST THE SAID INCOME. THE ASSESSING OFFICER NOTICED THAT IN THIS CASE A SURVEY U/S 133A OF THE ACT WAS CONDUCTED ON 18.2. 2003 IN THE PREMISES OF THE ASSESSEE. DURING THE SURVEY, ON PHYSICAL VERIFICATI ON OF STOCK COMPRISING RAW- MATERIAL, SEMI FINISHED GOODS, FINISHED GOODS, WORK -IN-PROGRESS AND CONSUMABLE AND NON-CONSUMABLE ITEMS VIS--VIS STOCK AS PER BOO KS, THE AO NOTED THE DIFFERENCE OF 31751 KGS.. IN HIS STATEMENT U/S 131 OF THE ACT, SHRI SHANTILAL D. MEHTA, MANAGING DIRECTOR OF THE COMPANY REPLIED TO QUESTION NOS. 5 AND 6 AS UNDER: '.5. AS PER THE PHYSICAL VERIFICATION OF THE STO CK TAKEN DURING SURVEY ACTION U/S.133A AT THE OFFICE CUM FACTORY PREMISES OF YOUR COMPANY WITH THE HELP OF EMPLOYEES OF THE COMPANY, THE QUANTITY OF S TOCK OF RAW MATERIAL. W.L.P & FINISHED GOODS OF 146848 KGS. WERE FOUND. I T IS EMPHASIZED THAT WE DO NOT MAINTAIN STOCK REGISTER ON DAY-TO-DAY BASI S, BUT THE BASIS OF QUANTITY OF PHYSICAL PRODUCTS SOLD, WORK IN PROGRESS AND THE RAW MATERIAL AS RECONCILED BY YOU ON THE BASIS OF OPENING STOCK AND THE PURCHA SES/SELLS MADE DURING THE YEAR, THE QUANTIFY OF STOCK WORKED OUT TO 149704 KG S. PLEASE CLARIFY AS TO HOW DO YOU MAINTAIN RECORDS OF MATERIAL PURCHASED, CONS UMED, ETC. A. AS ALREADY STATED, WE DO NOT MAINTAIN STOCK RE GISTER ON DAY-TO-DAY BASIS FOR PRODUCTION. IT IS ALSO NOT POSSIBLE TO MA INTAIN THE DAY TO DAY RECORDS OF EACH & EVERY ITEM BECAUSE IT IS A SMALL SCALE IN DUSTRY HAVING THOUSANDS OF SIZES/ITEM AND MOST OF THE WORKERS DOING MANUAL WOR K. OVER & ABOVE, WE ARE PURCHASING RAW MATERIAL IN DIFFERENT CATEGORIES I.E . IN KGS. METERS & IN PIECES. HOWEVER, KINDLY NOTE THAT THE WORKING OF STOCK WHIC H WE HAVE SUBMITTED TO ITA NO. 1036/AHD/2007 4 YOU EXCLUDES THE QUANTITY OF FINISHED PRODUCTS SOLD & LYING IN THE FACTORY PREMISES. THE ELEMENT OF WASTAGE/ SHORTAGE ON ACCOU NT OF BURNING LOSS, WEAR & TEAR & OTHER SMALL SCRAP, WHICH REMAINS UNUSABLE RANGES FROM 7 TO 10 PERCENT. IF THAT ELEMENT IS CONSIDERED, THE CLOSING STOCK OF THE COMPANY AS ON THE DATE OF THE SURVEY CAN PROVIDE YOU THE CORRECT PICTURE. Q.6 IF THAT ELEMENT OF WASTAGE / SHORTAGE OF 8 PER CENT APPROXIMATELY IS CONSIDERED, THEN YOUR PHYSICAL STOCK WOULD BE WORKE D OUT TO 115097 KGS. (149704 KGS LESS 34607KGS, BEING 8% WASTAGE/ SHORTA GE AS ABOVE.) WHILE THE PHYSICAL STOCK AS INVENTORISED BY SURVEY TEAM I S 146848 KGS. THUS, THERE IS A DIFFERENCE OF 31,751 KGS. PLEASE EXPLAIN THE D ISCREPANCY. A.6 YES. 1 FULLY AGREE WITH THE ABOVE DIFFERENCE O F 31751 KGS. AS DISCUSSED ABOVE WHICH I VOLUNTARILY OFFER FOR TAX A S ADDITIONAL INCOME OVER & ABOVE, THE INCOME WHICH THE COMPANY HAS EARNED TILL THE DATE OF SURVEY. THE ADDITIONAL INCOME ON ACCOUNT OF ABOVE STOCK WORKS O UT TO RS.14,35,000/- TAKING INTO ACCOUNT THE AVERAGE PURCHASE PRICE OF T HE RAW MATERIAL AT THE RATE OF APPROX.RLS.45/- PER K.G. THIS INCOME I AM OFFERI NG FOR THE TAX AS ADDITIONAL INCOME WHICH WAS EARNED DURING THE YEAR. I WOULD LI KE TO BRING TO YOUR KIND NOTICE THAT THE COMPANY IS ALREADY HAVING BROUGHT F ORWARD LOSSES OF EARLIER YEARS. THE SAME SHOULD BE ALLOWED TO BE SET OFF AGA INST THE INCOME EARNED DURING THE YEAR.' 7.1 HOWEVER, IN THEIR RETURN, THE ASSESSEE DID NOT OFFER THE AFORESAID UNACCOUNTED STOCK OF RS. 14,35,000/-. TO A QUERY BY THE AO, THE ASSESSEE EXPLAINED THAT STOCK AS ON THE DATE OF SURVEY WAS W ORKED OUT ON ESTIMATED BASIS AND THE EXTRA TURNOVER IN THE LAST PHASE OF THE A CCOUNTING YEAR REPRESENTED THE SALE OF EXCESS STOCK FOUND AT THE TIME OF SURVEY. ACCORD INGLY, WHILE POINTING OUT THAT PERCENTAGE OF CONSUMPTION OF MATERIAL TO SALES WAS 43.28% FOR THE PERIOD 1.4.2002 TO 18.2.2003 AND 48.92% FOR THE PERIOD 19.2.2003 TO 31.3.2003 AND 44.51% OVER THE PERIOD 1..2002 TO 31.3.2003, THE ASSESSEE SUBMITTED THAT THE EXCESS STOCK AT THE TIME OF SURVEY WAS SOLD IN THE SUBSEQUENT PART OF T HE ACCOUNTING YEAR. SINCE THE ENTIRE TURNOVER HAD BEEN OFFERED FOR TAX, THE EXCES S STOCK HAD BEEN CONVERTED IN TO INCOME AND OFFERED FOR TAXATION, THE ASSESSEE ARGUE D. IT WAS FURTHER POINTED OUT THAT THE ADDITION OF RS.14,35,000/- WAS AGREED TO BUY ME NTAL PEACE. MOREOVER, THE COMPLETE QUANTITATIVE TALLY OF STOCK WITH THE EXCIS E RECORD FOR THE YEAR UNDER CONSIDERATION, REFLECTED THAT ACCOUNTS WERE CORREC T, THE ASSESSEE PLEADED. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THESE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE CREDITED THE VALUE OF STOCK IN THE MANUFACTURING AND ITA NO. 1036/AHD/2007 5 TRADING ACCOUNT AND SIMULTANEOUSLY DEBITED THE SAME THEREBY NULLIFYING THE EFFECT THEREON. WHILE REPRODUCING THE MANUFACTURING AND TR ADING ACCOUNT FOR THE PERIOD 1.4.2002 TO 18.2.2003 AND 19.2.2003 TO 31.3.2003, T HE ASSESSING OFFICER CONCLUDED THAT SINCE THE MANAGING DIRECTOR OF THE COMPANY VOL UNTARILY OFFERED THE VALUE OF CLOSING STOCK OF 31751 KG., OVER AND ABOVE, THE INC OME EARNED DURING THE YEAR, SUCH INCOME OFFERED CANNOT BE ALLOWED AS A DEDUCTION UND ER ANY HEAD OF INCOME IN VIEW OF THE PROVISIONS OF SEC. 69C OF THE ACT. ACCORDING LY, THE ASSESSING OFFICER ADDED THE AMOUNT OF RS.14,35,000/- AS UNDISCLOSED INVESTM ENT AND WHILE RELYING ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF FAKIR MOHAMMED HAJI HASSAN V. CIT 247 ITR 290, THE ASSESSING OFFICER DE CLINED TO SET OFF DEPRECIATION AGAINST THE AFORESAID INCOME OF RS.14,35,000/-. 8. ON APPEAL, THE ASSESSEE CONTENDED THAT NO PART O F THE INCOME DISCLOSED DURING THE SURVEY IS ON ACCOUNT OF UNEXPLAINED EXPE NDITURE NOR ANY INCRIMINATING DOCUMENTS WERE FOUND DURING THE COURSE OF SURVEY. S INCE THE ENTIRE STOCK FOUND WAS A PART OF THE STOCK OF THE BUSINESS, IT DID NOT REP RESENT ANY DEEMED INCOME. IT WAS ARGUED THAT THE SAID AMOUNT COULD NOT BE TAXED U/S. 69B OF THE ACT. IT WAS TO BE TAXED AS BUSINESS INCOME AND NECESSARY SET OFF OF B ROUGHT FORWARD LOSSES U/S. 70 / 71 WAS REQUIRED TO BE GIVEN. THE ASSESSEE FURTHER S UBMITTED THAT THE RATIO OF THE DECISION IN THE CASE OF FAKIR MOHAMMED (SUPRA) DID NOT APPLY SINCE IN THAT CASE THE ASSESSEE WAS CAUGHT SMUGGLING GOODS AND COULD NOT E XPLAIN THE SOURCE OF THE ASSETS FOUND. BUT IN THE APPELLANT'S CASE IT IS ENG AGED IN THE BUSINESS OF PIPE FITTINGS AND THE DISCREPANCY IN STOCK HAS BEEN EXPLAINED WIT H REASON. THEREFORE, THE AMOUNT COULD NOT BE TAXED U/S. 69C OF THE ACT AND WAS CORR ECTLY TO BE CONSIDERED AS INCOME FROM BUSINESS AND PROFESSION. IT HAS ALSO SUBMITTED THAT THE BROUGHT FORWARD LOSSES AS WELL AS DEPRECIATION AND CURRENT DEPRECIATION HA VE TO BE SET OFF AGAINST THE SAME. 9. IN THE LIGHT OF AFORESAID SUBMISSIONS, THE LD. C IT(A) CONCLUDED AS UNDER: I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS OBS ERVED THAT THE DISPUTE CENTRE AROUND THE ADDITION ON ACCOUNT OF THE VALUE OF THE UNACCOUNTED STOCK FOUND AT THE TIME OF SURVEY. IT IS STATED IN THIS REGARD THAT THE STOCK OF GOODS IS AN ACCUMULATION OF THE GOODS PURC HASED ON DIFFERENT DATES. SOME OF THESE PURCHASED GOODS ARE SOLD OUT . WHAT REMAINS ITA NO. 1036/AHD/2007 6 IS TERMED AS STOCK. THE GOODS ARE PURCHASED AND THE RELEVANT EXPENDITURE IS BOOKED TO THE TRADING /MANUFACTURING ACCOUNT. IN OTHER WORDS, THE VALUE OF THE GOODS THAT HAD BEEN PURCHAS ED / MANUFACTURED BUT HAD NOT BEEN SOLD ON ANY PARTICULAR DATE IS REP RESENTED IN THE VALUE OF THE GOODS IN STOCK. THEREFORE, WHEN THE AS SESSING OFFICER SPEAKS ABOUT THE VALUE OF THIS UNACCOUNTED STOCK, W HAT IS BEING DISCUSSED IS THE EXPENDITURE GONE INTO THE PURCHASE / MANUFACTURING OF THE GOODS WHICH HAS NOT BEEN EXPLAINED. PUT SIMPLY, IT REPRESENTS UNEXPLAINED EXPENDITURE. IT IS NOT THE APPELLANT'S CASE THAT SUCH UNEXPLAINED PURCHASES THEN LYING WITH THE APPELLANT IN THE FORM OF UNSOLD GOODS / STOCK HAD BEEN ACCOUNTED FOR. WHAT T HE APPELLANT IS TRYING TO EXPLAIN IS THAT THE INCOME ARISING FROM T HE SALE OF SUCH PURCHASES / STOCK AFTER THE DATE OF SURVEY AND UPTO THE LAST DAY OF THE ACCOUNTING YEAR GETS INCLUDED IN THE TOTAL TURNOVER OF THE YEAR. IN OTHER WORDS, THE INCOME COMPONENT STANDS INCLUDED IN THE TOTAL INCOME DECLARED AT THE END OF THE ACCOUNTING YEAR. IN OTHE R WORDS, IT HAS TRIED TO EXPLAIN THAT THE CLOSING STOCK IN ANY PARTICULAR DATE BECOMES THE OPENING STOCK OF THE NEXT DAY AND THUS BECOMES A PA RT OF THE INCOME CYCLE. HOWEVER, THIS EXPLANATION DOES NOT TAKE INTO ACCOUNT THE ENTRY OF THE GOODS INTO THIS CYCLE. THE GOODS ENTER ONLY IN THE FORM OF EXPENDITURE IN THE PURCHASE OF THE GOODS. THAT BEIN G SO THE UNEXPLAINED STOCK REPRESENTS UNEXPLAINED EXPENDITUR E IN THESE PURCHASES. TO THAT EXTENT NO FAULT CAN BE FOUND WIT H THE OBSERVATIONS OF THE ASSESSING OFFICER. IT IS REITERATED THAT IT IS NOT THE APPELLANT'S CASE THAT THE SAID STOCK REPRESENTS PURCHASES FOR W HICH THERE ARE RELEVANT PURCHASE BILLS AVAILABLE OR THAT THE SAME HAVE BEEN SHOWN OR PRODUCED. IN FACT, THE APPELLANT HAS MADE NO SUCH C LAIM AT ANY STAGE. IN THIS CONTEXT, THE OBSERVATIONS OF THE HON'BLE GU JARAT HIGH COURT IN THE CASE FAKIR MOHAMMED (SUPRA) BECOME RELEVANT AND , TO QUOTE, 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 FOR AS SESSMENT AS PER THE PROVISIONS OF THE ACT. HOWEVER, WHEN THIS PROVI SIONS 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 U/S. 14 OF THE ACT, IT WOULD NOT BE POSSIBLE TO CLASSIFY SUCH DEEMED INCOME UNDE R ANY OF THESE HEADS INCLUDING INCOME FROM 'OTHER SOURCES' WHICH H AVE TO BE SOURCES KNOWN OR EXPLAINED. WHEN THE INCOME CANNOT BE SO CL ASSIFIED UNDER ANY ONE OF THE HEADS OF INCOME U/S. 14, IT FOLLOWS THAT THE QUESTION OF GIVING ANY DEDUCTIONS UNDER THE PROVISIONS WHICH CO RRESPOND TO SUCH HEADS OF INCOME WILL NOT ARISE . THEREFORE, IN THESE CASES, THE SOURCE NOT BEING KNOWN, SUCH DEEMED INCOME WILL NOT FALL EVEN UNDER THE HEAD 'INCOME FROM OTHER SOURCES' THEREFORE, THE CORRESPONDING DEDUCTION WHICH ARE APPLICABLE TO THE INCOMES UNDER ANY OF THESE VARIOUS HEADS, WILL NOT BE ATTRACTED IN THE CASE OF DEEMED INCOMES WHICH ARE COVERED UNDER THE PROVISIONS OF SEC.69, 6 9A,69B & 69C OF THE ACT. IN THIS VIEW OF THE MATTER, THE ACTION T AKEN BY THE ASSESSING ITA NO. 1036/AHD/2007 7 OFFICER IN TREATING THE SAID UNEXPLAINED EXPENDITUR E REPRESENTED BY THE UNACCOUNTED STOCK OF RS.14,35,000/- IS CONFIRMED. F URTHER, THE DISALLOWANCE ON ACCOUNT OF THE SET OFF OF BROUGHT F ORWARD LOSSES AND DEPRECIATION AND THE CURRENT DEPRECIATION IS ALSO C ONFIRMED IN VIEW OF THE HONBLE GUJARAT HIGH COURT DECISION RELIED UPON BY THE ASSESSING OFFICER. 9. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSEE WH ILE RELYING ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF KR ISHNA TEXTILES V. CIT, 310 ITR 227 (GUJ.) CONTENDED THAT IN THE SCHEME OF THE ACT, INC OME HAS TO BE ASSESSED UNDER ANY OF THE SIX HEADS MENTIONED IN THE ACT. THERE CA N BE NO HEADLESS INCOME, THE LD. AR ARGUED. EVEN IF THE INCOME IS TO BE ASSESSED UND ER THE HEAD OTHER SOURCES, DEPRECIATION FOR THE CURRENT YEAR AND UNABSORBED DE PRECIATION FOR THE PRECEDING YEAR HAS TO BE SET OFF UNDER THE PROVISIONS OF SEC. 71(1 ) OF THE ACT. IN THIS CONNECTION, THE LD. AR RELIED ON THE DECISION DATED 20.2.2009 OF TH E ITAT IN THE CASE OF ACIT V. BABULAL S. SHARMA IN ITA NO.2462/AHD./2006 FOR THE ASSESSMENT YEAR 2003-04. ACCORDINGLY, THE LD. A.R. CONTENDED THAT DEPRECIATI ON HAS TO BE SET OFF AGAINST THE INCOME ASSESSED BY THE ASSESSING OFFICER UNDER THE HEAD OTHER SOURCES. TO A QUERY BY THE BENCH, THE LD. A.R. FURTHER SUBMITTED THAT SINCE THE INCOME HAS BEEN GENERATED OUT OF BUSINESS ACTIVITIES, INCOME HAS TO BE ASSESSED UNDER THE HEAD BUSINESS AND NOT UNDER THE HEAD OTHER SOURCES. INCOME WAS IMBEDDED IN THE STOCK DECLARED BY THE ASSESSEE DURING THE COURSE OF SURVEY. THE LD. A.R. WHILE DISTINGUISHING THE DECISION IN THE CASE OF FAKIR MO HD. HAJI HASSAN (SUPRA), CONTENDED THAT IN THE CASE UNDER CONSIDERATION, THE ASSESSEE DID NOT CLAIM ANY EXPENDITURE. EVEN OTHERWISE THE SAID DECISION IS S ILENT ON ASSESSMENT OF INCOME UNDER ANY OF THE SIX HEADS PROVIDED IN THE ACT. SIN CE THE INCOME HAS BEEN DERIVED FROM THE BUSINESS ACTIVITY, IT HAS TO BE NECESSARIL Y ASSESSED UNDER THE HEAD BUSINESS INCOME. ON THE OTHER HAND, THE LD. D.R. WHILE INVITING OUR ATTENTION TO PAGE 9 AND 10 OF THE ASSESSMENT ORDER AND THE FINDI NGS OF THE LD. CIT(A), SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 10. WE HAVE HEARD THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE ISSUE RAISED IN TERMS OF GROUND NO.3 BEFORE US IS AS TO W HETHER THE UNACCOUNTED STOCK OF ITA NO. 1036/AHD/2007 8 31,751 KGS FOUND DURING THE SURVEY CAN BE ASSESSED U/S 69B /69C OF THE ACT OR UNDER THE HEAD BUSINESS INCOME. UNDISPUTEDLY, THE A SSESSEE ADMITTED DURING THE COURSE OF SURVEY THAT THEY DID NOT MAINTAIN ANY STO CK REGISTER ON DAY-TO-DAY BASIS FOR PRODUCTION NOR IT WAS POSSIBLE TO DO SO. IN REPLY T O QUESTION NO. 6 OF HIS STATEMENT , THE ASSESSEE ACCEPTED THE DIFFERENCE OF 31751 KGS AND VOLUNTARILY OFFERED THE AMOUNT OF RS. 14,35,000 FOR TAX AS ADDITIONAL INCOM E OVER & ABOVE, THE INCOME WHICH THE COMPANY EARNED TILL THE DATE OF SURVEY. IN THESE CIRCUMSTANCES, THE LD. CIT(A) OBSERVED THAT IT IS NOT THE ASSESSEES CASE THAT SUCH UNEXPLAINED PURCHASES THEN LYING WITH THE ASSESSEE IN THE FORM OF UNSOLD GOODS / STOCK HAD BEEN ACCOUNTED FOR NOR EVEN THAT THE SAID STOCK REPRESENTED PURCHASES FOR WHICH REL EVANT PURCHASE BILLS WERE AVAILABLE OR THAT THE SAME HAVE BEEN SHO WN OR PRODUCED NOR EVEN THE ASSESSEE MADE SUCH A CLAIM AT ANY STAGE AND THAT B EING SO THE UNEXPLAINED STOCK REPRESENTS UNEXPLAINED EXPENDITURE IN THESE PURCHAS ES. IN THIS CONTEXT, THE LD. CIT(A) REFERRED TO THE OBSERVATIONS OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE FAKIR MOHAMMED (SUPRA). AS OBSERVED BY THE HONBLE JURISDICTIONAL HIGH COUR T IN THE AFORESAID DECISION THE SCHEME OF SECTIONS 69, 6 9A, 69B AND 69C WOULD SHOW THAT IN CASES WHERE THE NATURE AND SOURCE OF INVEST MENTS MADE BY THE ASSESSEE OR THE NATURE AND SOURCE OF ACQUISITION OF MONEY, BULL ION 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 IN VESTMENTS AND MONEY, OR VALUE OF ARTICLES NOT RECORDED IN THE BOOKS OF ACCOUNT OR TH E UNEXPLAINED EXPENDITURE MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE. IT FOLLOWS THAT THE MOMENT A SATISFACTORY EXPLANATION IS GIVEN ABOUT SUCH NATURE AND SOURCE B Y THE ASSESSEE, THEN THE SOURCE WOULD STAND DISCLOSED AND WILL THEREFORE BE KNOWN A ND THE INCOME WOULD BE TREATED UNDER THE APPROPRIATE HEAD OF INCOME FOR ASSESSMENT AS PER THE PROVISIONS OF THE ACT. HOWEVER, WHEN THESE PROVISIONS APPLY BECAUSE N O SOURCE IS DISCLOSED AT ALL ON THE BASIS OF WHICH THE INCOME CAN BE CLASSIFIED UND ER ONE OF THE HEADS OF INCOME UNDER SECTION 14, IT WOULD NOT BE POSSIBLE TO CLASS IFY SUCH DEEMED INCOME UNDER ANY OF THESE HEADS INCLUDING INCOME FROM OTHER SOU RCES WHICH HAVE TO BE SOURCES KNOWN OR EXPLAINED. WHEN THE INCOME CANNOT BE SO CL ASSIFIED UNDER ANY ONE OF THE HEADS OF INCOME UNDER SECTION 14, IT FOLLOWS THAT T HE QUESTION OF GIVING ANY DEDUCTIONS UNDER THE PROVISIONS WHICH CORRESPOND TO SUCH HEADS OF INCOME WILL NOT ITA NO. 1036/AHD/2007 9 ARISE. IF IT IS POSSIBLE TO PEG THE INCOME UNDER AN Y ONE OF THESE HEADS BY VIRTUE OF A SATISFACTORY EXPLANATION BEING GIVEN, THEN THESE PR OVISIONS OF SECTIONS 69, 69A, 69B AND 69C WILL NOT APPLY, IN WHICH EVENT THE PROVISIO NS REGARDING DEDUCTIONS ETC. APPLICABLE TO THE RELEVANT HEAD OF INCOME UNDER WHI CH SUCH INCOME FALLS WILL AUTOMATICALLY BE ATTRACTED. IN THE FACTS OF THE CAS E INCOME HAS BEEN BROUGHT TO TAX U/S 69C OF THE ACT ON FULFILLING THE REQUIREMENTS B Y VIRTUE OF THE DEEMING PROVISIONS.THE SCOPE OF A CHARGING SECTION CANNOT B E ENLARGED BY IMPORTING FURTHER FICTION BY DEEMING THE SUM RECEIVED AS INCOME FROM BUSINESS OR OTHER SOURCES. IF THE WORDS OF A STATUTE ARE PRECISE AND UNAMBIGUOUS, THEY MUST BE ACCEPTED AS DECLARING THE EXPRESS INTENTION OF THE LEGISLATURE. IT WAS TRITE PROPOSITION IN LAW THAT A LEGAL FICTION HAS TO BE STRICTLY CONSTRUED. AS WAS OBSERVED BY T HE HONBLE SUPREME COURT IN BENGAL IMMUNITY CO. LTD. VS. STATE OF BIHA R (1955) 2 SCR 603 LEGAL FICTION S ARE ONLY FOR A DEFINITE PURPOSE AND THEY ARE LIMITE D TO THE PURPOSE FOR WHICH THEY ARE CREATED AND SHOULD NOT BE EXTENDED BEYOND THAT LEGI TIMATE FIELD. IN THE PRESENT CASE THE FICTION IS LIMITED TO THE CASES PROVIDED IN THE SECTIONS 6 9B/69C AND CANNOT BE EXTENDED FURTHER TO HOLD THAT INCOME IS TO BE ASSES SED UNDER THE HEADOTHER SOURCES OR PROFITS AND GAINS OF BUSINESS OR PROFES SION.CONSEQUENTLY, THE ASSESSEES CLAIM OF SET OFF OF CURRENT AND BROUGHT FORWARD DEPRECIATION AGISNST SUCH INCOME IS NOT TENABLE.. 10.2 NOW ADVERTING TO THE DECISIONS RELIED UPON ON BEHALF OF THE ASSESSEE .FIRST SUCH DECISION IS IN THE CASE OF KRISHNA TEXTILES(SU PRA), WHEREIN FACTS WERE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 1987-88, THE ASSESSING OFFICER CALLED FOR THE COPY OF ACCOUNT OF THE ASSESSEE AS APPEARING IN THE BOOKS OF GUJARAT MINERAL DEVELOPMENT CORPORATION (G MDC) AND COMPARED WITH THE COPY OF ACCOUNT OF ASSESSEE. THE ASSESSING OFFICER OBSERVED THAT CERTAIN DRAFTS ALLEGEDLY SENT TO GMDC BY THE ASSESSEE TOTALLING TO RS. 1,92,161 HAD NOT BEEN ACCOUNTED FOR IN THE BOOKS OF THE ASSESSEE BUT THE ENTRIES IN RESPECT THEREOF APPEARED IN THE ACCOUNT OF THE ASSESSEE IN THE BOOK S OF GMDC THE ASSESSEE REPLIED THAT THE ACCOUNTS OF GMDC COULD NOT BE RELI ABLE AND THE ASSESSEE HAD NOT SENT THE ABOVE DRAFTS. THE ASSESSING OFFICER WAS NO T SATISFIED WITH THE EXPLANATION FURNISHED BY THE ASSESSEE AND HE MADE THE IMPUGNED ADDITION OF RS. 1,92,161. IN ITA NO. 1036/AHD/2007 10 THE LIGHT OF THESE FACTS, HONBLE HIGH COURT OBSERV ED THAT SINCE THERE IS AN ADMITTED POSITION THAT THE ASSESSEE WAS CARRYING ON THE BUSI NESS OF COAL AND LIGNITE AND PURCHASES WERE MADE FROM TIME TO TIME FROM GMDC, IN THAT CASE, EVEN IF ANY ADDITION IS REQUIRED TO BE MADE UNDER SECTION 69C, THE ENTIRE EXPENDITURE TOWARDS IT HAS TO BE ALLOWED AS A DEDUCTION UNDER SECTION 37(1 ) OF THE ACT. THE ASSESSMENT YEAR UNDER CONSIDERATION IS ADMITTEDLY 1987-88 TO W HICH THE EFFECT OF THIS AMENDMENT WILL NOT BE APPLICABLE. APPARENTLY, SUCH ARE NOT THE FACTS IN THE CASE UNDER CONSIDERATION. 10.3 AS REGARDS DECISION OF THE ITAT ,RELYING U PON THE DECISION OF THE HONBLE SUPREME COURT IN ITO VS. SANDHU BROTHERS(CHEMBUR), 273 ITR 1(SC), WITH DUE RESPECT, WE ARE OF THE OPINION THAT THE OBSERVATIO NS OF THE HONBLE SUPREME COURT IN THE SAID DECISION WERE IN RELATION TO A DIFFEREN T CONTEXT ,NOT RELEVANT TO THE FACTS OF THE CASE UNDER CONSIDERATION. IN THE SAID DECISION, THE PRIMARY QUESTION INVOLVED WAS AS TO WHETHER THE AMOUNT RECEIVED BY THE ASSESS EE ON SURRENDER OF TENANCY RIGHTS IS LIABLE TO CAPITAL GAINS TAX UNDER SECTION 45 OF THE INCOME-TAX ACT, 1961 OR WAS TAXABLE AS 'INCOME FROM OTHER SOURCES' UNDER SE CTION 10(3) READ WITH SECTION 56 OF THE ACT . IN THAT CONTEXT HONBLE APEX COURT HELD THAT SECTION 56 PROVIDES FOR THE CHARGEABILITY OF INCOME OF EVERY KIND WHICH HAS NOT TO BE EXCLUDED FROM THE TOTAL INCOME UNDER THE ACT, ONLY IF IT IS NOT CHARGEABLE TO INCOME-TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14, ITEMS A TO E. THEREF ORE, IF THE INCOME IS INCLUDED UNDER ANY ONE OF THE HEADS, IT CANNOT BE BROUGHT TO TAX UNDER THE RESIDUARY PROVISIONS OF SECTION 56. 10.4 HOWEVER, THE FACTS IN THE CASE UNDER CONSIDE RATION ARE TOTALLY DIFFERENT. FROM THE AFORESAID DECISIONS WE ARE OF THE OPINION THAT THE OBSERVATIONS OF THE HONBLE APEX COURT IN THE SAID DECISION CAN NOT BE STRAIGHT AWAY APPLIED IN THE FACTS OF THE CASE UNDER CONSIDERATION. IN THIS CONTEXT ,HONBLE SUPREME COURT CAUTIONED IN THEIR RECENT DECISION DATED 6.3.2009 IN THE CA SE OF STATE OF AP VS. M.RADHA KRISHNA MURTHY,[CRIMINAL APPEAL NO. 386 OF 2002] 6. COURTS SHOULD NOT PLACE RELIANCE ON DECI SIONS WITHOUT DISCUSSING AS TO HOW THE FACTUAL SITUATION FITS IN WITH THE FACT SITUATI ON OF THE DECISION ON WHICH RELIANCE IS PLACED. OBSERVATIONS OF COURTS ARE NEITHER TO BE RE AD ASEUCLID'S THEOREMS NOR AS ITA NO. 1036/AHD/2007 11 PROVISIONS OF THE STATUTE AND THAT TOO TAKEN OUT OF THEIR CONTEXT. THESE OBSERVATIONS MUST BE READ IN THE CONTEXT IN WHICH THEY APPEAR TO HAVE BEEN STATED. JUDGMENTS OF COURTS ARE NOT TO BE CONSTRUED AS STATUTES. TO INTE RPRET WORDS, PHRASES AND PROVISIONS OF A STATUTE, IT MAY BECOME NECESSARY FO R JUDGES TO EMBARK INTO LENGTHY DISCUSSIONS BUT THE DISCUSSION IS MEANT TO EXPLAIN AND NOT TO DEFINE. JUDGES INTERPRET STATUTES, THEY DO NOT INTERPRET JUDGMENTS . THEY INTERPRET WORDS OF STATUTES; THEIR WORDS ARE NOT TO BE INTERPRETED AS STATUTES . 8. CIRCUMSTANTIAL FLEXIBILITY, ONE ADDITIONAL OR DIFFERENT FACT MAY MAKE A WORLD OF DIFFERENCE BETWEEN CONCLUSIONS IN TWO CASES. DISPOS AL OF CASES BY BLINDLY PLACING RELIANCE ON A DECISION IS NOT PROPER. 9. THE FOLLOWING WORDS OF LORD DENNING IN THE MA TTER OF APPLYING PRECEDENTS HAVE BECOME LOCUS CLASSICUS: 'EACH CASE DEPENDS ON ITS OWN FACTS AND A CLOSE SIMILARITY BETWEEN ONE CASE AND ANOTHER IS NOT ENOUGH BECAUSE EVEN A SINGLE SI GNIFICANT DETAIL MAY ALTER THE ENTIRE ASPECT, IN DECIDING SUCH CASES, ONE SHOULD AVOID THE TEMPTATION TO DECIDE CASES (AS SAID BY CORDOZO) BY MATCHING THE COLOUR O F ONE CASE AGAINST THE COLOUR OF ANOTHER. TO DECIDE THEREFORE, ON WHICH SIDE OF THE LINE A CASE FALLS, THE BROAD RESEMBLANCE TO ANOTHER CASE IS NOT AT ALL DECISIVE. ' *** *** *** 'PRECEDENT SHOULD BE FOLLOWED ONLY SO FAR AS IT MARKS THE PATH OF JUSTICE, BUT YOU MUST CUT THE DEAD WOOD AND TRIM OFF THE SIDE BRANC HES ELSE YOU WILL FIND YOURSELF LOST IN THICKETS AND BRANCHES. MY PLEA IS TO KEEP THE PATH TO JUSTICE CLEAR OF OBSTRUCTIONS WHICH COULD IMPEDE IT.' 10.5 IN THE LIGHT OF AFORESAID OBSERVATIONS OF T HE HONBLE APEX COURT, WE ARE OF THE OPINION THAT THE RELIANCE BY THE ASSESSEE ON THE DE CISIONS IN THE CASE OF KRISHNA TEXTILES(SUPRA) AND OF THE ITAT, RELYING UPON THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SANDHU BROTHERS(CHEMBUR) IS TOTALLY MISPLACED. 10.6. IN VIEW OF THE FOREGOING AND ESPECIALLY IN VIEW OF THE AFORESAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN FAKIR MOHA MMED HAJI HASSAN(SUPRA), WE UPHOLD THE FINDINGS OF THE LD. CIT(A) IN CONFIRMING THE ADDITION OF RS.14,35,000/- ON ACCOUNT OF UNEXPLAINED EXPENDITURE REPRESENTED BY T HE UNACCOUNTED STOCK AND THE DISALLOWANCE OF CLAIM FOR SET OFF OF CURRENT AND BROUGHT FORWARD DEPRECIATION. THUS, GROUND NO. 3 & 4 IN THE APPEAL ARE DISMISSED. 11. NO ADDITIONAL GROUND HAS BEEN RAISED IN TERMS O F RESIDUARY GROUND NO.6, ACCORDINGLY, THE SAID GROUND IS DISMISSED. ITA NO. 1036/AHD/2007 12 12. IN THE RESULT, APPEAL IS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 18.12 .2009. SD/- (R.V.EASWAR) VICE PRESIDENT SD/- (A.N.PAHUJA) ACCOUNTANT MEMBER AHMEDABAD, DATED:10.12.2009 PSP* COPY TO : (1) THE ASSESSEE (2) I.T.O.WARD-1(3),BARODA. (3) THE CIT(A)-I,BARODA (4) THE CIT, CONCERNED, (5) THE DR, ITAT, AHMEDABAD, (6) GUARD FILE. BY ORDER ASSTT. REGISTRAR / D EPUTY REGISTRAR ITAT, AHMEDABAD BENCHES AHMEDABAD.