M/s. Surekh Jewellers, Pune V. Deputy Commissioner of Income-tax,

ITA 18/PUN/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1121 (ITAT-PUNE)
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 05-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NILESH KHANDELWAL
• Keywords: Unexplained investment; Unexplained expenditure; Capital asset; Business income; Depreciation; Source of fund; Deemed to accrue or arise in india; Speculation loss; Unabsorbed depreciation
• Section: 69C; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . . , BEFORE SHRI R.K. PANDA, AM . / ITA NO.18/PN/2016 / ASSESSMENT YEAR : 2010-11 M/S. SUREKH JEWELLERS, MZSK & ASSOCIATES, CHARTERED ACCOUNTANTS, LEVEL 3, BUSINESS BAY, PLOT NO.84, WELLESLEY ROAD, NEAR RTO, PUNE 411001 PAN NO. AAKFS7677P . / APPELLANT V/S D CIT, CENTRAL CIRCLE - 2(1) , PUNE . / RESPONDENT / APPELLANT BY : SHRI NILESH KHANDELWAL / RESPONDENT BY : SHRI SUHAS KULKARNI, CIT / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 09-11-2015 OF THE CIT(A)-12, PUNE RELATING TO THE ASSESSMENT YEAR 2010-11. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE ACTIVITY OF MANUFACTURING AND TRADING IN GOLD AND SILVER ORNAMENTS AND ARTICLES AND DIAMOND JEWELLERY. IT FILED ITS RETURN OF INCOME ON 13-10-2010 DECLARING TOTAL INCOME OF RS.34,70,59 0/-. IN THIS CASE, A SURVEY U/S.133A OF THE ACT WAS CARRIED OUT DURING WHICH THE STATEMENT OF THE ASSESSEE WAS RECORDED WHEREIN TH E ASSESSEE HAD DISCLOSED AN AMOUNT OF RS.41,00,000/- ON ACCOUNT OF EXCESS STOCK. IT WAS COMMITTED BY THE ASSESSEE THAT THE DISCLOSED INCOME WOULD BE / DATE OF HEARING :28.07.2016 / DATE OF PRONOUNCEMENT:12.08.2016 2 ITA NO.18/PN/2016 OVER AND OVER THE REGULAR INCOME. THE AO HAS REPRODUC ED THE RELEVANT PART OF HIS STATEMENT WHICH READS AS UNDER : ANS. TO Q.NO.10 WE ACCEPT THE DISCREPANCY IN STOCK A ND OFFER AN ADDITIONAL INCOME OF RS.41,00,000/- ON ACCOUNT OF EX CESS STOCK FOUND DURING THE COURSE OF SURVEY. I DECLARE THIS AS MY BUSIN ESS INCOME OVER AND ABOVE MY REGULAR INCOME. 3. THE ASSESSEE IN THE RETURN FILED DISCLOSED SUCH INCOME IN THE PROFIT AND LOSS ACCOUNT. HOWEVER, IT HAS CLAIMED INTEREST AN D REMUNERATION TO PARTNERS FROM SUCH INCOME. ACCORDING TO THE AO, THE ASSESSEE HAS NEGATED THE OFFERED UNDISCLOSED STOCK AMOU NT BY BOOKING EXPENSES/REDUCING GP RATIO AS COMPARED TO THE PRECEDIN G YEAR. THAT WAS NOT THE INTENTION OF THE DECLARATION MADE U/S.133A OF THE I.T. ACT DURING THE SURVEY. ACCORDING TO HIM, THE AMOUNT DECLARED DURING THE COURSE OF SURVEY WAS OVER AND ABOVE THE INCOME OFFERED IN THE REGULAR BOOKS OF ACCOUNT. THE AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE AMOUNT OF RS.41 LAKHS OFFERED AS INCOME DURING THE COURSE OF SURVEY PROCEEDINGS SHOULD NOT BE TREATED AS DEEMED INCOME UNDER THE PROVISIONS OF SECTION 69/69B OF THE I.T. ACT. 4. THE ASSESSEE IN HIS REPLY SUBMITTED THAT THE MAJOR EXPENDITURE CLAIMED BY IT WAS ON ACCOUNT OF INTEREST AND SALARY TO PA RTNERS AMOUNTING TO RS.24,78,558/- AND RS.9,00,000/- AND ACCORDIN GLY THE SAME REPRESENTS APPROPRIATION OF INCOME AND NOT A CHARG E ON INCOME. THE AO ANALYSED THE PROVISIONS OF SECTION 40(B) OF THE I.T . ACT AND HELD THAT THE SALARY AND INTEREST IS DEDUCTIBLE EXPENSES AGA INST THE INCOME FROM REGULAR BOOKS OF ACCOUNT AND NOT AGAINST THE UNDISC LOSED INCOME AS DECLARED DURING THE COURSE OF SURVEY. ACCORDING TO THE AO : 1. ASSESSEE HAS FAILED TO SHOW AS TO HOW THE FUNDS USED FOR PROCURING EXCESS STOCK WERE GENERATED AND ALSO FAILED TO SHOW THE MANNER IN WHICH SUCH UNDISCLOSED INCOME WAS DERIVED. 3 ITA NO.18/PN/2016 2. WHEREVER SOURCE OF INCOME IS NOT ASCERTAINABLE SUCH INCOME CANNOT BE CLASSIFIED UNDER ANY OF THE SPECIFIC HEADS OF INCOME PROVIDED IN THE ACT. 3. SINCE ALL THE SALES, PURCHASE AND EXPENDITURE WERE ALRE ADY RECORDED IN THE BOOKS OF ACCOUNTS AND NO DOCUMENTS SU PPORTING BUSINESS TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WERE FOUND. ASSESSEE FAILED TO SHOW THAT INCOME WAS DERIVED FROM THE EXISTING BUSINESS, HENCE FAILED TO DISCHARGE THE BURDEN CAS TED UPON HIM. NO DETAILS WERE FURNISHED ABOUT UNRECORDED BUSINESS TRANSACTIONS WHICH COULD HAVE BEEN SAID TO HAVE RESULTED IN UNACCOUNTED PROFIT USED FOR INVESTING IN EXCESS STOCK. 4. CLAIM OF ASSESSEE THAT EXCESS STOCK WAS OFFERED DURING THE COURSE OF SURVEY AS BUSINESS INCOME REMAINED ONLY A CLAI M AS SAME WAS NOT SUPPORTED BY ANY MATERIAL EVIDENCE. 5. INCOMES WHERE THERE WAS NO EVIDENCE AS REGARD TO SOURCE OF GENERATION HAVE BEEN CATEGORIZED AS DEEMED INCOME UNDER A LEGAL FICTION. THEREFORE, FUNDS INVESTED TO ACQUIRE EXCESS STOCK IN TRADE CANNOT BE TREATED AS INCOME UNDER THE HEAD IN COME FROM BUSINESS. CONSEQUENTLY ASSESSEE WAS NOT ENTITLED FOR A NY DEDUCTION U/S.40(B) OF THE ACT IN RESPECT OF SALARY AND INTEREST TO PARTNERS AS SAME WAS AVAILABLE ON THE BASIS OF BOOK PRO FIT COMPUTED IN THE MANNER LAID DOWN UNDER CHAPTER-IV-D OF THE ACT. 4.1 REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSES SEE THE AO TREATED THE INCOME OF RS.41 LAKHS DECLARED IN THE COURSE OF SURVEY AS DEEMED INCOME BEING UNDISCLOSED INCOME DECLARED DURING THE COURSE OF SURVEY PROCEEDINGS AND IS NOT ELIGIBLE FOR ANY SALARY AN D REMUNERATION TO PARTNERS. HE ACCORDINGLY DETERMINED TH E TOTAL INCOME OF THE ASSESSEE AT RS.41 LAKHS. 5. BEFORE CIT(A) IT WAS SUBMITTED THAT THE STOCK WAS FOUND IN THE SHOP IN THE FORM OF GOODS IN WHICH THE FIRM DEALT IN DAY-TO- DAY BUSINESS AND THEREFORE INVESTMENT SHOULD BE ACCEPTED AS DERIVED FROM BUSINESS ACTIVITY. IT WAS SUBMITTED THAT SINCE THE ASSES SEE HAD OFFERED THE EXPLANATION REGARDING THE SOURCE OF ACQUISITION OF EXC ESS STOCK, THEREFORE, THE PROVISIONS OF SECTION 69/69B WOULD NOT APPL Y. VARIOUS DECISIONS WERE ALSO BROUGHT TO THE NOTICE OF THE CIT(A). 4 ITA NO.18/PN/2016 6. HOWEVER, THE LD.CIT(A) WAS ALSO NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM, EXCE SS STOCK FOUND DURING THE COURSE OF SURVEY REPRESENTS UNACCOUNT ED INVESTMENT WHICH WAS NOT FULLY DISCLOSED IN THE BOOKS OF ACCOUNT MAIN TAINED BY THE ASSESSEE. THE ASSESSEE HAD NOT FURNISHED ANY EVIDE NCE TO SHOW THAT THE ACTIVITIES UNDERTAKEN DURING THE COURSE OF BUS INESS HAD RESULTED IN INCOME WHICH HAD BEEN APPLIED TO PROCURE EXC ESS STOCK. THE SOURCE OF FUNDS REMAINS EXPLAINED AND IT WAS MERELY A LIP SERVICE TO SAY THAT EXCESS STOCK WAS GENERATED OUT OF BUSINES S CARRIED BY THE ASSESSEE. RELYING ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN REPORTED IN 247 ITR 290 AND THE DECISION OF HONBLE CHATTISGARH HIGH COURT IN THE CASE OF DHANUSH GENERAL STORES VS. CIT REPORTED IN 339 ITR 651 HE HELD THAT INVESTMENT IN EXCESS STOCK FOUND DURING THE COURSE OF S URVEY WOULD CONSTITUTE DEEMED INCOME AND IS TO BE TAXED U/S.69B OF T HE I.T. ACT. THEREFORE, THE ASSESSEE IS NOT ENTITLED TO GET DEDUCTION U/S.40(B) OF THE I.T. ACT. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE FOLLOWING GROUNDS : 1. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE A ND AS PER PROVISIONS OF LAW IT BE HELD THAT THE DISALLOWANCE MAD E OF REMUNERATION COMPUTED APPELLANT U/S.40(B) OF THE ACT SHOULD HAVE B EEN ALLOWED IN FULL. IT FURTHER BE HELD THAT THE DISALLOWANCE MADE BY THE AO IS NOT AS PER THE PROVISIONS OF THE ACT. JUST AND PROPER RELIEF BE GRAN TED TO THE APPELLANT IN THIS RESPECT. 2. THE APPELLANT PRAYS TO BE ALLOWED TO ADD, AMEND, MODIFY, RECTIFY, DELETE, RAISE ANY GROUNDS OF APPEAL AT THE TIME OF HE ARING. 8. THE ASSESSEE HAS ALSO TAKEN AN ADDITIONAL GROUND WHIC H READS AS UNDER : 1. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE A ND AS PER PROVISIONS & SCHEME OF THE ACT IT BE HELD THAT, THE AO HAS ERRED IN TAXING 5 ITA NO.18/PN/2016 THE ADDITIONAL INCOME OF RS.41,00,000/- DECLARED BY THE FIRM IN THE COURSE OF SURVEY AS DEEMED INCOME BY WRONGLY APPLYING THE PR OVISIONS OF SEC.69/69B OF THE ACT. IT FURTHER BE HELD THAT THE IST APPELLATE AUTHORITY IS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE AO IN THIS RESPECT. JUST AND PROPER RELIEF BE GRANTED TO THE APPELLANT IN THE RE SPECT. 9. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE ADD ITIONAL GROUND SUBMITTED THAT THE SAID GROUND IS PURELY A LEGAL GROUND AND NO FRESH FACTS ARE REQUIRED TO BE INVESTIGATED. RELYING ON T HE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF NTPC LTD. REPORTE D IN 229 ITR 383 AND IN THE CASE OF JUTE CORPORATION OF INDIA LTD. REPO RTED IN 187 ITR 688 AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF AHMEDABAD ELECTRICITY COMPANY REPORTED IN 199 ITR 351 HE SUBMITT ED THAT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE SHOULD BE ADMITTED FOR ADJUDICATION. 10. AFTER HEARING BOTH THE SIDES AND CONSIDERING THE FACT THAT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE BEING PURELY A LEGAL ONE AND ALL FACTS ARE ALREADY BEFORE THE LOWER AUTHORITIES, THEREFORE , THE SAME IS ADMITTED FOR ADJUDICATION IN THE LIGHT OF THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF NTPC LTD., THE DECISION IN T HE CASE OF JUTE CORPORATION OF INDIA LTD. AND THE DECISION OF HONBLE B OMBAY HIGH COURT IN THE CASE OF AHMEDABAD ELECTRICITY COMPANY. 11. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE CO PY OF THE ASSESSMENT ORDER DREW THE ATTENTION OF THE BENCH TO T HE REPLY GIVEN BY THE ASSESSEE TO QUESTION NO.10 IN WHICH THE ASSESSEE HA S DECLARED THE ADDITIONAL INCOME OF RS.41 LAKHS ON ACCOUNT OF DISCREPANCY IN STOCK AND THE SAME WAS DECLARED AS BUSINESS INCOME OVER AND ABOVE THE REGULAR INCOME. HE SUBMITTED THAT SINCE THE ASSESSEE HA S DECLARED SUCH INCOME AS BUSINESS INCOME THE ASSESSEE IS ENTITLED T O GET REMUNERATION AND INTEREST FROM SUCH ADDITIONAL INCOME DISCLO SED DURING THE COURSE OF SURVEY. REFERRING TO THE DECISION OF THE PUNE 6 ITA NO.18/PN/2016 BENCH OF THE TRIBUNAL IN THE CASE OF SHRI VENKATESH TEXT ILE MILLS VS. JCIT VIDE ITA NO.2268/PN/2012 ORDER DATED 28-11-2014 H E SUBMITTED THAT THE PUNE BENCH OF THE TRIBUNAL FOLLOWING THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF MD. SERAJUDDIN & BROTH ERS VS. CIT REPORTED IN (2012) 80 DTR 46 HAS HELD THAT ASSESSEE IS ENTITLED TO REMUNERATION FROM SUCH ADDITIONAL INCOME DECLARED DURING TH E COURSE OF SURVEY. REFERRING TO THE DECISION OF THE AHMEDABAD BENC H OF THE TRIBUNAL IN THE CASE OF M/S. FASHION WORLD VS. ACIT VIDE ITA NO.1634/AHD/2006 ORDER DATED 12-02-2010 FOR A.Y. 2002-0 3 HE SUBMITTED THAT THE TRIBUNAL AFTER CONSIDERING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHAMED HAJI HA SAN VS. CIT HAS HELD THAT SUCH ADDITIONAL INCOME DECLARED DURING THE C OURSE OF SURVEY ON ACCOUNT OF DISCREPANCY IN STOCK WAS PART OF THE SAME BUSINESS AND IT IS NOT NECESSARY TO TAX IT AS DEEMED IN COME U/S.69 OF THE I.T. ACT. IT HAS FURTHER BEEN HELD THAT ASSESSEE IS ENTITLED TO DEDUCTION AS PER THE PROVISIONS OF SECTION 40(B) OF THE I.T . ACT. REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUN AL IN THE CASE OF M/S. PROTOVIT FOOD PRODUCTS VS. ITO VIDE ITA NO.826/PN /2008 ORDER DATED 29-08-2008 FOR A.Y. 2004-05 HE SUBMITTED TH AT THE TRIBUNAL IN THE SAID DECISION, FOLLOWING THE DECISION OF THE PUN E BENCH OF THE TRIBUNAL IN THE CASE OF M/S. MANNALAL PANNALAL SETHIA V IDE ITA NO.883/PN/2006 FOR A.Y. 2003-04 HAS HELD THAT ASSESSEE IS ENTITLED TO SALARY OR REMUNERATION TO PARTNERS U/S.40(B) OF THE I.T . ACT IN RESPECT OF INCOME DECLARED DURING THE COURSE OF SURVEY ON ACCOUN T OF UNACCOUNTED CASH OF RS.13,25,000/-. HE ACCORDINGLY SUBMIT TED THAT THE ASSESSEE SHOULD BE ENTITLED TO GET REMUNERATION AND INTEREST TO PARTNERS ON ACCOUNT OF SUCH ADDITIONAL INCOME DECLARED D URING THE COURSE OF SURVEY. 7 ITA NO.18/PN/2016 12. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE AO AND THE CIT(A). HE SUBMITTE D THAT THE EXCESS STOCK FOUND DURING THE COURSE OF SURVEY WHICH WA S NOT DISCLOSED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT REPR ESENTS ITS UNACCOUNTED INVESTMENT AND THEREFORE IT IS TO BE TAXED U/S.69B OF THE I.T. ACT AS DEEMED INCOME. THEREFORE, THE ASSESSEE IS N OT ENTITLED TO GET ANY DEDUCTION U/S.40(B) OF THE I.T. ACT. 13. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PA PER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VA RIOUS DECISIONS CITED BEFORE ME. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE, WHICH IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANU FACTURING AND TRADING IN GOLD AND SILVER ORNAMENTS AND ARTICLES AND DIAMOND JEWELLERY, HAD DECLARED ADDITIONAL INCOME OF RS.41 LAKHS ON AC COUNT OF EXCESS STOCK. I FIND THE ASSESSEE IN THE RETURN OF INCOME WHILE CREDITING THE AMOUNT OF ADDITIONAL INCOME TO THE PROFIT AND LOSS ACCO UNT, HOWEVER, HAS CLAIMED REMUNERATION TO PARTNERS AND INTERE ST ON CAPITAL AND THEREBY DECLARED THE NET INCOME OF RS.34,70,590/- WH ICH IS LESS THAN THE ADDITIONAL INCOME OF RS.41 LAKHS DECLARED DURING TH E COURSE OF SURVEY. I FIND THE AO HELD THAT THE AMOUNT OF RS.41 LAK HS DECLARED DURING THE COURSE OF SURVEY IS TO BE TREATED AS DEEMED INCOME U/S.69B OF THE I.T. ACT AND THE ASSESSEE IS NOT ENTITLED TO ANY REMUNERATION OR INTEREST AS PER THE PROVISIONS OF SECTION 40(B) OF THE I.T. ACT. I FIND IN APPEAL THE CIT(A), FOLLOWING THE DECISION OF HONBLE GUJARAT H IGH COURT IN THE CASE OF FAKIR MOHAMED HAJI HASAN (SUPRA) AND THE D ECISION OF HONBLE CHATTISGARH HIGH COURT IN THE CASE OF DHANUSH GE NERAL STORES (SUPRA) HELD THAT INVESTMENT IN EXCESS STOCK FOUND DURING THE COURSE OF SURVEY WOULD CONSTITUTE DEEMED INCOME U/S.69B OF THE A CT AND THE 8 ITA NO.18/PN/2016 ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S.40(B) OF THE I.T. ACT. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SUCH EXCESS STOCK FOUND DURING THE COURSE OF SURVEY WHICH WAS OFFERED AS AD DITIONAL INCOME BY THE ASSESSEE CONSTITUTES BUSINESS INCOME AND THE ASSESSEE IS ENTITLED TO GET DEDUCTION TOWARDS REMUNERATION TO PAR TNERS AND INTEREST ON CAPITAL AS PER PROVISIONS OF SECTION 40(B) OF THE I.T. ACT. 14. I FIND SOME FORCE IN THE ABOVE SUBMISSION OF THE LD. CO UNSEL FOR THE ASSESSEE. I FIND SIMILAR ISSUE HAD BEEN DECIDED BY THE PUNE BENC H OF THE TRIBUNAL IN DIFFERENCE CASES. IN THE CASE OF SHRI VE NKATESH TEXTILE MILLS (SUPRA) THE ASSESSEE FIRM WAS ENGAGED IN THE B USINESS OF MANUFACTURING & TRADING OF TEXTILE PRODUCTS. DURING THE CO URSE OF SURVEY U/S.133A OF THE ACT ON 22-02-2007, THE ASSESSEE HAS DECLARED ADDITIONAL INCOME OF RS.50,08,220/- ON ACCOUNT OF (A) UNRECORD ED DEBTORS/SALES OF RS.35,06,600/- AND (B) EXCESS STOCK OF RS.15,01,620/-. THE ASSESSEE INCLUDED THE AFORESAID DECLARA TION IN THE RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEA R AND CLAIMED DEDUCTION U/S.40(B) OF THE ACT AMOUNTING TO RS.9,63,92 0/- ON ACCOUNT OF REMUNERATION PAID TO THE PARTNERS. IT WAS N OTED BY THE AO THAT THE ASSESSEE HAS COMPUTED THE REMUNERATION TO P ARTNERS AFTER CONSIDERING THE ADDITIONAL INCOME OF RS.50,08,220/- DECLARED D URING THE SURVEY AS BUSINESS INCOME. THE AO DISAGREED WITH TH E ASSESSEE AND RESTRICTED THE REMUNERATION PAYABLE TO THE PARTNER S AT RS.50,000/- AND THE BALANCE OF RS.9,13,920/- WAS DISALLOWED. IT WAS ARGUED BEFORE THE CIT(A) THAT THE ADDITIONAL INCOME DECLARE D ON ACCOUNT OF EXCESS STOCK AND UNRECORDED SALES/DEBTORS WAS A BUSINESS INCOME AND THEREFORE THE DISALLOWANCE MADE BY THE AO WAS WRONG. THE CIT(A) UPHELD THE ACTION OF THE AO. ON FURTHER APPEAL, THE TRIBUNAL FOLLOWING THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE 9 ITA NO.18/PN/2016 CASE OF MD. SERAJUDDIN AND BROTHERS VS. CIT REPORTED IN (2012) 80 DTR 46 DIRECTED THE AO TO CALCULATE THE ALLOWABLE REMUNER ATION BY ASCERTAINING NOT ONLY THE INCOME FROM BUSINESS BUT ALSO IN COME FROM OTHER SOURCES. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM PARA 8 ONWARDS READ AS UNDER : 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. AT THE OUTSET, IT IS TO BE OBSERVED THAT WHETHER OR NOT ADDITIONAL INCOME SURRENDERED DURING THE COURSE OF SURVEY IS ASSESSABLE AS INCOME FROM BUSINESS OR NOT IS ESSENTIALLY A QUESTION, WHICH HAS TO BE DECIDED HAVING REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH CASE. OSTENSIB LY, THERE CANNOT BE AN ABSOLUTE PROPOSITION THAT ANY INCOME SURRENDERED DURING THE SURVEY IS A BUSINESS INCOME OR VICE VERSA. EVEN BEFORE THE HON' BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KIM PHARMA (P.) LT D. (SUPRA), ASSESSEE WAS FOUND TO HAVE FAILED TO EXPLAIN THE SOURCE OF THE CASH FOUND DURING THE COURSE OF SURVEY, WHICH WAS OFFERED AS AN ADDITIONAL IN COME; AND, THEREFORE IN THE ABSENCE OF THE NATURE OF SOURCE OF C ASH BEING PROVED IT WAS HELD NOT TO BE ASSESSABLE AS INCOME FROM BUSINESS. WE MA Y ALSO REFER TO A JUDGEMENT OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. S. K. SRIGIRI AND BROS. (2008) 298 ITR 13 (KAR), WHICH HAS BEEN RENDERED IN THE CONTEXT OF SECTION 40(B)(III) OF THE ACT. IN THE CASE BEFORE THE HON'BLE KARNATAKA HIGH COURT, THE TRIBUNAL HAD COME TO A FA CTUAL FINDING THAT THE ADDITIONAL INCOME DECLARED IN THE COURSE OF SURVEY WA S FROM BUSINESS AND THEREFORE THE REMUNERATION PAID TO THE PARTNERS WAS H ELD LIABLE TO BE DEDUCTED. BE THAT AS IT MAY, WE MAY NOW EXAMINE THE FACTS OF THE PRESENT CASE, QUA THE ADDITIONAL INCOME OF RS.15,01,620/- DEC LARED BY THE ASSESSEE AS 'EXCESS STOCK'. 9. AS ALREADY NOTED EARLIER THE DISCREPANCY IN STOCK POSITION WAS ACCEPTED BY THE ASSESSEE IN THE COURSE OF SURVEY AND SUCH AMOUNT W AS OFFERED AS ADDITIONAL INCOME FOR THE ASSESSMENT YEAR 2007-08. IN T HE DEPOSITION OF THE ASSESSEE, ACCEPTING THE SAID DISCREPANCY THERE IS NO E XPLANATION AS TO THE MANNER IN WHICH THE INCOME REPRESENTED BY THE AF ORESAID STOCK WAS EARNED BY THE ASSESSEE. IN AN ANSWER TO QUESTION NO.22, A SSESSEE WAS EXPLAINING THE ROUNDED AND UNROUNDED AMOUNTS FOUND N OTED IN THE COMPUTERIZED PRINT- OUT OF THE SALES REGISTER. WHILE T HE UNROUNDED AMOUNTS WERE DECLARED AS UNRECORDED DEBTORS/SALES, THE R OUNDED AMOUNTS WERE EXPLAINED TO BE SALE AMOUNTS WHICH HAVE B EEN RECEIVED IN CASH. IN THIS CONTEXT, ASSESSEE'S PARTNER SPECIFICALLY CONT ENDED THAT THE 'ROUNDED AMOUNTS ........ WHICH ARE RECEIVED IN CASH ARE AGAIN INVESTED IN STOCK OF RESPECTIVE BUSINESS'. IT WAS FURTHER DEPOSED THAT SUCH AMOUNT OF CASH RECEIVED IS INCLUDED IN THE EXCESS STOCK DECLARED E ARLIER. IN THIS MANNER, THE PARTNER OF THE ASSESSEE EXPLAINED THAT SUCH AMOUNT OF CASH WAS INCLUDED IN THE STOCK DECLARATION. THIS EXPLANATIO N OF THE ASSESSEE MADE IN THE COURSE OF STATEMENT RECORDED DURING THE COURSE OF SURVEY HAS REMAINED UN-REBUTTED BY THE REVENUE. THE AMOUNT OF CASH SO RECEIVED QUA THE ASSESSEE FIRM IS STATED TO BE RS.3,50,000/- AS PER THE DETAILS CONTAINED IN THE ANSWER TO QUESTION NO.22 OF THE STAT EMENT. IN OUR CONSIDERED OPINION, OUT OF THE EXCESS STOCK OF RS.15,01 ,620/- DECLARED BY THE ASSESSEE, TO THE EXTENT OF RS.3,50,000/- IT CAN BE CONSIDERED TO HAVE BEEN FUNDED BY WAY OF BUSINESS PROFITS, WHICH WAS HITHER TO UNDECLARED. THEREFORE, AN AMOUNT OF RS.3,50,000/- CONTAINED IN T HE EXCESS STOCK 10 ITA NO.18/PN/2016 DECLARATION OF RS.15,01,620/- CAN BE SAID TO BE ASSESSABL E AS INCOME FROM BUSINESS. FOR BALANCE OF THE AMOUNT OF EXCESS STOCK, ASSESSEE HAS NOT DEMONSTRATED ON THE BASIS OF EVIDENCE, THE SOURCE FROM WHERE SUCH INVESTMENT HAS BEEN MADE AND THEREFORE IT CANNOT BE A SSESSED AS INCOME FROM BUSINESS. THE PLEA OF THE ASSESSEE THAT IT HAS NO OTH ER SOURCE OF INCOME AND THEREFORE THE SOURCE OF EXCESS STOCK HAS TO B E CONSIDERED FROM BUSINESS, IS ONLY A PRESUMPTION, WHICH CANNOT TAKE THE P LACE OF EVIDENCE. 10. IN THIS BACKGROUND, NOW WE MAY ADDRESS THE CONTROV ERSY AS TO WHETHER THE ADDITIONAL INCOME OF RS.50,08,220/- IS EL IGIBLE FOR THE PURPOSES OF COMPUTING THE PARTNERS' REMUNERATION. IN SO FAR AS THE INCOME OFFERED AT THE TIME OF SURVEY WHICH HAS BEEN FOUND T O BE ASSESSABLE AS 'INCOME FROM BUSINESS' IS CONCERNED, THERE IS NO DISPUTE THAT IT FORMS A PART OF THE PROFIT FOR THE PURPOSES OF COMPUTING THE REMUNERATION OF THE PARTNERS. IN SO FAR AS THE ADDITIONAL INCOME DECLARED WHICH IS NOT FOUND TO BE ASSESSABLE AS 'INCOME FROM BUSINESS', THE STAND OF THE RE VENUE IS THAT THE SAME CANNOT QUALIFY FOR THE PURPOSES OF SECTION 40( B) OF THE ACT. IN THIS CONTEXT, WE HAVE NOTICED THAT THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF MD. SERAJUDDIN & BROTHERS VS. CIT, (2012) 80 DTR 4 6 (CAL.) HAS CONSIDERED A SIMILAR CONTROVERSY. ACCORDING TO THE HON 'BLE HIGH COURT, FOR THE PURPOSE OF COMPUTATION OF ALLOWABLE REMUNERATION TO PARTNERS, BOOK- PROFIT HAS TO BE ASCERTAINED NOT ONLY FROM INCOME OF BUSINESS ALONE BUT ALSO INCOME FROM OTHER SOURCES. AS PER THE HON'BLE HIGH COURT IN CALCULATING THE ALLOWABLE REMUNERATION, PROFIT MEAN S PROFIT AS PER THE PROFIT & LOSS ACCOUNT. THE FOLLOWING DISCUSSION IN THE O RDER OF THE HON'BLE HIGH COURT IS WORTHY OF NOTICE :- 'THE SAID CHAPTER NOWHERE PROVIDES THAT METHOD OF ACC OUNTING FOR THE PURPOSE OF ASCERTAINING NET PROFIT SHOULD BE THE O NLY INCOME FROM BUSINESS ALONE AND NOT FROM OTHER SOURCES. SECTION 29 PROVIDES HOW THE INCOME FROM PROFITS AND GAINS OF B USINESS OR PROFESSION SHOULD BE COMPUTED AND THIS HAS TO BE DONE AS PROVIDED UNDER SECTION 30 TO 43D. BY VIRTUE OF SECTION 5 OF THE SAID ACT THAT TOTAL INCOMES OF ANY PREVIOUS YEARS INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED. THUS FOR THE PURPOSE OF SECTI ON 40(B)(V) READ WITH EXPLANATION THERE CANNOT BE SEPAR ATE METHOD OF ACCOUNTING FOR ASCERTAINING NET PROFIT AND/OR BOOK-P ROFIT. THE SAID SECTION NOWHERE PROVIDES AS RIGHTLY POINTED BY MR. KHA ITAN, LEARNED SENIOR ADVOCATE THAT THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT NOT THE PROFIT COMPUTED UNDER THE HE AD PROFIT AND GAINS OF BUSINESS OR PROFESSION. THE DECISION OF THE SUPREME COURT IN THE CASE OF APOL LO TYRES LTD. V. COMMISSIONER OF INCOME TAX REPORTED IN (2002) 255 ITR 273 (SC) IS AN APPROPRIATE GUIDANCE OF THIS POINT AS TO WH AT SHOULD BE DONE IN ORDER TO ASCERTAIN THE NET PROFIT IN CASE OF THIS NATURE. AT PAGE 280 IN THE FIRST PARAGRAPH OF THE REPORT THE SU PREME COURT OBSERVED AS FOLLOWS:- 'SUB-SECTION (1A) OF SECTION 115J DOES NOT EMPOWER THE ASSESSING OFFICER TO EMBARK UPON A FRESH INQUIRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY. THE SAID SUB-SECTION, AS A MATTER OF FACT, MANDATES THE COMPANY TO MAINTAIN ITS ACCOUNT IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT WHICH MANDATE, ACCORDING TO US, IS BODILY LIFTED FROM THE C OMPANIES ACT INTO THE INCOME-TAX ACT FOR THE LIMITED PURPOSE OF MAKING THE SAID ACCOUNT SO MAINTAINED AS A BASIS FOR COMPUTING THE COMPANY'S 11 ITA NO.18/PN/2016 INCOME FOR LEVY OF INCOME-TAX. BEYOND THAT, WE DO N OT THINK THAT THE SAID SUB-SECTION EMPOWERS THE AUTHORITY UNDER THE I NCOME-TAX ACT TO PROBE INTO THE ACCOUNTS ACCEPTED BY THE AUTHO RITIES UNDER THE COMPANIES ACT. IF THE STATUTE MANDATES THAT INCOME PREPARED IN ACCORDANCE WITH THE COMPANIES ACT SHALL BE DEEMED INC OME FOR THE PURPOSE OF SECTION 115J OF THE ACT THEN IT SHOULD BE T HAT INCOME WHICH IS ACCEPTABLE TO THE AUTHORITIES UNDER THE COMP ANIES ACT. THERE CANNOT BE TWO INCOMES ONE FOR THE PURPOSE OF TH E COMPANIES ACT AND ANOTHER FOR THE PURPOSE OF INCOME-TAX BOTH M AINTAINED UNDER THE SAME ACT. IF THE LEGISLATURE INTENDED THE A SSESSING OFFICER TO REASSESS THE COMPANY'S INCOME, THEN IT WOULD HAVE STATED IN SECTION 115J THAT 'INCOME OF THE COMPANY AS ACCEPT ED BY THE ASSESSING OFFICER'. IN THE ABSENCE OF THE SAME AND ON THE LANGUAGE OF SECTION 115J, IT WILL HAVE TO HELD THAT VIEW TAKE N BY THE TRIBUNAL IS CORRECT AND THE HIGH COURT HAS ERRED IN REVERSING THE SAID VIEW OF THE TRIBUNAL.' AT PAGE 282 OF THE SAID REPORT THE SUPREME COURT HAS ALSO OBSERVED AMONGST: OTHER- 'THE FACT THAT IT IS SHOWN UNDER A DIFFERENT HEAD OF INCOME WOULD NOT DEPRIVE THE COMPANY OF ITS BENEFIT UNDER SECTION 32AB SO LONG AS IT IS HELD THAT THE INVESTMENT IN THE UNITS OF THE U TI BY THE ASSESSEE-COMPANY IS IN THE COURSE OF ITS 'ELIGIBLE BUSIN ESS'. THEREFORE, IN OUR OPINION, THE DIVIDEND INCOME EARN ED BY THE ASSESSEE-COMPANY FROM ITS INVESTMENT IN THE UTI SHOULD BE INCLUDED IN COMPUTING THE PROFITS OF ELIGIBLE BUSINESS UNDER SECTION 32AB OF THE ACT.' THUS IT EMERGES AS FOLLOWS: EVEN IF THE INCOME FROM OTHER SOURCES IS INCLUDED IN T HE PROFIT AND LOSS ACCOUNTS TO ASCERTAIN THE NET PROFIT QUA BOOK-PROF IT FOR COMPUTATION OF THE REMUNERATION OF THE PARTNERS THE SAME CANNOT BE DISCARDED.' 11. FOLLOWING THE AFORESAID JUDGEMENT OF THE HON'BLE CALCUTTA HIGH COURT AND IN THE ABSENCE OF ANY CONTRARY DECISION, WE DIREC T THE ASSESSING OFFICER TO CALCULATE THE ALLOWABLE REMUNERATION BY ASCERTAINING NOT ONLY INCOME FROM BUSINESS BUT ALSO INCOME FROM OTHER SOURCES. 15. SIMILARLY, THE AHMEDABAD BENCH OF THE TRIBUNAL HAS ALSO AN OCCASION TO DECIDE SUCH AN ISSUE BY DISTINGUISHING THE DEC ISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHAMED HAJI HASAN (SUPRA) WHICH HAS BEEN RELIED ON BY THE CIT(A). IN THAT C ASE ALSO THE ASSESSEE WAS DEALING IN READYMADE GARMENTS. A SURVEY U /S.133A WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 15-02-2002. DURING THE COURSE OF SURVEY CERTAIN DISCREPANCIES IN THE STOCK AND DOCUMENTS WERE FOUND AND THE STATEMENT OF THE PARTNER WAS RECORDED 12 ITA NO.18/PN/2016 ON THAT DATE. WHILE THE STOCK AS PER BOOKS WAS RS.9,87 ,718/- THE PHYSICAL VERIFICATION OF THE STOCK WAS VALUED AT RS.25,14,306 /-. SUBSEQUENTLY, THE STOCK AS PER BOOKS WERE RE-WORKED AFTER APPLYING GP MARGIN OF 28.5% AND FINALLY THE DIFFERENCE BETWEEN THE S TOCK AS PER BOOKS AND THE PHYSICAL VERIFICATION WAS DETERMINED AT RS.8,10,011/-. FURTHER, UNACCOUNTED INVESTMENT IN FURNITURE AND FIXTURES AND AIR CONDITIONERS TO THE TUNE OF RS.1,97,250/- WAS FOUND. THUS, THE TOTAL UNDISCLOSED INVESTMENT OF RS.10,06,250/- WA S FOUND DURING THE COURSE OF SURVEY. THE ASSESSEE IN THE RETUR N OF INCOME FILED DECLARED TOTAL INCOME OF RS.5,58,670/- AND THERE WAS NO INDEPENDENT DECLARATION OF ANY UNDISCLOSED INVESTMENT FOUND DURING THE COURSE OF SURVEY. THE AO REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE MADE ADDITION OF RS.10,06,250/- SEPARATELY U/S.69 OF THE I .T. ACT AND DID NOT ALLOW REMUNERATION TO PARTNERS FROM SUC H AMOUNT. THE CIT(A) UPHELD THE ACTION OF THE AO AND HELD THAT DEEM ED INCOME U/S.69 DOES NOT NEED ANY HEAD OF INCOME AND CANNOT BE SET OFF AGAINST BUSINESS LOSS. ON FURTHER APPEAL, THE TRIBUNAL HEL D THAT THE AMOUNT OF RS.8,10,011/- BEING DIFFERENCE IN STOCK IS REPRESE NTED BY UNDECLARED BUSINESS INCOME. IT DOES NOT HAVE A SEPARAT E PHYSICAL IDENTITY AND HAS TO BE TAXED UNDER THE HEAD BUSINESS INCOME AND THE ASSESSEE IS ENTITLED TO REMUNERATION TO PARTNERS U/ S.40(B) OF THE I.T. ACT FROM SUCH INCOME. THE RELEVANT OBSERVATION OF TH E TRIBUNAL FROM PARA 9 ONWARDS READ AS UNDER : 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS SOME MISUNDERSTA NDING ABOUT THE INTERPRETATION OF DECISION OF HON. GUJARAT HIGH COUR T IN THE CASE OF FAKIR MOHMED HAJI HASAN VS. CIT (SUPRA). FOR THE SAKE OF CONV ENIENCE WE REPRODUCE THE HEAD NOTES FROM THAT DECISION AS UNDER : - 'THE SCHEME OF SECTIONS 69, 69A, 69B AND 69C OF THE IN COME-TAX ACT, 1961, WOULD SHOW THAT IN CASES WHERE THE NATURE AND SOURCE OF INVESTMENTS MADE BY THE ASSESSEE OR THE NATURE AND SOURCE OF ACQUISIT ION OF MONEY, BULLION, ETC., OWNED BY THE ASSESSEE OR THE SOURCE OF EX PENDITURE INCURRED 13 ITA NO.18/PN/2016 BY THE ASSESSEE ARE NOT EXPLAINED AT ALL, OR NOT SATISFAC TORILY EXPLAINED, THEN, THE VALUE OF SUCH INVESTMENTS AND MONEY OR VALUE OF ARTICLES NOT RECORDED IN THE BOOKS OF ACCOUNT OR THE UNEXPLAINED EXPENDITURE MAY BE DEEMED TO BE THE INCOME OF SUCH ASSESSEE. IT FOLLOWS THA T THE MOMENT A SATISFACTORY EXPLANATION IS GIVEN ABOUT SUCH NATURE AND SOURCE BY THE ASSESSEE, THEN THE SOURCE WOULD STAND DISCLOSED AND WILL, T HEREFORE, BE KNOWN AND THE INCOME WOULD BE TREATED UNDER THE APP ROPRIATE HEAD OF INCOME FOR ASSESSMENT AS PER THE PROVISIONS OF THE ACT. WH EN THE INCOME CANNOT BE SO CLASSIFIED UNDER ANY ONE OF THE HEADS OF I NCOME UNDER SECTION 14, IT FOLLOWS THAT THE QUESTION OF GIVING ANY DEDUCT IONS UNDER THE PROVISIONS WHICH CORRESPOND TO SUCH HEADS OF INCOME WILL NOT ARISE. THE PROVISIONS OF SECTIONS 69, 69A, 69B AND 69C, TREAT UNEX PLAINED INVESTMENTS, UNEXPLAINED MONEY, BULLION, ETC., AND UN EXPLAINED EXPENDITURE AS DEEMED INCOME WHERE THE NATURE AND SOU RCE OF INVESTMENT, ACQUISITION OR EXPENDITURE, AS THE CASE MA Y BE, HAVE NOT BEEN EXPLAINED OR SATISFACTORILY EXPLAINED. THEREFORE, IN THESE CASES, THE SOURCE NOT BEING KNOWN, SUCH DEEMED INCOME WILL NOT FALL EV EN UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THEREFORE, THE CORRESPON DING DEDUCTIONS WHICH ARE APPLICABLE TO THE INCOMES UNDER ANY OF THE SE 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 PROVISIONS : HELD,_ ON THE FACTS, THAT IT WAS CLEAR THAT WHEN THE INVESTMENT IN OR ACQUISITION OF GOLD, WHICH WAS RECOVERED FROM THE ASSESSE E WAS NOT RECORDED IN THE BOOKS OF ACCOUNT AND THE ASSESSEE OFFERE D NO EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH INVESTMENT OR ACQU ISITION AND THE VALUE OF SUCH GOLD WAS NOT RECORDED IN THE BOOKS OF AC COUNT, NOR THE NATURE AND SOURCE OF ITS ACQUISITION EXPLAINED, THERE COULD ARISE NO QUESTION OF TREATING THE VALUE OF SUCH GOLD, WHICH WA S DEEMED TO BE THE INCOME OF THE ASSESSEE, AS A DEDUCTIBLE TRADING LOSS ON IT S CONFISCATION, BECAUSE SUCH DEEMED INCOME DID NOT FALL UNDER THE HEA D OF INCOME 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THEREFORE, THE TRIBUNAL WAS PERFECTLY RIGHT IN HOLDING THAT THE VALUE OF THE GO LD WAS LIABLE TO BE INCLUDED IN THE INCOME OF THE ASSESSEE AS THE SOURCE OF I NVESTMENT IN THE GOLD OR OF ITS ACQUISITION WAS NOT EXPLAINED AND THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM THAT THE VALUE OF THE GOLD SHOULD BE ALLOWED AS A DEDUCTION FROM HIS INCOME.' IF WE CLOSELY EXAMINE ABOVE JUDGMENT WE FIND THAT FO R INVOKING PROVISIONS OF SECTIONS 69, 69A,69B & 69C TWO CONDITIONS ARE REQUI RED TO BE SATISFIED. THEY ARE (I) INVESTMENT/EXPENDITURE ARE NOT RECORDED IN THE BOOKS OF ACCOUNT OF ASSESSEE & (II) THE NATURE AND SOURCE OF ACQU ISITION OF ASSETS OR EXPENDITURE ARE NOT EXPLAINED OR NOT EXPLAINED SATISF ACTORILY THE EXPRESSION 'NATURE AND SOURCE' USED IN THIS SECTION SHOULD BE UNDERSTOOD TO MEAN REQUIREMENT OF IDENTIFICATION OF SOURCE AND ITS GENUINENESS. TO EXPLAIN 'NATURE' IT WOULD REQUIRE THE ASSESSEE TO EXPL AIN WHAT IS DESCRIPTION OF INVESTMENT OR EXPENDITURE, PERIOD AND THE MANNER IN WHICH IT WAS DONE. TO EXPLAIN THE SOURCE IT WOULD REQUIRE T HE ASSESSEE TO EXPLAIN THE CORPUS OR FUND FROM WHERE INVESTMENT OR EXPENDITU RE HAS BEEN MET AND ALSO THE HEAD UNDER WHICH THE INVESTMENT OR EXPEN DITURE WOULD FALL SUCH AS WHETHER INVESTMENT/EXPENDITURE PERTAINS TO BUSIN ESS OR RELATES TO ACQUISITION OF CAPITAL ASSET OR TO OTHER SOURCE OR TO AGRICULTURE. WHERE THE ASSESSEE IS ABLE TO EXPLAIN NATURE AND SOURCE OF INVESTMEN T/EXPENDITURE AND ALSO IF THEY ARE RECORDED IN THE BOOKS OF ACCOUNT THEN SUCH INVESTMENT/EXPENDITURE WILL NOT BE TREATED AS DEEMED INCOME BUT WHERE INVESTMENT /EXPENDITURE IS NOT RECORDED IN THE BOOKS O F ACCOUNT AND/OR 14 ITA NO.18/PN/2016 THEIR NATURE AND SOURCE IS NOT EXPLAINED OR NOT SATISFA CTORY EXPLAINED, DEEMING PROVISION UNDER THESE FOUR SECTIONS CAN BE INVO KED BY THE AO AND INVESTMENT/EXPENDITURE WOULD BE TREATED AS DEEMED INC OME OF THE ASSESSEE. THUS FOR INVOKING THESE DEEMING SECTIONS FIRST CON DITION HAS TO BE NECESSARILY SATISFIED THAT THEY ARE NOT RECORDED IN THE BOOKS OF ACCOUNT REGULARLY MAINTAINED BY THE ASSESSEE. BUT FOR ESTABLISHIN G NEXUS OF SUCH INVESTMENT/EXPENDITURE WITH A HEAD OF INCOME AND TO TAKE THE BENEFIT OF SET OFF, ASSESSEE HAS TO NECESSARILY EXPLAIN THE NATURE AND SOURCE OF SUCH INVESTMENT/EXPENDITURE AND ESTABLISH ITS NEXUS WITH ANY HEAD OF INCOME. HON. GUJARAT HIGH COURT FURTHER HELD THAT FOR CLAIM ING TRADING LOSS IN RESPECT OF AN ASSET WHOSE INVESTMENT WAS FOUND UNEXPLAINE D, IT WAS NECESSARY FOR THE ASSESSEE TO EXPLAIN THE NATURE AND SOURC E OF ITS ACQUISITION AND ON ITS FAILURE TO DO SO THE TRADING LO SS ON THE CONFISCATION OF THE ASSET COULD NOT BE SET OFF. 10. WE NOTICE THAT THE SET OFF OF ANY TRADING LOSS AGA INST DEEMED INCOME ASSESSED UNDER SECTIONS 69, 69A, 69B & 69C IS NOT DIRECTLY DISCERNIBLE FROM SECTIONS 72 TO 79 FALLING IN CHAPTER-VI. TO SUMMA RILY REFER TO THESE PROVISIONS WE NOTE THAT IN CHAPTER VI, SECTION 70 PROV IDES SET OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UND ER THE SAME HEAD OF INCOME. IN OTHER WORDS, IF UNDER THE HEAD 'BUSINESS' THERE ARE TWO BUSINESSES -ONE IS RESULTING IN INCOME AND THE OTHER IS RE SULTING IN LOSS, THEY ARE TO BE SET OFF AGAINST EACH OTHER. SIMILARLY, IF THERE IS A LOSS UNDER THE HEAD CAPITAL GAINS IN RESPECT OF SHORT-TERM CAPITA L GAINS AND THERE IS INCOME IN RESPECT OF OTHER CAPITAL ASSETS THEN THAT CAN BE SET OFF AS PER SECTION 70. SECTION 71 PROVIDES SET OFF OF LOSS FROM ONE HEAD AGAINST INCOME FROM ANOTHER HEAD. THUS WHERE THERE IS A LOSS UN DER ONE HEAD BEING LOSS OTHER THAN LOSS UNDER THE HEAD CAPITAL GAINS THEN IT CAN BE SET OFF AGAINST ANY INCOME ASSESSABLE UNDER ANOTHER HEAD. SECTIO N 71A AND SECTION 71B PROVIDE FOR CARRY FORWARD OF SET OFF OF LOSS FROM HOUSE PROPERTY. SECTION 72 PROVIDES FOR CARRY FORWARD OF B USINESS LOSS. ACCORDING TO THIS SECTION IF LOSS UNDER THE HEAD BUSINESS, OTHER THAN SPECULATION LOSS, CANNOT BE SET OFF AGAINST INCOME UNDER ANY OTHER HEAD IN ACCORDANCE WITH SECTION 71, THEN IT HAS TO BE CARRIED FORWARD TO THE FOLLOWING ASST. YEARS. SECTION 72A PROVIDES PROVISIONS OF CARRY FORWARD AND ACCUMULATED LOSS AND UNABSORBED DEPRECIATION ALLO WANCE IN AMALGAMATION OR DEMERGER. SIMILARLY SECTION 72AA PRO VIDES SUCH SET OFF AND CARRY FORWARD IN THE CASE OF BANKING COMPANY AND SEC.72AB PROVIDES SET OFF IN THE CASE OF CO-OP. BANKS. SECTION 73 PROVID ES FOR TREATMENT OF LOSS IN SPECULATION BUSINESS. SECTION 74 PROVIDES FOR TREATM ENT OF LOSS UNDER THE HEAD CAPITAL GAINS AND SECTION 74A PROVIDES FOR T REATMENT TO LOSS ARISING FROM SOURCES UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. SECTION 75PROVIDES FOR LOSSES IN CASE OF FIRM AND SECTION 78 IN RESPECT OF CARRY FORWARD AND SET OFF OF LOSS IN CASE OF CHANGE IN CONSTIT UTION OF THE FIRM AND SECTION 79 PROVIDES FOR CARRY FORWARD AND SET OF F OF LOSS IN THE CASES OF CERTAIN COMPANIES. THUS TREATMENT OF LOSS ARISING UNDER THE HEAD BUSINESS IS PROVIDED ONLY UNDER SECTION 72 WHICH DIRECTS TO CAR RY FORWARD THE UNABSORBED LOSS TO THE NEXT YEAR UNLESS IT IS OTHERWISE PR OVIDED IN ANY OTHER SECTION OF CHAPTER -VI. WE HAVE GONE THROUGH A LL THE SECTIONS UNDER CHAPTER -VI AND WE DO NOT FIND ANY PROVISION FOR SETT ING OFF OF BUSINESS LOSS AGAINST DEEMED INCOME UNDER SECTIONS 69, 69A, 69B & 69C. 11. BUT THIS DOES NOT MEAN THAT LOSS COMPUTED UNDER ANY OF THE FIVE HEADS MENTIONED IN SECTION 14- (I) 'SALARY', (II) 'INCOME F ROM HOUSE PROPERTY', (III) 'PROFITS AND GAINS FROM BUSINESS OR PROFESSION', (IV) 'CA PITAL GAINS' AND (V) 'INCOME FROM OTHER SOURCES' - CANNOT AT ALL BE ADJUSTE D AGAINST UNEXPLAINED INVESTMENT OR EXPENDITURE. WHAT IS NECESSARY AS PER HON. GUJARAT HIGH 15 ITA NO.18/PN/2016 COURT IS THAT SOURCE OF ACQUISITION OF ASSET OR EXPENDIT URE SHOULD BE CLEARLY IDENTIFIABLE. IN THE CASE BEFORE HON. GUJARAT HIGH C OURT THE SOURCE OF GOLD CONFISCATED WAS NOT IDENTIFIABLE AND HENCE ADJUSTMENT WAS NOT PERMITTED. 12. THUS THE IMPORTANT ASPECT THAT EMERGES FROM THE E NTIRE DISCUSSION IS THAT FOR INVOKING DEEMING PROVISIONS UNDER SECTIONS 69, 69A, 69B & 69C THERE SHOULD BE CLEARLY IDENTIFIA BLE ASSET OR EXPENDITURE. IN THE PRESENT CASE WE FIND THAT ENTIRE PHYSICAL STOCK OF RS.25,14,306/- WAS PART OF THE SAME BUSINESS. BOTH KIND O F STOCK I.E. WHAT IS RECORDED IN THE BOOKS AND WHAT WAS FOUND OVER AND A BOVE THE STOCK RECORDED IN THE BOOKS, WERE HELD AND DEALT UNIFORMLY BY THE ASSESSEE. THERE WAS NO PHYSICAL DISTINCTION BETWEEN THE ACCOUNTE D STOCK OR UNACCOUNTED STOCK. NO SUCH PHYSICAL DISTINCTION WAS FOU ND BY THE REVENUE EITHER. THE ASSESSEE HAS REPEATEDLY CLAIMED THAT UNACCOU NTED BUSINESS INCOME IS INVESTED IN STOCK AND THERE IS NO AMOUNT SEPAR ATELY TAXABLE UNDER SECTION 69. THE DEPARTMENT HAS IGNORED THIS CLAI M OF THE ASSESSEE AND SOUGHT TO TAX THE DIFFERENCE BETWEEN BOOK-STOCK A ND PHYSICAL-STOCK AS UNACCOUNTED INVESTMENT UNDER SECTION 69WITHOUT CONSIDE RING THE CLAIM OF THE ASSESSEE THAT FIRST THE BUSINESS RECEIPT HAS TO BE CON SIDERED AND THEN INVESTMENT SHOULD BE TREATED AS COMING OUT OF SUCH UNAC COUNTED INCOME. THE DIFFERENCE IN STOCK SO WORKED OUT BY THE AUTHORIT IES BELOW HAD NO INDEPENDENT IDENTITY OF ITS OWN AND IT IS PART AND PA RCEL OF ENTIRE LOT OF STOCK. THE DIFFERENCE BETWEEN DECLARED STOCK IN THE B OOKS AND WHAT IS PHYSICALLY FOUND WOULD ONLY BE A MATHEMATICAL EXPRESSI ON IN TERMS OF VALUE AND NOT A SEPARATE INDEPENDENT IDENTIFIABLE ASSE T. THEREFORE, IT CANNOT BE SAID THAT THERE IS AN UNDISCLOSED ASSET EXISTED INDEPENDENTLY. ONCE THIS IS SO THEN WHAT IS NOT DECLARED TO THE DEPART MENT IS RECEIPT FROM BUSINESS AND NOT ANY INVESTMENT AS IT CANNOT BE CO-RELAT ED WITH ANY SPECIFIC ASSET. 13. THUS IN A CASE WHERE SOURCE OF INVESTMENT/EXPENDITU RE IS CLEARLY IDENTIFIABLE AND ALLEGED UNDISCLOSED ASSET HAS NO INDEPE NDENT EXISTENCE OF ITS OWN OR THERE IS NO SEPARATE PHYSICAL IDENTITY OF SU CH INVESTMENT/EXPENDITURE THEN FIRST WHAT IS TO BE TAXED IS THE UNDISCLOSED BUSINESS RECEIPT INVESTED IN UNIDENTIFIABLE UNACCOUNTED ASSET AND ONLY ON FAILURE IT SHOULD BE CONSIDERED TO BE TAXED UNDER SECT ION 69 ON THE PREMISES THAT SUCH EXCESS INVESTMENT IS NOT RECORDED IN TH E BOOKS OF ACCOUNT AND ITS NATURE AND SOURCE IS NOT IDENTIFIABLE. ONCE SUCH EXCESS INVESTMENT IS TAXED AS UNDECLARED BUSINESS RECEIPT THEN T AXING IT FURTHER AS DEEMED INCOME UNDER SECTION 69 WOULD NOT BE NECESSAR Y. THEREFORE, THE FIRST ATTEMPT OF THE ASSESSING AUTHORITY SHOULD BE TO FIND OUT LINK OF UNDECLARED INVESTMENT/EXPENDITURE WITH THE KNOWN HEA D, GIVE OPPORTUNITY TO THE ASSESSEE TO ESTABLISH NEXUS AND IF IT IS SATISFACTORILY ESTABLISHED THEN FIRST SUCH INVESTMENT SHOULD BE CONSIDE RED AS UNDECLARED RECEIPT UNDER THAT PARTICULAR HEAD. IT I S ONLY WHERE NO NEXUS IS ESTABLISHED WITH ANY HEAD THEN IT SHOULD BE CONSIDERED AS DEEMED INCOME UNDER SECTION 69, 69A,69B & 69C AS THE CASE MAY BE. IT IS BECAUSE WHEN ASSESSEE FAILS TO EXPLAIN SATISFACTORILY THE SOURCE OF SUCH INVESTMENT THEN IT SHOULD BE TAXED UNDER SECTION 69, 69A, 69B & 69C AS TH E CASE MAY BE. IT SHOULD NOT BE DONE AT THE FIRST INSTANCE WITHOUT GIVIN G OPPORTUNITY TO THE ASSESSEE TO ESTABLISH NEXUS. THEREFORE, THERE IS NO CONFLIC T WITH THE DECISION OF HON. GUJARAT HIGH COURT IN THE CASE OF FA KIR MOHMED HAJI HASAN (SUPRA) WHERE INVESTMENT IN AN ASSET OR EXPENDITU RE 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 U NDER ANY OTHER HEAD. THEREFORE, WE HOLD THAT WHERE ASSET IN WHICH UN DECLARED INVESTMENT IS SOUGHT TO BE TAXED IS NOT CLEARLY IDENTIFIABLE OR D OES NOT HAVE 16 ITA NO.18/PN/2016 INDEPENDENT IDENTITY BUT IS INTEGRAL AND INSEPARABLE (MIXED) PART OF DECLARED ASSET, FALLING UNDER A PARTICULAR HEAD, THEN THE DIFFERENCE SHOULD BE TREATED AS UNDECLARED BUSINESS INCOME EXPLAINING THE INVESTMENT. 14. TO CONCLUDE SUM OF RS.8,10,011/- BEING DIFFERENCE IN STOCK IS REPRESENTED BY UNDECLARED BUSINESS INCOME. IT DOES NOT H AVE A SEPARATE PHYSICAL IDENTITY. IT IS TO BE ONLY TAXED UNDER THE H EAD 'BUSINESS'. OTHER ASSETS HAVE SEPARATE PHYSICAL IDENTITY BEING FURNITURE A ND FIXTURES, AIR CONDITIONERS ETC. THEY CANNOT HAVE A DIRECT NEXUS WIT H BUSINESS AND THEREFORE INVESTMENT THEREIN HAS TO BE CONSIDERED UNDE R SECTION 69 ONLY. 15. IN VIEW OF THE ABOVE, AO IS DIRECTED TO CONSIDER THE SUM OF RS.8,10,011/- AS UNDISCLOSED BUSINESS INCOME ASSESSABLE UNDER THE HEAD 'BUSINESS' AND OTHER TWO SUMS UNDER SECTION 69. THE BUSINE SS INCOME INCLUDING APPLICATION OF SECTION 40(B) HAS TO BE CONSI DERED ACCORDINGLY. FOR CALCULATION OF INCOME IN VIEW OF OUR ABOVE OBSER VATIONS, WE RESTORE THE MATTER TO THE FILE OF AO. 16. SIMILAR VIEW HAS BEEN TAKEN BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. PROTOVIT FOOD PRODUCTS (SUPRA) WHEREIN THE TRIBUNAL FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MANNALAL PANNALAL SETHIA (SUPRA) HAS H ELD THAT ASSESSEE IS ENTITLED TO SALARY OR REMUNERATION TO P ARTNERS U/S.40(B) OF THE I.T. ACT IN RESPECT OF INCOME DECLARED DURIN G THE COURSE OF SURVEY. 17. NO DOUBT THERE IS A CONTRARY DECISION BY THE HONBLE CHATTISG ARH HIGH COURT IN THE CASE OF DHANUSH GENERAL STORES VS. CIT (SUPRA) WHEREIN EXCESS STOCK OFFERED DURING THE COURSE OF SURVEY WAS HELD TO BE INCOME UNDER THE DEEMING PROVISIONS OF SECTION 69B AND NOT BUSINESS INCOME. SINCE THERE ARE CONTRARY DECISIONS, I.E. DE CISION IN FAVOUR OF THE ASSESSEE BY THE HONBLE KOLKATA HIGH COURT AND AGAINST THE ASSESSEE BY THE DECISION OF HONBLE GUJARAT HIGH COU RT AND HONBLE CHATTISGARH HIGH COURT AND SINCE THERE IS NO DEC ISION OF THE HONBLE JURISDICTIONAL HIGH COURT BROUGHT TO OUR NOTICE BY EITHER SIDE, THEREFORE, FOLLOWING THE RATIO OF THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS REPORTED IN 88 ITR 192 I HOLD 17 ITA NO.18/PN/2016 THAT THE DECISION, WHICH IS IN FAVOUR OF THE ASSESSEE, HAS T O BE FOLLOWED. 18. IN THE LIGHT OF THE ABOVE DISCUSSION, I HOLD THAT THE A MOUNT OF RS.41 LAKHS DECLARED BY THE ASSESSEE DURING THE COURSE OF SURVEY PARTAKES THE CHARACTER OF BUSINESS INCOME AND THE ASSE SSEE IS ENTITLED TO REMUNERATION AND INTEREST ON CAPITAL AS PER THE PR OVISIONS OF SECTION 40(B) OF THE I.T. ACT ON SUCH INCOME. I HOLD AND D IRECT ACCORDINGLY. THE ADDITIONAL GROUND AS WELL AS THE GROUND RAISED BY THE ASSESSEE ARE ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12-08-2016. SD/- ( R.K. PANDA ) ACCOUNTANT MEMBER PUNE ; DATED : 12 TH AUGUST, 2016. '# $# / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // // TRUE COPY // // $ % //UE &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - 12, PUNE 4. THE CIT-12, PUNE 5. $ %%* , * , SMC BENCH / DR, ITAT, SMC BENCH PUNE; 6. 2 / GUARD FILE.