The DCIT, Circle-9, Surat V. M/s. Shree Labdhi Prints, Surat

ITA 3258/AHD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60341 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-05-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 26-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Business income; Documents seized
• Section: 143(3); 133A

Judgement Text

ITA NO.3258 /AHD/2011 A.YR. 2003- 04. 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI D. K. TYAGI, JM & SHRI ANIL CHATURVED I A.M.) I.T.A. NO.3258/AHD/2011. (ASSESSMENT YEAR: 2003-04) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-9, AAYAKAR BHAVAN, MAJURA GATE, SURAT. (APPELLANT) VS. M/S. SHREE LABDHI PRINTS, 1,2,3, PAIKI, OPP. VISAMO, A. K.ROAD, SURAT. (RESPONDENT) PAN: AABFV 9626Q APPELLANT BY : SHRI VINOD TANWANI, SR. D. R. RESPONDENT BY : SHRI M.K. PATEL. ( )/ ORDER DATE OF HEARING : 3-5-2012 DATE OF PRONOUNCEMENT : 18-5-2012 PER: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF CIT (A)-V, SURAT DATED 22-08-2011 FOR THE ASSESSMENT YEAR 2003 -04. 2. THE ONLY EFFECTIVE GROUND TAKEN BY THE REVENUE R EADS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.10,00,000/- ITA NO.3258 /AHD/2011 A.YR. 2003- 04. 2 MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF REMU NERATION TO WORKING PARTNER. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILE D RETURN OF INCOME ON 30.3.2004 DECLARING TOTAL INCOME OF RS 57,68,056/-. THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 1 43(3) VIDE ORDER DATED 7.7.2004 AND AFTER MAKING CERTAIN ADDITIONS THE TOT AL INCOME WAS DETERMINED AT RS 74,96,800/-. AGAINST THE ADDITIONS , THE ASSESSEE PREFERRED APPEAL BEFORE CIT (A). CIT (A) GRANTED PA RTIAL RELIEF TO THE ASSESSEE. 4. SUBSEQUENTLY THE CASE WAS REOPENED FOR THE REASO N THAT IT WAS NOTICED BY THE AO THAT DESPITE HAVING NEGATIVE BOOK PROFITS OF RS 17,69,534/-, REMUNERATION OF RS. 10,00,000/- WAS AL LOWED TO PARTNERS. ACCORDING TO AO, AS PER THE PROVISIONS OF SECTION 4 0(B), THE REMUNERATION TO PARTNERS OF THE FIRM IS PERMITTED FROM THE NET P ROFITS OF THE FIRM. ACCORDING TO THE AO THE PROFIT HAS ARISEN OUT OF THE DISCLOSU RE MADE BY THE ASSESSEE U/S 133A. ACCORDING TO THE AO WHEN THE SOURCE OF AN Y INCOME WAS NOT KNOWN THE INCOME HAS TO BE CLASSIFIED UNDER THE HEA D OF OTHER SOURCES AND NOT UNDER THE HEAD OF BUSINESS AND PROFESSION. ACCO RDING TO HIM, IF THE INCOME DECLARED DURING THE SOURCE OF SURVEY IS EXCL UDED FROM THE BUSINESS INCOME, THE NET PROFIT OF THE FIRM WAS NEGATIVE, AN D THEREFORE NO REMUNERATION TO PARTNERS AS ENVISAGED U/S. 40(B) WA S ALLOWABLE. THE AO VIDE ORDER DATED 31.7.2008 PASSED U/S 143(3) R.W.S. 147 DISALLOWED THE AFORESAID REMUNERATION AND DETERMINED THE TOTAL INC OME AT RS.73,68,780/-. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED APPEAL BEFORE CIT (A). BEFORE CIT (A) THE ASSESSEE CONTENDED THAT BASED ON THE ITA NO.3258 /AHD/2011 A.YR. 2003- 04. 3 DOCUMENTS FOUND FROM THE PREMISES OF THE ASSESSEE, DISCLOSURE WAS MADE UNDER THE HEAD INCOME FROM BUSINESS. ONCE IT IS CON SIDERED AS BUSINESS INCOME THEN THE REMUNERATION TO PARTNERS HAS TO BE COMPUTED AFTER TAKING IT INTO CONSIDERATION. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF CIT & ANR. VS S.K.SRIGIRI & BROS (2008) 20 (I) ITCL 248 ( KAR HC), HOTEL KUMAR PALACE VS DCIT (2005) 93 TTJ (ASR) 629 AND OTHER DE CISIONS. CIT VIDE ORDER DATED 22.8.2011 ALLOWED THE APPEAL OF THE ASS ESSEE BY HOLDING THAT WHEN ONCE THE ADDITIONAL INCOME OFFERED FOR TAXATIO N DURING THE SURVEY IS ACCEPTED AND IT HAS BEEN EXPLAINED BUSINESS AS THE SOURCE OF ADDITIONAL INCOME THEN THERE IS NO BAR IN THE ACT FROM CLAIMIN G PARTNERS REMUNERATION FROM SUCH ADDITION BUSINESS INCOME OFFERED FOR TAXA TION. 5. AGGRIEVED BY THE ORDER OF CIT (A) THE REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US THE LD. D.R. STATED THAT THE ASSESSEE FIR M MADE DISCLOSURE UNDER THE FOLLOWING HEAD:- INVESTMENTS IN FDR 48,00,000 ON MONEY PAID FOR AGAM ROW HOUSE 22,00,000 MACHINERY 23,79,225 STOCK 4,01,580 UNRECORDED CASH 4,25,000 6. THE ASSESSEE HAD OFFERED THE SAME AS BUSINESS IN COME BUT SOURCE OF THE SAME WAS NOT KNOWN AND ALSO INCOME WAS NOT D ECLARED UNDER ANY HEAD OF REGULAR PROFIT AND LOSS ACCOUNT. AS PER THE PROVISIONS OF SECTION 40(B), A PARTNER OF THE FIRM WOULD BE ALLOWED REMUN ERATION FROM THE BUSINESS PROFIT DECLARED BY THE ASSESSEE FOR THE PA RTICULAR YEAR AND FOR ITA NO.3258 /AHD/2011 A.YR. 2003- 04. 4 DETERMINING THE BOOK PROFITS FOR THE PURPOSE OF DET ERMINING THE REMUNERATION THE INCOME DISCLOSED DURING SURVEY U/S 133A CANNOT BE CONSIDERED AS PART OF THE BUSINESS PROFITS. ACCORDI NGLY, THE LD. D.R. URGED THAT THE ORDER OF AO BE SUSTAINED. 7. ON THE OTHER HAND THE LD. A.R. SUBMITTED THAT TH E DISCLOSURE OF THE INCOME WAS MADE UNDER THE HEAD OF BUSINESS INCOME A S THE DOCUMENTS SEIZED WERE RELATED TO THE BUSINESS OF THE ASSESSEE . AS ALL THE AMOUNT OF UNDISCLOSED INCOME WAS FULLY RELATED TO THE BUSINES S OF THE ASSESSEE, THE INCOME WAS DECLARED FROM BUSINESS AND NOT FROM OTHE R SOURCES. HE FURTHER CONTENDED THAT ONCE THE INCOME IS CONSIDERED AS BEI NG FROM BUSINESS, IT CANNOT BE EXCLUDED FOR DETERMINING BOOK PROFITS FOR THE PURPOSE OF CALCULATION OF REMUNERATION TO PARTNERS U/S 40(B). HE ALSO RELIED ON THE DECISIONS IN THE CASE OF CIT & ANR. VS S.K.SRIGIRI & BROS (2008) 20 (I) ITCL 248 (KAR HC), HOTEL KUMAR PALACE VS DCIT (2005) 9 3 TTJ (ASR) 629, DEEPA AGRO AGENCIES VS ITO (2005) 98 TTJ (BANG) 766 AND OTHER DECISIONS. HE FURTHER STATED THAT ON IDENTICAL FACT S THE AHMEDABAD TRIBUNAL IN THE CASE OF ACIT VS AMIN YASIN SAIYED (ITA NO 29 16/AHD/2006) HAS ALLOWED THE ASSESSEES APPEAL. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US. 9. THE FACTUAL POSITION OF THE PRESENT CASE ARE THA T THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DYEING AND PRINTING. A SURVEY TOOK PLACE AT THE BUSINESS PREMISES OF THE ASSESSEE AND THE ASSESSEE MADE DISCLOSURE U/S 133A. THE DISCLOSURE OF THE INC OME WAS MADE UNDER ITA NO.3258 /AHD/2011 A.YR. 2003- 04. 5 THE HEAD OF BUSINESS INCOME AS THE DOCUMENTS SEIZED WERE RELATED TO THE BUSINESS OF THE ASSESSEE. AS ALL THE AMOUNT OF UND ISCLOSED INCOME WAS FULLY RELATED TO THE BUSINESS OF THE ASSESSEE, THE INCOME WAS DECLARED FROM BUSINESS AND NOT FROM OTHER SOURCES AND ACCORDINGLY THE SAME WAS CONSIDERED FOR THE PURPOSE OF BOOK PROFIT FOR THE P URPOSE OF CALCULATION OF REMUNERATION PAYABLE U/S 40(B). THESE FACTS ARE NOT DISPUTED BY THE REVENUE. ACCORDING TO THE AO THE PROFIT HAS ARISEN OUT OF THE DISCLOSURE MADE BY THE ASSESSEE U/S 133A. IF THE INCOME DISCLO SED U/S 133A IS EXCLUDED THEN THE ASSESSEE WAS HAVING NEGATIVE PROF ITS AND IN SUCH A SITUATION THE REMUNERATION OF RS 10,00,000/- WHICH WAS CLAIMED BY THE FIRM U/S 40(B) WAS NOT ALLOWABLE. THE AO WAS OF THE VIEW THAT WHEN THE SOURCE OF ANY INCOME WAS NOT KNOWN THE INCOME HAS TO BE CL ASSIFIED UNDER THE HEAD OF OTHER SOURCES AND NOT UNDER THE HEAD OF BUS INESS AND PROFESSION. THE QUESTION THEREFORE BEFORE US IS, WHETHER THE IN COME DISCLOSED U/S 133A CAN BE CONSIDERED AS BUSINESS INCOME FOR THE P URPOSE OF COMPUTING THE REMUNERATION U/S 40(B) OF THE INCOME TAX ACT. 10. IN THE CASE OF CIT & ANR. VS S.K.SRIGIRI & BRO S (2008) 298 ITR 13 (KAR) IT HAS BEEN HELD THAT WHEN THE ADDITIONAL INC OME RECEIVED BY THE ASSESSEE WAS FROM BUSINESS AND NOT FROM OTHER SOURC ES, REMUNERATION PAID TO PARTNERS HAS TO BE ALLOWED AS A DEDUCTION. 11. IN THE CASE OF DEEPA AGRO AGENCIES VS ITO (2005 ) 98 TTJ (BANG) 766 IT WAS HELD THAT WHEN CASH CREDITS WERE FOUND R ECORDED IN THE BOOKS OF ACCOUNT, THE NATURE OF SUCH CASH CREDITS ATTAINS TH E CHARACTER OF BUSINESS INCOME. THE WORDS BOOK PROFIT DEFINED IN S. 40(B) MEANS NET PROFIT AS SHOWN IN PROFIT AND LOSS ACCOUNT COMPUTED IN THE MA NNER LAID DOWN IN ITA NO.3258 /AHD/2011 A.YR. 2003- 04. 6 CHAPTER IV-D. THE ASSESSEE INCLUDED SUCH UNEXPLAINE D CASH CREDITS IN ITS P & L A/C. THE BOOK PROFIT IS TO BE COMPUTED IN T HE MANNER LAID DOWN IN CHAPTER IV-D. THUS, THE CASH CREDIT FORMS PART OF BOOK PROFIT FOR THE PURPOSE OF COMPUTATION OF REMUNERATION. 12. IN THE CASE OF ITO VS JAMNADAS MULJIBHAI (2006 ) 99 TTJ (RAJ) 197 ASSESSEE DECLARED THAT EXCESS STOCK DISCOVERED DURI NG SURVEY WAS OUT OF CURRENT YEARS UNDISCLOSED INCOME AND TOOK THE SAME TO ITS P&L A/C AND CLAIMED PARTNERS REMUNERATION AGAINST THE SAME U/S 40(B). THE SAME WAS HELD TO BE ALLOWABLE. IN THE CASE OF ACIT VS AMIN YASIN SAIYED (SUPRA) TH E ISSUE INVOLVED WAS WHETHER DISCLOSURE MADE BY THE ASSESSEE DURING THE COURSE OF SURVEY PRIOR TO FILING OF RETURN OF INCOME CAN BE CONSIDER ED AS INCOME FOR THE PURPOSE OF CONSIDERING THE LIMIT FOR ALLOWING REMUN ERATION TO PARTNERS AS PROVIDED U/S 40(A)(V) OF THE ACT. THE ARGUMENT OF T HE REVENUE THAT THE DISCLOSED INCOME CANNOT BE CONSIDERED AS BOOK PROF IT IN COMPUTING REMUNERATION WAS NOT FOUND TO BE ACCEPTABLE AND THE REVENUES APPEAL WAS DISMISSED. 13. IN VIEW OF THE FOREGOING FACTS AND BASED ON THE LEGAL PRONOUNCEMENTS, WE ARE IN AGREEMENT WITH THE DECISI ON OF THE CIT (A) THAT ONCE THE ADDITIONAL INCOME OFFERED FOR TAXATION DUR ING THE SURVEY IS ACCEPTED AND IT HAS BEEN EXPLAINED BUSINESS AS THE SOURCE OF ADDITIONAL INCOME THEN THERE IS NO BAR IN THE ACT FROM CLAIMIN G PARTNERS REMUNERATION FROM SUCH ADDITIONAL BUSINESS INCOME. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF CIT (A). HENCE THIS GROUND OF THE REVE NUE IS DISMISSED. ITA NO.3258 /AHD/2011 A.YR. 2003- 04. 7 14. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 18 - 5 - 2012. SD/- SD/- (D. K. TYAGI) (A NIL CHATURVEDI) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-V, SURAT. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABA 1.DATE OF DICTATION 3 - 5 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 10 / 5 / 2012 MEMBER.OTHER MEMBER. .DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P .S./P.S 16 - 5 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 18 - 5 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 18 - 5 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 1 8 - 5 -2012. 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..