The ACIT, Circle-8, Surat V. M/s. Virat Gems, Surat

ITA 3541/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9310 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-10-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 24-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MADHUSUSAN SRDR
• Assessee Lawyers: SAPNESH SHETH
• Keywords: Unexplained investment; Business income; Depreciation; Income from undisclosed sources; Capital expenditure
• Section: 133A; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.3541 & 3756/AHD/2008 ASSESSMENT YEAR:2005-06 DATE OF HEARING:28.1010 DRAFTED:15.11.10 ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-8, ROOM NO.4114, AAYAKAR BHAVAN, MAJURAT GATE, SURAT VIRAT GEMS, PLOT NO.11- 12, OPP. COMMUNITY HALL, VASTA DEVDI ROAD, KATARGAM, SURAT PAN NO.AADFV6938P V/S . V/S . M/S. VIRAT GEMS, PLOT NO.11-12, OPP. COMMUNITY HALL, VASTA DEVDI ROAD, KATARGAM, SURAT ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-8, SURAT (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI SAPNESH SHETH, AR REVENUE BY:- SHRI K MADHUSUSAN, SR-DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THESE CROSS-APPEALS BY REVENUE AND ASSESSEE ARE AR ISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-V, SURAT IN AP PEAL NO. CAS-V/315/07-08 DATED 27-08-2008. THE ASSESSMENT WAS FRAMED BY ACIT , CIRCLE-8, SURAT U/S143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) VIDE HIS ORDER DATED 28-12-2007 FOR ASSESSMENT YEAR 2005-06. FIRST WE WILL DEAL WITH REVENUES APPEAL IN ITA NO. 3541/AHD/2008. 2. THE FIRST ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING ADDITION OF RS.34,88,675/-, THEREBY ALLOWI NG THE REMUNERATION AND INTEREST TO PARTNERS U/S.40(B) OF THE ACT. FOR THIS, REVENUE HA S RAISED THE FOLLOWING GROUND NO.1 :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A), WITHOUT APPRECIATING FACTS OF THE CASE, HAS ERRED IN DELETING THE ADDITION OF RS.34,88,675/- AND ALLOWING REMUNERATIO N AND INTEREST TO PARTNERS U/S 40(B). ITA NO.3541 & 3756/AHD/2008 A.Y 2005-06 ACIT, CIR-8, SURAT V. M/S. VIRAT GEMS PAGE 2 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF IMPORT-EXPORT OF MA NUFACTURING OF CUT AND POLISHED DIAMONDS AND TRADING. THE ASSESSEE FILED RETURN OF INCOME ON 08-08-2005 DECLARING TOTAL INCOME OF RS.41,39,960/-. A SURVEY ACTION U/ S 133A OF THE ACT WAS CONDUCTED ON 01-03-2005 BY THE ASSESSING OFFICER AND DURING S URVEY PROCEEDINGS THE ASSESSEE-FIRM DISCLOSED UNACCOUNTED INCOME OF RS.70 LAKH UNDER VARIOUS HEAD I.E. INVESTMENT IN BUILDING, FURNITURE, MACHINERY ACCOUN T, STAFF MEMBERS, MISCELLANEOUS RECEIVABLE AND CASH. SUBSEQUENTLY, ASSESSMENT PROCE EDINGS WERE FINALIZED U/S.143(3) AND THE TOTAL INCOME WAS DETERMINED AT R S.86,33,746/- BY MAKING TOTAL ADDITION OF RS.80,88,509/-. THE ASSESSEE CLAIMED RE MUNERATION TO PARTNERS AND INTEREST ON CAPITAL ON THE ADDITIONAL INCOME OF RS. 70 LAKH DISCLOSED DURING THE COURSE OF SURVEY ACTION. THE ASSESSING OFFICER REJECTED TH E CLAIM ON THE GROUND THAT THE ADDITIONAL INCOME WAS NOT PART OF BUSINESS INCOME B UT INCOME FROM OTHER SOURCES AS THE SOURCE OF INCOME WAS NOT EXPLAINED AS DISCLOSUR E WAS MADE UNDER VARIOUS HEADS. THE ASSESSEE STATED THE DISCLOSED AMOUNT IS THE APPLICATION OF UNDISCLOSED INCOME AND THAT AMOUNT DISCLOSED UNDER VARIOUS HEAD S IS NOT THE SOURCE OF INCOME BUT IT IS THE MODE OF INVESTMENT. THE AO DID NOT AC CEPT THE CONTENTION OF THE ASSESSEE AND STATED THAT ASSESSEE FAILED TO FURNISH ANY EVIDENCE REGARDING BOOKS OF ACCOUNT OF PRIOR PERIOD SURVEY AND POST PERIOD SURV EY, COMPARATIVE DETAILS OF BALANCE SHEET, TRADING ACCOUNT, PROFIT AND LOSS ACC OUNT ETC. HENCE, AO TREATED THE UNDISCLOSED INCOME OF RS.70 LAKH AS INCOME FROM OT HER SOURCES AND DISALLOWED THE CLAIM OF INTEREST AND REMUNERATION TO PARTNERS. AGG RIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE DISCLO SED INCOME BY HOLDING THAT IT FORM PART OF THE BOOK PROFIT AND THE REMUNERATION S HOULD BE ALLOWED TO THE PARTNERS U/S 40(B) BY GIVING FOLLOWING FINDINGS IN PAGE-4-6 OF HIS APPELLATE ORDER:- I HAVE GONE THROUGH THE CONTENTION OF THE APPELLAN T AS WELL AS THAT OF THE AO. IN SO FAR AS THE DISALLOWANCE OF INTEREST TO PARTNE RS IS CONCERNED I DO NOT FIND ANY MERIT IN THE AO'S CASE SINCE WHERE OR NOT DISCL OSURE IS MADE BY THE APPELLANT INTEREST TO PARTNERS IS NOT DEPENDENT ON THE PERCENTAGE OF BOOK PROFIT AND THEREFORE IN SO FAR AS INTEREST TO PARTN ERS IS CONCERNED IT WOULD BE DEPENDENT ON VARIOUS OTHER FACTORS LIKE PROVISION O F PAYMENT OF INTEREST TO PARTNERS IN PARTNERSHIP DEED, RATE OF INTEREST ETC. AND THEREFORE IN SO FAR AS IT IS NOT IN DISPUTE THAT THE APPELLANT HAD MET WITH T HOSE CRITERIA THERE IS NO REASON FOR SUCH DISALLOWANCE. SECTION 40(B) WHICH DEALS WITH DISALLOWANCE IN CERT AIN CASES ENUMERATES DISALLOWANCE IN RESPECT OF INTEREST READS AS UNDER: - ITA NO.3541 & 3756/AHD/2008 A.Y 2005-06 ACIT, CIR-8, SURAT V. M/S. VIRAT GEMS PAGE 3 (B) IN THE CASE OF ANY FIRM ASSESSABLE AS SUCH:- (I) ANY PAYMENT OF SALARY, BONUS, COMMISSION OR REM UNERATION, BY WHATEVER NAME CALLED (HEREINAFTER REFERRED TO AS R EMUNERATION) TO ANY PARTNER WHO IS NOT A WORKING PARTNER; OR (II) ANY PAYMENT OR REMUNERATION TO ANY PARTNER WHO IS A WORKING PARTNER; OR OF INTEREST TO ANY PARTNER, WHICH, IN E ITHER CASE, IS NOT AUTHORIZED BY, OR IS NOT IN ACCORDANCE WITH, THE TE RMS OF THE PARTNERSHIP DEED; OR (III) ANY PAYMENT OF REMUNERATION TO ANY PARTNER WH O IS A WORKING PARTNER, OR OF INTEREST TO ANY PARTNER, WHICH, IN E ITHER CASE, IS AUTHORIZED BY, AND IS INS ACCORDANCE WITH, THE TERM S OF THE PARTNERSHIP\DEED, BUT WHICH RELATES TO ANY PERIOD ( FALLING PRIOR TO THE DATE OF SUCH PARTNERSHIP DEED) FOR WHICH SUCH P AYMENT WAS NOT AUTHORIZED BY, OR IS NOT IN ACCORDANCE WITH, AN Y EARLIER PARTNERSHIPS DEED, SO, HOWEVER, THAT THE PERIOD OF AUTHORIZATION FOR SUCH PAYMENT BY ANY EARLIER PARTNERSHIP DEED DO ES NOT COVER ANY PERIOD PRIOR TO THE DATE OF SUCH EARLIER PARTNE RSHIP DEED; OR (IV) ANY PAYMENT OF INTEREST TO ANY PARTNER WHICH I S AUTHORIZED BY, AND IS IN ACCORDANCE WITH, THE TERMS OF THE PARTNER SHIP DEED AND RELATES TO ANY PERIOD FALLING AFTER THE DATE OF SUC H PARTNERSHIP DEDUCTION IN SO FAR AS SUCH AMOUNT EXCEEDS THE AMOU NT CALCULATED AT THE RATE OF TWELVE PER CENT, SIMPLE I NTEREST PER ANNUM; OR FROM A PLAIN READING OF THE CORRESPONDING PROVISION S IT IS CLEAR THAT INTEREST TO PARTNERS IS NOT DEPENDENT ON BOOK PROFIT AND THEREF ORE THE AO IS DIRECTED TO ALLOW INTEREST TO PARTNERS IN ACCORDANCE WITH THE P ROVISION OF LAW IN THIS REGARD. AS FAR AS REMUNERATION TO PARTNER IS CONCERNED THE QUESTION ARISES AS TO UNDER WHICH HEAD THE INCOME SHOULD BE ASSESSED. IT IS NOT IN DISPUTE THAT THE APPELLANT HAD KNOWN SOURCE OF INCOME AS THAT FROM B USINESS OF GOLD AND SILVER AND THAT THERE WAS NO OTHER SOURCE OF INCOME DISCLOSED OR FOR THAT MATTER FOUND DURING THE COURSE OF SURVEY OR OTHERWI SE, AND THEREFORE INCONSONANCE WITH THE PROPOSITION OF PRACTICAL NOTI ON AS HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT IN LINE WITH JUDGEMENT OF APEX COURT WHAT IS MATERIAL IS AS TO WHEN THE APPELLANT DID NOT HAVE ANY OTHER KNO WN SOURCE OF INCOME THE PROBABILITY OF PREPONDERANCE ALSO SUGGESTS THE INCO ME FROM KNOWN SOURCE OF INCOME. IT UNDER THESE CIRCUMSTANCES AND LAID DOWN LAW I AM IN AGREEMENT WITH THE APPELLANT THAT THE INCOME IN THE INSTANT C ASE SHOULD BE TREATED AS BUSINESS INCOME. FURTHER I AM UNABLE TO AGREE WITH THE AO THAT UNDISCLOSED INCOME WAS SOUGH TO BE CHARGED ON THE BASIS OF INVE STMENT SINCE THE QUESTION OF INVESTMENT EVEN DURING THE CURSE OF SUR VEY WAS RAISED AFTER DECLARATION OF SOURCE. THIS EVIDENT FROM THE QUESTI ON RAISED BY THE SURVEY TEAM AS STATED BY THE APPELLANT READS AS UNDER:- CAN YOU TELL US AS TO IN WHICH FORM UNACCOUNTED IN COME OF RS.70,00,000/- DISCLOSED BY THE FIRM INVESTED ITA NO.3541 & 3756/AHD/2008 A.Y 2005-06 ACIT, CIR-8, SURAT V. M/S. VIRAT GEMS PAGE 4 PLAIN READING OF AFORESAID QUESTION CLEARLY INDICAT E THAT IT WAS THE DISCLOSED SOURCE WHICH WAS OFFERED TO TAX AND NOT THE INVESTM ENT SINCE THERE WAS NO FINDINGS OF FACT ON SUCH ACCOUNT AS TO INVESTMENT. THUS THE AO'S STAND THAT SINCE THE INCOME WAS DISCLOSED IN THE FORM OF INVES TMENT IS FAR FROM REALITY OF THE CASE AND THEREFORE CONSIDERING THESE FACTS OF T HE CASE I AM NOT INCLINED TO ACCEPT THE ARGUMENT OF THE APPELLANT THAT INCOME IN THIS CASE WAS TAXABLE U/S 56 OF THE ACT. NOW HAVING COME TO THE CONCLUSION THAT THE INCOME I S CHARGEABLE TO TAX UNDER THE HEAD BUSINESS AND PROFESSION I AM ALSO IN CLINED TO ACCEPT THE ARGUMENT OF THE APPELLANT THAT SINCE THE INCOME FOR M PART OF THE BOOK PROFIT THE REMUNERATION SHOULD BE COMPUTED IN ACCORDANCE W ITH THE PROVISIONS OF SECTION 40(B), IN THE INSTANT CASE THE ONLY REJECTI ON OF REMUNERATION WAS HEAD OF INCOME AND NOTHING ELSE I AM IN AGREEMENT WITH T HE APPELLANT THAT INCOME IN THE INSTANT CASE SHOULD BE COMPUTED AFTER ALLOWI NG THE DEDUCTION U/S.40(B) INCLUDING THE INCOME DISCLOSED UNDER SURVEY. IN THI S REGARD THE CUE IS TAKEN FROM THE DECISION OF ITAT BANGLORE IN THE CASE OF ROYAL SUNRISE V ITO 99 TTJ 1305, DEEPA AGRO AGENCIES V ITO 99 TTJ 766 (BANG), GUJARAT HIGH COURT IN THE CASE OF ACIT V PRABHUDAS S PARIKH CASE NO.18759/2001 DECIDED ON 27- 6-2001, IAT RAJKOT IN THE CASE OF ACIT V PRABHUDAS SHANTILAL PAREKH, ITA NO.2408/AHD/1993 .THUS THIS GROUND OF APPEAL IS HELD IN FAVOUR OF TH E APPELLANT. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE THE TRIBUN AL. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT DURING THE COURSE OF SURVEY DISCLOSURE OF UNACCOUNTED INCOME OF RS.70 LAKH WAS MADE BY THE PA RTNER OF THE ASSESSEE-FIRM AS INCOME OF THE FIRM. FURTHER, IN RESPONSE TO A QUEST ION ASKED TO ONE THE PARTNER OF THE FIRM REQUIRING HIM TO PROVIDE DETAIL OF INVESTMENT MADE OUT OF THE UNACCOUNTED INCOME AND THE FOLLOWING REPLY WAS MADE:- CAN YOU TELL US AS TO IN WHICH FORM UNACCOUNTED I NCOME OF RS.70 LACS DISCLOSED BY THE FIRM INVESTED? ABOVE REFERRED RS.70 LACS IS INVESTED AS FOLLOWS:- PARTICULARS AMOUNT UNACCOUNTED INVESTMENT IN BUILDING 32,50,000 UNACCOUNTED INVESTMENT IN FURNITURE 3,00,000 UNACCOUNTED INVESTMENT IN MACHINERY 3,00,000 ADVANCE TO STAFF 6,50,000 MISCELLANEOUS RECEIVABLES 20,00,000 CASH 5,00,000 TOTAL 70,00,000 ITA NO.3541 & 3756/AHD/2008 A.Y 2005-06 ACIT, CIR-8, SURAT V. M/S. VIRAT GEMS PAGE 5 THE RELEVANT PORTION OF STATEMENT OF SHRI RAVJIBHAI PARSURIYA RECORDED ON 01-03- 2005 (TRANSLATION IN ENGLISH FROM VERNACULAR FILED BEFORE US) AND THE RELEVANT Q. NO.26 READS AS UNDER:- Q.26 DO YOU WANT TO MAKE DECLARATION OF ANY OTHER THING ON THE BASIS OF ABOVE THINGS. A.28 FOR THE MENTAL PEACE OF MYSELF AND M PARTNERS, I DECLARE ADDITIONAL INCOME OF RS.70,00,000/- WHICH IS OVER AND ABOVE RE GULAR INCOME OF MY FIRM, VIRAT GEMS FOR DIFFERENCE IN STOCK, BUILDING CONSTR UCTION, LAND PURCHASE AND ANY OTHER DIFFERENCE IF FOUND. I REQUEST YOU NOT TO LEVY ANY PENALTY OR ANY OTHER CHARGES ON THIS. AND I WILL PAY DUE TAXES ON THIS O N OR BEFORE 31 ST MARCH, I.E. BY END OF THIS MONTH. WE FIND THAT THE ASSESSEE-FIRM WAS ENGAGED IN THE B USINESS OF DIAMONDS AND ACCORDINGLY IT HAD NO OTHER SOURCE OF INCOME AND AS PER THE DISCLOSURE MADE DURING THE COURSE OF SURVEY IT HAD DISCLOSED AMOUNT OF RS. 70 LACS AS INCOME DISCLOSED U/S.133A OF THE ACT UNDER THE HEAD INCOME FROM OP ERATIONS IN ITS PROFIT AND LOSS ACCOUNT, WHATEVER WAS FOUND AT THE TIME OF SURVEY I S IN THE NATURE OF BUSINESS INCOME WHICH WAS NOT DISCLOSED BY THE ASSESSEE BEFO RE THE SURVEY. THE ASSESSEE CLAIMED THAT THE ADDITIONAL INCOME WAS DISCLOSED WH ICH HAS DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE AND FURTHER CONTENDED THAT THE WORDS BOOK PROFIT DEFINED IN SECTION 40(B) OF THE ACT MEANS NET PROFIT AS SHO WN IN PROFIT AND LOSS ACCOUNT COMPUTED IN THE MANNER LAID DOWN IN CHAPTER-IV-D. T HE ASSESSEE-FIRM INCLUDED THE INCOME DISCLOSED U/S.133A IN IS PROFIT AND LOSS ACC OUNT UNDER THE YEAR CONSIDERATION AND BOOK PROFIT COMPUTED IN THE MANNER LAID DOWN IN CHAPTER-IV-D. WE FIND THAT THE SUBJECT INCOME FORMS PART OF BOOK PROFIT AND ASSESS EE-FIRM IS NOT CARRYING ON ANY OTHER BUSINESS AND HAS NO OTHER SOURCE OF INCOME AN D WHATEVER INCOME ARISING TO THE ASSESSEE-FIRM IS BUSINESS INCOME AND HENCE, COM PUTATION IS IN ACCORDANCE WITH CHAPTER-IV-D. EVEN OTHERWISE, THIS ISSUE IS COVERED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ACIT V. PRABHUDAS PAREKH CASE NO. 18759/2001 DECIDED ON 27-06-2001 HAS DISMISSED THE APPEAL OF THE REVENUE FILED AGAINST THE ORDER OF THE TRIBUNAL AND IN THIS CASE THE TRIBUNAL IN ITA NO.2408/AHD/1993 VIDE ORDER DATED 19-12-1999 WHILE DISMISSING THE AP PEAL OF THE REVENUE HAS HELD AS FOLLOWS:- THEREFORE, AS LAID DOWN BY HONBLE SUPREME COU RT IN THE CASE OF MENTIONED ABOVE, THE PRACTICAL NOTING MUST BE APPLI ED TO FIND OUT THE HEAD OF INCOME. THE HEAD OF INCOME HAS TO BE DETERMINED FRO M THE NATURE OF THE BUSINESS THE ASSESSEE WAS CARRYING ON AT THE TIME O F SEARCH. IN THIS PARTICULAR ITA NO.3541 & 3756/AHD/2008 A.Y 2005-06 ACIT, CIR-8, SURAT V. M/S. VIRAT GEMS PAGE 6 CASE, THE ASSESSEE WAS NOT CARRYING ON ANY OTHER AC TIVITY FOR EARNING THE INCOME. THEREFORE, THE INCOME DISCLOSED BY THE ASSE SSEE U/S.132(4) HAS TO BE ASSESSED UNDER BUSINESS INCOME FROM THE COMMON N OTION OF A PRACTICAL MAN. THE HEAD INCOME FROM OTHER SOURCES IS A RESI DUAL HEAD AND THE INCOME HAS TO BE ASSESSED UNDER THAT HEAD ONLY IF T HE SAME IS NOT COVERED UNDER ANY OTHER HEAD. FROM THE ABOVE FACTS AND PROPOSITION LAID DOWN BY H ONBLE JURISDICTIONAL HIGH COURT, WE HOLD THAT THE INCOME DISCLOSED BY THE ASSESSEE-F IRM DURING THE COURSE OF SEARCH WAS BUSINESS INCOME AND THE ASSESSEE IS ELIGIBLE FO R DEDUCTION OF REMUNERATION AND INTEREST PAID TO PARTNERS IN TERMS OF SECTION 40(B) OF THE ACT. WE UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE AND REVENUES ISSUE IS DISMISS ED. 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE ADDITION OF ELECTRICITY EXPENSES AMOUN TING TO RS.2,72,870/-. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.2 :- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A), WITHOUT APPRECIATING FACTS OF THE CASE, HAS ERRED IN DELETING THE ADDITION OF ELECTRICITY EXPENSES OF RS.2,72,870/-. 6. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERV ED THAT ELECTRICITY EXPENSES CLAIMED BY THE ASSESSEE WERE IN DIFFERENT NAME AND AO FURTHER NOTICED THAT THE PREMISES IN RESPECT OF WHICH ELECTRICITY EXPENSES C LAIMED BY THE ASSESSEE WAS IN THE NAME OF PARTNER AND NOT IN THE NAME OF THE FIRM . THE ASSESSEE COULD NOT EXPLAIN WHETHER THE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS AND ACCORDINGLY AO DISALLOWED THE CLAIM OF ELECTRICITY EXPENSES. AGGRI EVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ELECTRIC EXPE NSES BY GIVING FOLLOWING FINDINGS IN PAGE-7-8 OF HIS APPELLATE ORDER:- I HAVE CONSIDERED THE ISSUE BEFORE ME IN LIGHT WIT H THE STATEMENT RECORDED DURING THE COURSE OF SURVEY WHERE IT HAS BEEN CATEG ORICALLY MENTIONED THAT THE APPELLANT WAS DOING BUSINESS FROM TWO PREMISES. IN RESPECT OF WHICH THE ELECTRICITY EXPENSES ARE CLAIMED. THE AO HAS MERELY RELIED ON SUBJECTIVE SATISFACTION THAN THE OBJECTIVE ADHERENCE. FURTHER THE FACT THAT THE APPELLANT WAS CARRYING O THE BUSINESS FROM THESE PREMISES IS EVIDENT FROM THE BODY OF ORDER ITSELF WHERE IN PARA 1 OF THE ORDER THE AO HAS CLEARLY STATED THAT SURVEY WAS CONDUCTED AT THE BUSINESS PREMISES OF THE ASSES SEE SITUATED OPP COMMUNITY HALL VASTADEVI ROAD SURAT AND 206 THAKORD WAR APPEARTMENT GOTLAWAID SURAT. THUS IT IS CLEAR THAT THE DEPARTME NT WAS WELL AWARE OF BOTH THE PLACES OF THE BUSINESS AND THEREFORE IF THE APP ELLANT HAS CLAIMED THE ELECTRICITY BILLS OF THE SAID PREMISES SIT WOU8LD N OT ALTER THE ALLOWABILITY OF SUCH ITA NO.3541 & 3756/AHD/2008 A.Y 2005-06 ACIT, CIR-8, SURAT V. M/S. VIRAT GEMS PAGE 7 EXPENSES MERELY BECAUSE THE BILLS WERE IN THE NAMES OF SOME ONE ELSE UNLESS THERE IS BROUGHT ON RECORD THE SAID ELECTRIC ITY METERS WERE ACTUALLY USED BY THOSE IN WHOSE NAMES THE SAME WERE APPEARIN G. IT IS ALSO NOT DENIED THE PAYMENTS OF SUCH BILLS WERE MADE BY THE APPELLA NT FIRM BY ACCOUNT PAYEE CHEQUES. FURTHER HAD SUCH ELECTRICITY9 BILLS NOT BE ING PAID IT WOULD LEAD TO THE OTHER CONCLUSION THAT NO BUSINESS OF THE NATURE STA TED WAS CARRIED OUT FROM THE SAID PREMISES BY THE ASSESSEE AND THEREFORE INC OME DISCLOSED IN RESPECT OF SUCH PREMISES WOULD ALSO BELONG TO SUCH OTHER PE RSONS. BUT HAVING ACCEPTED THE INCOME AND PRODUCTION FROM THE SAID PR EMISES THE AO SHOULD NOT HAVE DISALLOWED THE CLAIM OF THE APPELLANT MERE LY ON TECHNICAL GROUND. THUS LOOKING TO THE OVERALL FACTS OF THE CASE DISAL LOWANCE MADE BY THE AO IS DELETED. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE THE TRIBUN AL. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE FACTS O F THE CASE THAT THE ASSESSEE HAS ITS FACTORY AT TWO PLACES REFERRED TO HEREIN BELOW: - 1. OPP. COMMUNITY HALL, VASTADEVDI ROAD, SURAT ; A ND 2. 206, THAKORDWAR APARTMENT, GOTALAWADI, SURAT THE ASSESSING OFFICER NOTICED FROM THE ELECTRICITY BILL THAT FACTORY LOCATED AT 206, THAKORDWAR APARTMENT GOTALAWADI WAS IN THE NAME OF OTHER PERSONS OTHER THAN THE PARTNERS OF THE FIRM OR THE FIRM AND ACCORDINGLY HE DISALLOWED ELECTRICITY EXPENSES AT RS.1,73,040/- AND IN RESPECT TO FACTORY LOCATED AT OPPOSITE COMMUNITY HALL, VASTADEVI ROAD, SURAT, THE BILLS WERE IN THE NAME O F THIRD PARTY AND ACCORDINGLY HE DISALLOWED A SUM OF RS.99,830/-. THE ASSESSEES MAI N CONTENTION IS THAT THE FACTORY AT GOTALWADI WAS ACQUIRED BUT STILL THE ELECTRICITY CONNECTION AND MUNICIPAL TAX ARE IN THE NAME OF EARLIER OWNERS BUT CLAIMED THAT FIRM HA D COMMENCED ITS BUSINESS FROM THE FACTORY AT GOTALWADI WHICH AS EVEN BEEN INTIMAT ED TO THE DEPARTMENT WHILE MAKING APPLICATION FOR PAN, TAN IN THE PARTNERSHIP DEED OF THE FIRM, IMPORT-EXPORT CODE ISSUED BY DGFT ETC. IN THIS REGARD THE COPY OF SAID SUBMISSION ALONG WITH RELEVANT DOCUMENTARY EVIDENCE WAS SUBMITTED BEFORE THE LOWER AUTHORITIES. IN RESPECT TO FACTORY AT VASTADEVDI ROAD, IN THE INIT IAL TWO BILLS FOR THE FINANCIAL YEAR IN THE NAME OF THE PREVIOUS OWNERS WERE DESCRIBED, WHI CH ON CORRESPONDENCE BEING MADE BY THE ASSESSEE-FIRM TO THE ELECTRICITY COMPAN Y WAS CHANGED IN THE NAME OF THE PARTNERS OF THE FIRM. WE FIND FROM THE ABOVE FA CTS THAT BOTH THE PREMISES WERE UTILIZED BY THE ASSESSEE-FIRM AS ITS FACTORYS AND THE LOWER AUTHORITIES MERELY THAT ITA NO.3541 & 3756/AHD/2008 A.Y 2005-06 ACIT, CIR-8, SURAT V. M/S. VIRAT GEMS PAGE 8 NAME OF THE PREVIOUS OWNERS WERE ON ELECTRICITY BIL LS DISALLOWED THE ELECTRICITY EXPENSES. WE FIND NO INFIRMITY IN THE ORDER OF CIT( A) ALLOWING THE CLAIM OF THE ASSESSEE AND ACCORDINGLY WE CONFIRM THE SAME. THIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. COMING TO ASSESSEEA APPEAL IN ITA NO.3756/AHD/2008 . 8. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE `IS A GAINST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF DEPRECIATION. FOR TH IS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.1 BUT SUBSEQUENTLY FILED MODIFIED GROUND WHICH READS AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN M AKING DISALLOWANCE OF RS.2,22,500/- ON ACCOUNT OF DEPRECIATION. THE ASSESSEE HAS ALSO RAISED ALTERNATIVE GROUND THA T THE ASSESSING OFFICER SHOULD HAVE ALLOWED ENHANCED DEPRECIATION ON ENHANCED VALU E OF DISCLOSURE OF ASSETS LIKE BUILDING, FURNITURE AND MACHINES. FOR THIS, ASSESSE E HAS RAISED THE FOLLOWING ALTERNATIVE GROUND:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED ASSESSING OFFICER HAS ERRED I NOT DEDUCTING THE AMOUNT OF RS.38,50,000/- FROM TOTAL INCOME BEING ASSESSEES D ISCLOSURE ON ACCOUNT OF BUILDING RS.32,500/-, FURNITURE RS.3,00,000/- AND M ACHINE RS.3,00,000/- WHEN HE DIDNT ALLOW THE DEPRECIATION ON ENHANCED VALUE OF THESE ITEMS. 9. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER DISALL OWED THE DEPRECIATION ON THE GROUND THAT ASSESSEE COULD NOT FILE ANY PROPER BILL S DURING THE COURSE OF SURVEY AND TWO MACHINERIES PURCHASED DURING THAT YEAR. THE ASS ESSEE CLAIMED BEFORE US THAT IT HAS SUBMITTED VOUCHERS REGARDING PURCHASE OF MACHIN ERIES ON 05-04-2004 AND DULY BACKED BY BILLS AND PAYMENTS WERE MADE THROUGH ACCO UNT PAYEE CHEQUES. WE FIND THAT THE ASSESSEE-FIRM HAD MADE ADDITIONS TO FACTOR Y BUILDING, PLANT & MACHINERY AND FURNITURE AND FITTINGS ALONG WITH CERTAIN OTHER FIX ED ASSETS AND THE DETAILS OF ADDITIONS MADE. EVEN DURING THE COURSE OF SURVEY, THE ASSESSE E HAS DISCLOSED ON ACCOUNT OF CAPITAL EXPENDITURE, ADDITION TO FACTORY BUILDING F OR RS.32.50 LAKH, PLANT & MACHINERY AT RS.3 LAKH AND FURNITURE AND FITTINGS AT RS.3 LAK H WERE MADE OUT OF THE INCOME DISCLOSED IN SURVEY. THE DEPRECIATION ON ADDITION T O PLANT & MACHINERY FOR RS.9.55 LAKH WAS ALSO DISALLOWED BY THE ASSESSING OFFICER A ND SAID DISALLOWANCE OUT OF THE ITA NO.3541 & 3756/AHD/2008 A.Y 2005-06 ACIT, CIR-8, SURAT V. M/S. VIRAT GEMS PAGE 9 DEPRECIATION WAS MADE ON THE GROUND THAT THE ASSESS EE-FIRM DID NOT FURNISH NECESSARY DETAILS FOR ALLOWANCE OF DEPRECIATION THA T IN RESPECT OF ADDITION TO PLANT & MACHINERY FOR RS.9.55 LAKH BUT ASSESSEE-FIRM HAD SU BMITTED ALL RELEVANT DOCUMENTARY EVIDENCES INFORM OF COPY OF LEDGER ACCO UNT, BILLS OF RESPECTIVE ITEMS OF MACHINERY, COPY OF BANK STATEMENT OF THE ASSESSEE-F IRM. WE FIND THAT THESE DOCUMENTS I.E. BILLS OF MACHINERY NEEDS VERIFICATIO N AT THE LEVEL OF THE ASSESSING OFFICER AND ACCORDINGLY THIS ISSUE IS SET ASIDE TO THE FILE OF ASSESSING OFFICER. IN RESPECT TO DISCLOSURE MADE ON ACCOUNT OF PLANT AND MACHINERY, FURNITURE AND BUILDING, THE ASSESSING OFFICER WILL VERIFY THE ACT UAL AMOUNT DISCLOSED IN THE RESPECTIVE ACCOUNT AND WILL ALLOW DEPRECIATION ON T HE ENHANCED VALUE OF THE RESPECTIVE ASSETS. ACCORDINGLY, THIS ISSUE OF ASSES SEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 10. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) CONFIRMING THE ADDITION MADE ON ACCOUNT OF VARIATIO N OF CLOSING STOCK. FOR THIS ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.3 :- 3. CES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE AC TION OF THE ASSESSING OFFICER IN MAKING ADDITION OF RS.1,34,317/- ON ACCO UNT OF VARIATION OF STOCK. 11. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER NOTICED TH AT DURING THE COURSE OF SURVEY, THERE WAS DISCREPANCY IN RESPECT OF POLISHED DIAMON D AS WELL AS ROUGH DIAMOND OF 11.83 CARATS OF POLISHED DIAMOND AND 12477.47 CARAT S OF ROUGH DIAMONDS. ACCORDINGLY AO ADDED A SUM OF RS.1,34,317/- IN RESP ECT OF FINISHED DIAMOND AND RS.1,82,167/- IN RESPECT OF ROUGH DIAMOND. THE CIT( A) DELETED THE ADDITION ON ACCOUNT OF ROUGH DIAMOND BUT SUSTAINED THE ADDITION ON ACCOUNT OF VARIATION IN STOCK OF FINISHED DIAMOND AT RS.1,37,317/- BY GIVING FOLL OWING FINDING IN PAGE-11 OF HIS APPELLATE ORDER:- I AM UNABLE TO ACCEDE TO THE ARGUMENT OF THE APPEL LANT SINCE THE APPELLANT HAS SIMPLY APPLIED MATHEMATICAL FORMULAE AND SHOWN ENTIRE DIFFERENCE OF 18.74 CTS AS PROCESS LOSS. IF THE APPELLANTS PLEA IS CONSIDERED IT WOULD MEAN THAT THERE SHOULD NOT HAVE BEEN ANY STOCK OF REJECT ED DIAMONDS SINCE ENTIRE REJECTION WOULD FORM THE PART OF PROCESS LOSS. HOWE VER BY ITS OWN ADMISSION IN THE FORM OF QUANTITY OF REJECTED DIAMONDS WHAT I S STATED IN THE INSTANT CASE IS MERELY AND AFTER THOUGHT AND NOTHING ELSE. SAVE AND EXCEPT THE SUBMISSION OF THIS KIND THE APPELLANT HAS NOT BROUGHT ON RECOR D ANY MATERIAL TO SHOWN THAT ITA NO.3541 & 3756/AHD/2008 A.Y 2005-06 ACIT, CIR-8, SURAT V. M/S. VIRAT GEMS PAGE 10 SUCH POLISHED DIAMONDS WERE ACTUALLY MADE FROM SUCH ROUGH DIAMONDS AND THEREFORE CONSIDERING THE OVERALL FACTS OF THE CASE ADDITION MADE BY THE AO IN THIS REGARD IS THEREFORE CONFIRMED. WE FIND THAT EVEN NOW BEFORE US ASSESSEE COULD NOT FIND ANY FAULT WITH THE FINDINGS OF CIT(A) THAT THERE IS NO REJECTION OR PROCESS LOS S IN RESPECT OF FINISHED DIAMOND. ACCORDINGLY, WE CONFIRM THE FINDINGS OF CIT(A) AND THIS ISSUE OF ASSESSEES APPEAL IS DISMISSED. 12. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AS REGARDS TO THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF EXPENSE AT 20%. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWING GROUND NO.4 :- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME-TAX (AP PEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN M AKING DISALLOWANCE OF RS.32,910/- BEING 20% OF OTHER EXPENSES. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND GOING T HROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSI NG OFFICER DISALLOWED 20% OUT OF OTHER EXPENSES ON ACCOUNT OF PERSONAL IN NATURE. BE FORE THE CIT(A) ASSESSEE HAS NOT PRESSED THIS ISSUE AND NOW BEFORE US THE SAME H AS NOT BEEN PRESSED BY ASSESSEE. ACCORDINGLY, THIS ISSUE OF ASSESSEES APP EAL IS DISMISSED. 14. IN THE RESULT, REVENUES APPEAL IS DISMISSED AND TH AT OF ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 19/11/2010 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : /11/2010 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 4. THE CIT CONCERNS. 2. THE REVENUE. 5. THE DR, ITAT, AHMEDABAD 3. THE CIT(APPEALS)-V, SURAT 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD