ITO, Chandigarh V. M/s Sant Ram Mangat Ram Jewellers, Chandigarh

ITA 106/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80902 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 07-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: A K JINDAL
• Keywords: Unexplained investment; Unexplained expenditure; Business income; Salary income; Deemed to accrue or arise in india
• Section: 69C; 133A; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 106/CHD/2013 ASSESSMENT YEAR : 2008-09 THE INCOME TAX OFFICER, VS M/S SANT RAM WARD 2(3), MANGAT RAM JEWELLERS, CHANDIGARH. SCO 40, SECTOR 17-E, CHANDIGARH. PAN : AAKFS8848J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAHAVIR SINGH RESPONDENT BY : SHRI A.K.JINDAL DATE OF HEARING : 12.08.2014 DATE OF PRONOUNCEMENT : 17.09.2014 O R D E R PER SUSHMA CHOWLA, JM THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS) CHANDIGARH DAT ED 30.11.2012 AGAINST THE ORDER PASSED UNDER SECTION 1 43(3) OF THE INCOME-TAX ACT, 1961 ( 'THE ACT' FOR SHORT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUND OF APPEAL : THE LD. CIT(A) HAS ERRED IN FACTS AS WELL AS IN LA W IN DELETING THE DISALLOWANCE OF RS.12.00 LAKHS OF PARTNER'S SALARY CLAIMED U/S 40(B) OUT OF INCOME SURRENDERED DURING THE COURSE OF SURVEY P ROCEEDINGS U/S 133A OF THE IT. ACT, 1961 AS THE BUSINESS LOSS IS E XCLUSIVE OF THE SURRENDERED INCOME, WHICH IS LIABLE TO BE ASSESSED AS 'INCOME FROM OTHER SOURCES', KEEPING IN VIEW STATEMENT OF THE PA RTNERS RECORDED DURING THE COURSE OF SURVEY AND PROVISIONS OF SECTI ON 69 OF THE INCOME TAX ACT, 1961 . 2 3. THE ONLY ISSUE RAISED IN THE APPEAL FILED BY T HE REVENUE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (AP PEALS) IN DELETING THE DISALLOWANCE OF PARTNERS SALARY CLAIM ED UNDER SECTION 40B OF THE ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT SURVEY WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 08.08.2007 AND SURR ENDER OF RS. 1.25 CRORES WAS MADE BY THE ASSESSEE. THEREAFTER, T HE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS .1,00,44,460/- THE ASSESSEE HAD CLAIMED PARTNERS SALARY OF RS. 12 LACS IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE WAS SHOW CAUSE D AS AGAINST SURRENDER OF RS. 1.25 CRORES DURING THE SURVEY, THE RETURNED INCOME WAS ONLY RS. 1,00,44,458/-. THE ASSESSEE WA S QUESTIONED AS TO HOW PARTNERS SALARY WAS ALLOWABLE AGAINST BO OK PROFITS AS THERE WAS BUSINESS LOSS. THE ASSESSEE IN REPLY SUB MITTED THAT THE REMUNERATION PAID TO THE WORKING PARTNER WAS DULY A LLOWABLE AS IT RELATES TO THE INCOME OF RS. 1.25 CRORES OFFERED FO R TAX DURING SURVEY. FURTHER, THE ENTIRE INCOME OF RS. 1.25 CRO RES WAS CREDITED AS INCOME FROM BUSINESS IN THE PROFIT & LOSS ACCOUN T AGAINST WHICH THE SAID CLAIM OF THE SALARY WAS MADE. THE A SSESSING OFFICER OBSERVED THAT THE CONTENTION OF THE ASSESSE E WAS NOT CORRECT AS DURING THE COURSE OF SURVEY, STATEMENT O F BOTH THE PARTNERS WAS RECORDED IN WHICH THEY ADMITTED THAT T HE SAID SURRENDER OF RS. 1.25 CRORES WAS IN ADDITION TO THE REGULAR INCOME OF THE FIRM DURING THE YEAR UNDER CONSIDERATION. T HE ASSESSING OFFICER, THUS HELD THAT THE SURRENDERED AMOUNT OFFE RED AS ADDITIONAL INCOME OF THE FIRM IN ADDITION TO THE RE GULAR INCOME WAS TO BE CHARGED UNDER THE HEAD INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. IT WAS ALSO OBSERVED BY TH E ASSESSING 3 OFFICER THAT THE INCOME SURRENDERED BY THE ASSESSE E FALLS UNDER SECTION 69 OF THE INCOME TAX ACT. THE ASSESSING OF FICER HELD THAT THE SAID INCOME WAS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND NOT UNDER THE HEAD BUSINESS INC OME. CONSEQUENTLY, THE PARTNERS SALARY WHICH WAS ALLOWA BLE UNDER SECTION 40(B) OF THE ACT, WAS HELD TO BE NOT ALLOWA BLE AGAINST THE INCOME FROM OTHER SOURCES. THE SAME WAS ADDED BACK TO THE INCOME OF THE ASSESSEE AND AN ADDITION OF RS. 12 LA CS WAS MADE IN THE HANDS OF THE ASSESSEE. 5. THE COMMISSIONER OF INCOME TAX (APPEALS) RELYING ON THE RATIO LAID DOWN BY THE AHMEDABAD BENCH OF TRIBUNAL IN CHOKSHI HIRALAL MAGANLAL, ITA NO. 486/AHD/2008 DATED 21.01. 2011 OBSERVED THAT IN THE STATEMENT RECORDED AT THE TIME OF SURVEY, THE ASSESSEE HAD NOT MENTIONED ABOUT THE CLAIM OF PARTN ERS SALARY, BUT IN THE LETTER SUBMITTED SUBSEQUENTLY ON THE SAM E DATE, IT WAS CLEARLY MENTIONED THAT THE ADDITIONAL INCOME WAS OF FERED SUBJECT TO ALLOWABILITY OF SALARY TO THE PARTNERS AS PER TH E PROVISIONS OF PARTNERSHIP DEED. THE COMMISSIONER OF INCOME TAX (A PPEALS) ALSO NOTED THAT THE SURRENDER/DISCLOSURE OF ADDITIO NAL INCOME WAS ON ACCOUNT OF UNEXPLAINED EXCESS STOCK. THE COMMIS SIONER OF INCOME TAX (APPEALS) HELD THAT THE INCOME IS TO BE ASSESSED AS BUSINESS INCOME AND SALARY TO PARTNER WAS ALLOWABLE UNDER SECTION 40(B) OF THE ACT. 6. THE REVENUE IS IN APPEAL AGAINST BOTH THE ASPECT S OF THE ISSUE I.E. THE ASSESSABILITY OF INCOME AS OTHER SOU RCES AND THE NON-ALLOWABILITY OF THE PARTNERS SALARY UNDER SECT ION 40(B) OF THE ACT. 4 7. THE LD. DR FOR THE REVENUE POINTED OUT THAT THE ISSUE OF ASSESSABILITY OF INCOME IS SQUARELY COVERED BY THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN M/S KIM PHARMA (P) LTD. VS CIT IN ITA NO. 106 OF 2011 (O&M) ORDER DATED 27.04.2011. IT WAS FURTHER POINTED OUT BY TH E LD. DR FOR THE REVENUE THAT THE NET BUSINESS INCOME WAS A LOSS, TH E SALARY PAID TO THE PARTNER AT RS. 12 LACS COULD NOT BE ALLOWED. 8. THE LD. AR FOR THE ASSESSEE DREW OUR ATTENTION T O THE SURRENDER LETTER PLACED AT PAGE 1 OF THE PAPER BOOK AND POINTED OUT THAT THE SAID SURRENDER WAS MADE ON ACCOUNT OF EXCESS STOCK FOUND AT THE SHOP AND UNDOUBTEDLY THE AMOUNT WAS OF FERED AS ADDITIONAL INCOME IN ADDITION TO THE REGULAR INCOME OF THE FIRM BUT SUBJECT TO ALLOWABILITY OF SALARY TO THE PARTNE R AS PER THE PROVISIONS OF PARTNERSHIP DEED. THE LD. AR FOR THE ASSESSEE FAIRLY ADMITTED THAT THE ASSESSING OFFICER HAD ASSE SSED THE INCOME AS INCOME FROM OTHER SOURCES. HOWEVER, IT WAS CONT ENDED THAT THE INCOME BEING RELATED TO THE BUSINESS INCOME, THE DE DUCTION ON ACCOUNT OF PARTNERS SALARY WAS DULY ALLOWABLE. RE LIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE AHMEDABAD BENC H OF THE TRIBUNAL. STRICTLY IN THE ALTERNATIVE, IT WAS CONT ENDED BY THE LD. AR FOR THE ASSESSEE THAT EVEN IN CASES OF BUSINESS LOSS, SALARY TO THE EXTENT OF RS. 50,000/- HAS TO BE ALLOWED TO THE ASSESSEE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. SURVEY UNDER SECTION 133A OF THE ACT WAS CONDUCTED AT THE PREMISES OF THE ASSESSEE ON 08.08.2007. DURING THE COURSE OF SURVEY, EXCESS STOCK WAS FOUND AND WAS CONFRONTED T O BOTH THE PARTNERS, WHOSE STATEMENTS WERE RECORDED AND EXTRAC T OF WHICH IS REPRODUCED AT PAGE 3 AND 4 OF THE ASSESSMENT ORDER. THE PARTNERS 5 OF THE ASSESSEE FIRM ADMITTED THAT THEY WERE UNABLE TO EXPLAIN THE EXCESS STOCK FOUND TO THE TUNE OF RS. 1.23 CRORES. HOWEVER, IN ORDER TO BUY PEACE OF MIND AND TO AVOID ANY LITIGAT ION, SUM OF RS. 1.25 CRORE WAS SURRENDERED AS ADDITIONAL INCOME IN THE HANDS OF THE FIRM, IN ADDITION TO THE REGULAR INCOME OF THE FIRM DURING FINANCIAL YEAR 2007-08. SIMILAR STATEMENT WAS GIVE N BY BOTH THE PARTNERS OF THE ASSESSEE FIRM. HOWEVER, WHILE FILI NG THE RETURN OF INCOME, THE ASSESSEE DECLARED TOTAL INCOME OF RS. 1 ,00,44,460/- AFTER CLAIMING PARTNERS SALARY AT RS. 12 LACS. 10. THE FIRST ISSUE RAISED IS THE HEAD UNDER WHICH THE INCOME SURRENDERED IS TO BE ASSESSED. THE ASSESSEE CLAIMS THAT THE ADDITIONAL INCOME OF RS. 1.25 CRORE IS TO BE ASSESS ED AS BUSINESS INCOME. HOWEVER, THE HON'BLE PUNJAB & HARYANA HIGH COURT IN SIMILAR CIRCUMSTANCES, HAD HELD THE ADDITIONAL INCO ME TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES . 11. THE HON'BLE HIGH COURT IN M/S KIM PHARMA (P) LT D. VS CIT (SUPRA) WHILE DECIDING THE ISSUE OF SURRENDERED ADD ITIONAL INCOME AND ITS ASSESSABILITY UNDER SECTION 69A OF THE ACT, IN TURN RELYING UPON THE RATIO LAID DOWN BY THE HON'BLE GUJRAT HIGH COURT IN FAKIR MOHMED HAJI HASAN VS CIT 247 ITR 290 (GUJ) HE LD THAT THE SAID DECISION WAS FULLY APPLICABLE TO THE FACTS BEF ORE IT AND THE INCOME SURRENDERED DURING THE COURSE OF SURVEY WAS ASSESSED AS INCOME FROM OTHER SOURCES. THE RELEVANT FINDINGS O F THE DECISION OF HON'BLE GUJRAT HIGH COURT IN FAKIR MOHMED HAJI H ASAN VS CIT (SUPRA) WERE AS UNDER : 'THE SCHEME OF SECTIONS 69, 69A, 69B AND 69C OF THE INCOME-TAX ACT, 1961, WOULD SHOW THAT IN CASES WHERE THE NATUR E AND SOURCE OF INVESTMENTS MADE BY THE ASSESSEE OR THE NATURE AND SOURCE OF ACQUISITION OF MONEY, BULLION ETC., OWNED BY THE AS SESSEE OR THE SOURCE 6 OF EXPENDITURE INCURRED BY THE ASSESSEE ARE NOT EXP LAINED AT ALL, OR NOT SATISFACTORILY EXPLAINED, THEN, THE VALUE OF SU CH INVESTMENTS AND MONEY OTHER VALUE OF ARTICLES NOT RECORDED IN THE B OOKS OF ACCOUNT OR THE UNEXPLAINED EXPENDITURE MAY BE DEEMED TO BE THE INCOME OF SUCH ASSESSEE. IT FOLLOWS THAT THE MOMENT A SATISFA CTORY EXPLANATION IS GIVEN ABOUT SUCH NATURE AND SOURCE BY THE ASSESS EE, THEN THE SOURCE WOULD STAND DISCLOSED AND WILL, THEREFORE, B E KNOWN AND THE INCOME WOULD BE TREATED UNDER THE APPROPRIATE HEAD OF INCOME FOR ASSESSMENT AS PER THE PROVISIONS OF THE ACT. HOWEVE R, WHEN THESE PROVISIONS APPLY BECAUSE NO SOURCES IS DISCLOSED AT ALL ON THE BASIS OF WHICH THE INCOME CAN BE CLASSIFIED UNDER ONE OF THE HEADS OF INCOME UNDER SECTION 14 OF THE ACT, IT WOULD NOT BE POSSIB LE TO CLASSIFY SUCH DEEMED INCOME UNDER ANY OF THESE HEADS INCLUDING IN COME FROM 'OTHER SOURCES' WHICH HAVE TO BE SOURCES KNOWN OR EXPLAINE D. WHEN THE INCOME CANNOT BE SO CLASSIFIED UNDER ANY ONE OF THE HEADS OF INCOME UNDER SECTION 14, IT FOLLOWS THAT THE QUESTION OF G IVING ANY DEDUCTIONS UNDER THE PROVISIONS WHICH CORRESPOND TO SUCH HEADS OF INCOME WILL NOT ARISE. IF IT IS POSSIBLE TO PEG THE INCOME UNDER ANY ONE OF THOSE HEADS BY VIRTUE OF A SATISFACTORY EXPL ANATION BEING GIVEN, THEN THESE PROVISIONS OF SECTIONS 69.69A, 69B AND 6 9C WILL NOT APPLY, IN WHICH EVENT, THE PROVISIONS REGARDING DEDUCTIONS ETC. APPLICABLE TO THE RELEVANT HEAD OF THE OPENING WORDS OF SECTIO N 14 'SAVE AS OTHERWISE PROVIDED BY THIS ACT' CLEARLY LEAVE SCOPE FOR 'DEEMED INCOME' OF THE NATURE COVERED UNDER THE SCHEME OF SECTIONS 69, 69A, 69B AND 69C BEING TREATED SEPARAT ELY, BECAUSE SUCH DEEMED INCOME IS NOT INCOME FROM SALARY, HOUSE PROPERTY, PROFITS AND GAINS OF BUSINESS OR PROFESSION, OR CAP ITAL GAINS, NOR AS IT INCOME FROM 'OTHER SOURCES' BECAUSE THE PROVISIONS OF SECTIONS 69.69A, 69B AND 69C TREAT UNEXPLAINED INVESTMENTS, UNEXPLAINED MONEY, BULLION ETC. AND UNEXPLAINED EXPENDITURE AS DEEMED INCOME WHERE THE NATURE AND SOURCES OF INVESTMENT, ACQUISITION OR EXPENDITURE, AS THE CASE MAY BE, HAVE NOT BEEN EXPL AINED OR SATISFACTORILY EXPLAINED. 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 CORRESPO NDING DEDUCTIONS WHICH ARE APPLICABLE TO THE INCOMES UNDE R ANY OF THESE VARIOUS HEADS, WILL NOT BE ATTRACTED IN THE CASE OF DEEMED INCOMES WHICH ARE COVERED UNDER THE PROVISIONS OF SECTIONS 69,69A, 69B AND 69C OF THE ACT IN VIEW OF THE SCHEME OF THOSE PROVI SIONS. 12. THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT IS SQUARELY APPLICABLE TO THE CASE BEFORE US AND IN VI EW THEREOF, WE REVERSE THE ORDER OF COMMISSIONER OF INCOME TAX (AP PEALS) IN HOLDING THAT THE ADDITIONAL INCOME OF RS. 1.25 CROR E OFFERED BY THE ASSESSEE IS TO BE ASSESSED AS BUSINESS INCOME. THE SAID ADDITIONAL INCOME IS TO BE ASSESSED UNDER SECTION 6 9A OF THE ACT. IN VIEW OF THE RATIO LAID DOWN BY THE JURISDICTIONA L HIGH COURT IN M/S KIM PHARMA (P) LTD. VS CIT, WE FIND NO MERIT IN THE RELIANCE 7 PLACED UPON BY THE ASSESSEE ON THE RATIO LAID DOWN BY THE AHMEDABAD BENCH OF TRIBUNAL IN CHOKSHI HIRALAL MAGA NLAL VS CIT (SUPRA). 13. NOW COMING TO THE SECOND ASPECT OF THE ISSUE RA ISED THAT ONCE THE SURRENDERED INCOME IS ASSESSED AS INCOME F ROM OTHER SOURCES, WHETHER THE SALARY PAID TO THE PARTNERS IS ALLOWABLE IN THE HANDS OF THE ASSESSEE. ADMITTEDLY AFTER EXCLUD ING THE SURRENDERED INCOME FROM THE INCOME DECLARED BY THE ASSESSEE, THERE IS LOSS IN THE HANDS OF THE ASSESSEE AND ONCE THERE IS BUSINESS LOSS DETERMINED IN THE HANDS OF THE ASSESS EE, THE SALARY PAYABLE UNDER SECTION 40(B) OF THE ACT CANNOT BE AL LOWED EXCEPT TO THE EXTENT OF RS. 50,000/-. ACCORDINGLY, WE DIR ECT THE ASSESSING OFFICER TO ALLOW THE SALARY PAID TO THE P ARTNERS AT RS. 50,000/- AND DISALLOW THE BALANCE CLAIM OF SALARY P AID TO THE PARTNERS TOTALING RS. 12,00,000/-. IN VIEW THEREOF , WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E TO THE EXTENT OF RS. 50,000/-. THE GROUNDS OF APPEAL RAISED BY T HE REVENUE ARE THUS, PARTLY ALLOWED. 14. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER, 2014. SD/- SD/- ( T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 17 TH SEPTEMBER, 2014 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR. ASSISTANT REGISTRAR ITAT,CHD.