The DCITNavsari Circle, Navsari V. M/s. Dayaram Brijbhukandas Choksi, Navsari

ITA 1379/AHD/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9277 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 19-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 30-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAILAJA RAI
• Assessee Lawyers: D K PARIKH
• Keywords: Unexplained investment; Business income; Income from undisclosed sources; Deemed to accrue or arise in india; Question of law; Revised return
• Section: 69C; 40(b); 133A; 69B; 131; 69

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH, JM AND D.C.AGRAWAL, AM DY. CIT, NAVSARI CIRCLE, NAVSARI. VS. M/S DAYARAM BRIJBHUKHANDAS CHOKSI, WARD NO.4, MOTA BAZAR, NAVSARI. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SMT. SHAILAJA RAI, DR RESPONDENT BY:- SHRI D. K. PARIKH, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS:- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE CIT(A) ERRED IN DELETING THE ADDITION OF RS .18,07,389/- BEING EXCESS CLAIM OF REMUNERATION. 2. THUS THE DISPUTE IS ABOUT EXCESS CLAIM OF REMUNE RATION AS PER SECTION 40(B). 3. THE FACTS OF THE CASE ARE THAT ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF PURCHASE OF STANDARD GOLD FOR MANUFACTU RING OF NEW GOLD ORNAMENTS. OLD GOLD ORNAMENTS, ARE ALSO PURCHASED F OR REFINING AND MAKING JEWELLERY. THE ASSESSEE FIRM FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.30,26,120/- ON 4.7.2006. IT CLAIMED DE DUCTION UNDER SECTION ITA NO.1379/AHD/2010 ASST. YEAR :2006-07 ITA NO.1379/AHD/2010 ASST. YEAR 2006-07 2 40(B)(V) AT RS.21,04,912/- AND OF RS.17,58,457/- BE ING THE REMUNERATION AND INTEREST PAYMENTS MADE TO PARTNERS. 4. THE DEPARTMENT HAD CARRIED OUT SURVEY UNDER SECT ION 133A ON THE ASSESSEE FIRM ON 10 TH JANUARY, 2006. DURING THE COURSE OF SURVEY EXCESS QUANTITY OF GOLD ORNAMENTS WEIGHING 5256.000 GMS. A ND VALUED AT RS.37,68,700/- WAS FOUND AND IN ADDITION EXCESS CAS H OF RS.4,95,000/- WAS FOUND. THERE WERE ALSO UNACCOUNTED WITHDRAWALS BY THE PARTNER AT RS.2,55,000/-. WHEN STATEMENT OF THE PARTNER WAS RE CORDED UNDER SECTION 131 DURING THE COURSE OF SURVEY THEN ONE OF THE PAR TNERS SHRI SANJAYKUMAR BIPINCHANDRA CHOKSI ACCEPTED THE ABOVE SUMS AS HIS ADDITIONAL INCOME FOR ASST. YEAR 2005-06 RELEVANT T O ASST. YEAR 2006-07. ON THE BASIS OF SURVEY A DISCLOSURE OF A SUM OF RS. 45,18,700/- WAS MADE WHICH WAS SEPARATELY CREDITED TO THE PROFIT AND LOS S ACCOUNT BY THE ASSESSEE. HOWEVER, IT WAS CONSIDERED ASSESSABLE SEP ARATELY BY THE AO UNDER SECTION 69B. HE DECLINED TO GIVE ANY REDUCTIO N AGAINST SUCH INCOME TREATING IT AS DEEMED INCOME AND NOT BUSINESS INCOM E. ON THE OTHER HAND, ASSESSEE TREATED THE DISCLOSURE AS BUSINESS INCOME AND ACCORDINGLY SOUGHT TO ENHANCE HIGHER REMUNERATION TO PARTNERS AS PER L IMIT PRESCRIBED UNDER SECTION 40(B). THE AO WORKED OUT PRE SURVEY TRADING ACCOUNT AND GROSS PROFIT AND POST SURVEY TRADING ACCOUNT AND GROSS PR OFIT AND ON THAT BASIS WORKED OUT REMUNERATION, PAYABLE U/S 40(B). 5. THE LD. CIT(A) CONSIDERED THE STATEMENT GIVEN BY THE PARTNER DURING THE COURSE OF SURVEY WHEREIN DISCLOSURE WAS TREATED AS BUSINESS INCOME. SINCE CALCULATION OF REMUNERATION UNDER SEC TION 40(B) WAS FOUND CORRECT BY HOLDING THE DISCLOSURE AS BUSINESS INCOM E, LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOR HIGHER REMUNERATION. HE IN THIS REGARD OBSERVED AS UNDER:- ITA NO.1379/AHD/2010 ASST. YEAR 2006-07 3 5.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND SUB MISSIONS MADE BY THE APPELLANT. THE DISCLOSED INCOME WAS FROM EXCESS STOCK OF GOLD AND JEWELLERY, CASH AND WITHDRAWALS BY THE PARTNERS AND RECORDED IN THE BOOKS OF ACCOUNT. FROM THE CONTENT OF THE DISCLOSED INCOME IT IS CRYSTAL CLEAR THAT THE CONCEALED INCOME WAS OUT OF BUSINESS ACTIVITIES. THE DEPARTMENTAL AUTHORITY HAVING ACCEPTED THE DISCLOSE D INCOME AS BUSINESS INCOME AT THE TIME OF SURVEY CANNOT TAKE DIFFERENT STAND DURING THE ASSESSMENT PROCEEDING. THE EXCESS STOCK CAN NEVER B E TREATED AS OTHER SOURCE OF INCOME. CONSIDERING THE FACTUAL MATRIX OF THE CASE I AM INCLINED TO HOLD THAT THE APPELLANT HAS CORRECTLY A DOPTED THE DISCLOSED AMOUNT AT THE TIME OF SURVEY AS BUSINESS INCOME. I DIRECT THE AO TO MODIFY THE TAXABLE INCOME ACCORDINGLY. IT WAS ALSO BROUGHT TO MY NOTICE BY THE LD. AR THAT PARTNERS OF THE FIRM HAVE DULY R EFLECTED THE AMOUNT RECEIVED AS SALARY AND INTEREST IN THEIR R/I. THERE IS NO PILFERAGE OF REVENUE. THEREFORE, THIS GROUND OF APPEAL IS ALLOWE D. 6. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). THE REASONS ARE THAT DURING TH E COURSE OF SURVEY WHEN QUESTIONS WERE PUT UP TO THE PARTNER IT WAS CL EARLY STATED THAT DISCLOSED AMOUNT IS BUSINESS INCOME. RELEVANT QUEST IONS ARE AS UNDER :- QUESTION 14 : TODAY DURING THE COURSE OF SURVEY WE HAVE PREPARED INVENTORY STATEMENT OF CASH WHICH WAS FOUND ON PHYS ICAL VERIFICATION OF CASH ON HAND. ACCORDING TO THE SAME BALANCE OF CASH ON HAND TODAY IS RS. 6,32,261/- WHILE CASH BALANCE AS PER YOUR BOOKS OF ACCOUNTS IS-RS. 1,37,261/-. THERE IS A DIFFERENCE OF RS. 4,95,000/- . WHAT DO YOU WANT TO SAY ABOUT DIFFERENCE IN STOCK ON HAND? ANSWER 14 : THE ABOVE DIFFERENCE OF RS. 4,95,000/- IS CORRECT AND I DECLARE THE SAME ADDITIONAL INCOME OF OUR BUSINESS AND ARE PREPARED TO PAY TAX WHICH IS PAYABLE THEREON. QUESTION 15 : TODAY ON PHYSICAL VERIFICATION OF STO CK AND NOTINGS IN STOCK FOUND INVENTORY ON HAND IS 40.622.240 GRAMS. WHERE AS STOCK AS PER BOOKS OF ACCOUNTS IS 35,366.240 GRAMS. THERE IS A D IFFERENCE IN STOCK ON HAND OF 5,256 GRAMS. WHAT DO YOU WANT TO SAY ABOUT DIFFERENCE IN STOCK ON HAND? ITA NO.1379/AHD/2010 ASST. YEAR 2006-07 4 ANSWER 15 : THE ABOVE DIFFERENCE IN STOCK ON HAND O F RS. 5,256 GRAMS' VALUE AMOUNTING TO RS. 37,68,700/-. I DECLARE THE SAME AS ADDITIONAL BUSINESS INCOME OUR FIRM . IT MEANS, THE SAID INCOME IS ADDITIONAL INCOME OVER AND ABOVE OUR REGULAR INCOME AND ARE PREPARED TO PAY TAX WHICH IS PAYABLE THEREON.(EMPHASIS SUPPLIED) SINCE THERE IS NO CONTRARY MATERIAL TO WHAT HAS BEE N STATED BY THE PARTNERS, THERE IS NO REASON TO HOLD THAT DISCLOSED AMOUNT DOES NOT RELATE TO BUSINESS. FURTHER THE EXCESS GOLD OR CASH WERE F OUND OUT OF INTEGRATED CORPUS OF GOLD AT THE TIME OF SURVEY AND THE AUTHOR ITIES HAVE NOT IDENTIFIED AS TO WHICH GOLD OR CASH WERE ACTUALLY UNACCOUNTED. ONCE THE DECLARED GOLD ORNAMENTS/CASH AND NOT DECLARED GOLD/CASH ARE INTEGRAL PART OF BUSINESS ASSETS AND NOT A SINGLE ITEM OF GOLD ORNAM ENTS OR CASH HAS AN INDEPENDENT IDENTITY SO AS TO SHOW THAT THIS ITEM I S UNACCOUNTED AND OTHER ITEMS ARE ACCOUNTED, PROVISIONS OF SECTION 69 AS SU CH CANNOT BE INVOKED TO GIVE AN ARTIFICIAL PERSONALITY OF INDEPENDENTNES S TO ANY SPECIFIC ITEM. THEREFORE, WHATEVER EXCESS IS FOUND IS RELATED TO O NLY BUSINESS INCOME NOT DECLARED. FOR INVOKING SECTION 69 THE IDENTIFIC ATION OF SPECIFIC ITEM TO WHICH UNDISCLOSED INVESTMENT CAN BE ATTRIBUTED IS N ECESSARY. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE CASE OF M/S F ASHION WORK VS. ACIT IN ITA NO.1634/AHD/2006 ASST. YEAR 2002-03 PRONOUNC ED ON 12.2.2010 WHEREIN IT WAS HELD AS UNDER :- 12. THUS THE IMPORTANT ASPECT THAT EMERGES FROM TH E ENTIRE DISCUSSION IS THAT FOR INVOKING DEEMING PROVISIONS UNDER SECTI ONS 69, 69A, 69B & 69C THERE SHOULD BE CLEARLY IDENTIFIABLE ASSET OR E XPENDITURE. IN THE PRESENT CASE WE FIND THAT ENTIRE PHYSICAL STOCK OF RS.25,14,306/- WAS PART OF THE SAME BUSINESS. BOTH KIND OF STOCK I.E. WHAT IS RECORDED IN THE BOOKS AND WHAT WAS FOUND OVER AND ABOVE THE STOCK RECORDE D IN THE BOOKS, WERE HELD AND DEALT UNIFORMLY BY THE ASSESSEE. THERE WAS NO PHYSICAL DISTINCTION BETWEEN THE ACCOUNTED STOCK OR UNACCOUN TED STOCK. NO SUCH PHYSICAL DISTINCTION WAS FOUND BY THE REVENUE EITHE R. THE ASSESSEE HAS REPEATEDLY CLAIMED THAT UNACCOUNTED BUSINESS INCOME IS INVESTED IN STOCK AND THERE IS NO AMOUNT SEPARATELY TAXABLE UNDER SEC TION 69. THE DEPARTMENT HAS IGNORED THIS CLAIM OF THE ASSESSEE A ND SOUGHT TO TAX THE ITA NO.1379/AHD/2010 ASST. YEAR 2006-07 5 DIFFERENCE BETWEEN BOOK-STOCK AND PHYSICAL-STOCK AS UNACCOUNTED INVESTMENT UNDER SECTION 69 WITHOUT CONSIDERING THE CLAIM OF THE ASSESSEE THAT FIRST THE BUSINESS RECEIPT HAS TO BE CONSIDERE D AND THEN INVESTMENT SHOULD BE TREATED AS COMING OUT OF SUCH UNACCOUNTED INCOME. THE DIFFERENCE IN STOCK SO WORKED OUT BY THE AUTHORITIE S BELOW HAD NO INDEPENDENT IDENTITY OF ITS OWN AND IT IS PART AND PARCEL OF ENTIRE LOT OF STOCK. THE DIFFERENCE BETWEEN DECLARED STOCK IN THE BOOKS AND WHAT IS PHYSICALLY FOUND WOULD ONLY BE A MATHEMATICAL EXPRE SSION IN TERMS OF VALUE AND NOT A SEPARATE INDEPENDENT IDENTIFIABLE A SSET. THEREFORE, IT CANNOT BE SAID THAT THERE IS AN UNDISCLOSED ASSET E XISTED INDEPENDENTLY. ONCE THIS IS SO THEN WHAT IS NOT DECLARED TO THE DE PARTMENT IS RECEIPT FROM BUSINESS AND NOT ANY INVESTMENT AS IT CANNOT BE CO- RELATED WITH ANY SPECIFIC ASSET. 13. THUS IN A CASE WHERE SOURCE OF INVESTMENT/EXPEN DITURE IS CLEARLY IDENTIFIABLE AND ALLEGED UNDISCLOSED ASSET HAS NO I NDEPENDENT EXISTENCE OF ITS OWN OR THERE IS NO SEPARATE PHYSICAL IDENTIT Y OF SUCH INVESTMENT/EXPENDITURE THEN FIRST WHAT IS TO BE TAX ED IS THE UNDISCLOSED BUSINESS RECEIPT INVESTED IN UNIDENTIFIABLE UNACCOU NTED ASSET AND ONLY ON FAILURE IT SHOULD BE CONSIDERED TO BE TAXED UNDER S ECTION 69 ON THE PREMISES THAT SUCH EXCESS INVESTMENT IS NOT RECORDE D IN THE BOOKS OF ACCOUNT AND ITS NATURE AND SOURCE IS NOT IDENTIFIAB LE. ONCE SUCH EXCESS INVESTMENT IS TAXED AS UNDECLARED BUSINESS RECEIPT THEN TAXING IT FURTHER AS DEEMED INCOME UNDER SECTION 69 WOULD NOT BE NECE SSARY. THEREFORE, THE FIRST ATTEMPT OF THE ASSESSING AUTHORITY SHOULD BE TO FIND OUT LINK OF UNDECLARED INVESTMENT/EXPENDITURE WITH THE KNOWN HE AD, GIVE OPPORTUNITY TO THE ASSESSEE TO ESTABLISH NEXUS AND IF IT IS SAT ISFACTORILY ESTABLISHED THEN FIRST SUCH INVESTMENT SHOULD BE CONSIDERED AS UNDECLARED RECEIPT UNDER THAT PARTICULAR HEAD. IT IS ONLY WHERE NO NEX US IS ESTABLISHED WITH ANY HEAD THEN IT SHOULD BE CONSIDERED AS DEEMED INC OME UNDER SECTION 69, 69A, 69B & 69C AS THE CASE MAY BE. IT IS BECAUS E WHEN ASSESSEE FAILS TO EXPLAIN SATISFACTORILY THE SOURCE OF SUCH INVEST MENT THEN IT SHOULD BE TAXED UNDER SECTION 69, 69A, 69B & 69C AS THE CASE MAY BE. IT SHOULD NOT BE DONE AT THE FIRST INSTANCE WITHOUT GIVING OPPORT UNITY TO THE ASSESSEE TO ESTABLISH NEXUS. THEREFORE, THERE IS NO CONFLICT WI TH THE DECISION OF HON. GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN (SUPRA) WHERE INVESTMENT IN AN ASSET OR EXPENDITURE IS NOT IDENTIFIABLE AND NO NEXUS WAS ESTABLISHED THEN WITH ANY HEAD OF INCOME AND THUS WAS NOT AVAILABLE FOR SET OFF AGAINST ANY LOSS UNDER ANY OT HER HEAD. THEREFORE, WE HOLD THAT WHERE ASSET IN WHICH UNDECLARED INVESTMEN T IS SOUGHT TO BE TAXED IS NOT CLEARLY IDENTIFIABLE OR DOES NOT HAVE INDEPENDENT IDENTITY BUT IS INTEGRAL AND INSEPARABLE (MIXED) PART OF DECLARE D ASSET, FALLING UNDER A ITA NO.1379/AHD/2010 ASST. YEAR 2006-07 6 PARTICULAR HEAD, THEN THE DIFFERENCE SHOULD BE TREA TED AS UNDECLARED BUSINESS INCOME EXPLAINING THE INVESTMENT. 14. TO CONCLUDE SUM OF RS.8,10,011/- BEING DIFFEREN CE IN STOCK IS REPRESENTED BY UNDECLARED BUSINESS INCOME. IT DOES NOT HAVE A SEPARATE PHYSICAL IDENTITY. IT IS TO BE ONLY TAXED UNDER THE HEAD BUSINESS. OTHER ASSETS HAVE SEPARATE PHYSICAL IDENTITY BEING FURNIT URE AND FIXTURES, AIR CONDITIONERS ETC. THEY CANNOT HAVE A DIRECT NEXUS W ITH BUSINESS AND THEREFORE INVESTMENT THEREIN HAS TO BE CONSIDERED U NDER SECTION 69 ONLY. ABOVE VIEW OF THE TRIBUNAL IS ALSO SUPPORTED BY THE DECISION OF HON. KARNATAKA HIGH COURT IN THE CASE OF CIT VS. S. K. S RIGIRI AND BROS. (2008) 298 ITR 12 (KARN) WHEREIN IT IS HELD AS UNDE R:- LEARNED COUNSEL FOR THE RESPONDENT FAIRLY CONCEDES THAT HE HAS NO QUARREL OVER THE LEGAL PROPOSITION PUT FORTH BY THE REVENUE. ACCORDING TO HIM, THE TRIBUNAL HAS COME TO THE CONCLUSION THA T THE ADDITIONAL INCOME DECLARED IN THE REVISED RETURNS WAS DISCLOSE D ONLY FROM BUSINESS AND NOT OTHER SOURCES. THEREFORE, HE CONTE NDED THAT WHEN THE ASSESSEE HAD RECEIVED THE ADDITIONAL INCOME FROM BU SINESS ONLY, THE QUESTION OF REOPENING THE ISSUE BY THE COMMISSIONER EXERCISING HIS REVISIONAL POWERS DOES NOT ARISE FOR CONSIDERATION. WE HAVE PERUSED THE ORDERS OF THE TRIBUNAL. THE TRI BUNAL HAS CAREFULLY CONSIDERED THE QUESTIONS PUT BY THE AUTHORITY AND T HE ANSWER OF THE PARTNERS OF THE ASSESSEE'S FIRM AND BASED ON THE SA ME, THE TRIBUNAL HAS COME TO THE CONCLUSION THAT THE ADDITIONAL INCOME R ECEIVED BY THE ASSESSEE IN THE INSTANT CASE IS FROM BUSINESS AND N OT FROM OTHER SOURCES. IF THE TRIBUNAL HAS COME TO THE CONCLUSION THAT THE ADDITIONAL INCOME IS FROM BUSINESS THE REMUNERATION PAID TO TH E PARTNERS HAS TO BE DEDUCTED WHILE TILE PROFIT AND LOSS. IN THE CIRC UMSTANCES, WE ARE OF THE OPINION THAT ON THE FACTS THE REVENUE HAS NO CA SE ON THE MERITS. SO FAR AS THE QUESTION OF LAW IS CONCERNED, WE HAVE TO ANSWER THE SAME IN FAVOUR OF THE REVENUE. HENCE, THESE APPEALS DESERVE TO BE DISMISSED BY UPH OLDING THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL AND THE Y ARE DISMISSED. THUS ONCE IT IS HELD THAT UNACCOUNTED ASSETS DECLAR ED AS INCOME DURING SURVEY IS TO BE ASSESSED UNDER THE HEAD BUSINESS, T HEN ASSESSEE IS ENTITLED TO CLAIM HIGHER AMOUNT OF REMUNERATION TO PARTNERS AS PER LIMIT PRESCRIBED ITA NO.1379/AHD/2010 ASST. YEAR 2006-07 7 UNDER SECTION 40(B).SINCE THERE IS NO DISPUTE OVER THE CALCULATION, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) IN GRANTING HIGHER REMUNERATION TO THE PARTNERS. THE APPEAL FILED BY T HE REVENUE IS DISMISSED. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 30.11.10. SD/- SD/- (MAHAVIR SINGH) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT ME MBER AHMEDABAD, DATED : 30.11.10. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 19/11/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 23/112010 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER ..