ITO, CHENNAI V. Roshan, CHENNAI

ITA 393/CHNY/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9695 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 04-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: K RAVI
• Keywords: Unexplained investment; Business income
• Section: 69; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.393/MDS/2013 ( )( / ASSESSMENT YEAR : 2009-10 THE INCOME TAX OFFICER, BUSINESS WARD II(3), CHENNAI - 600 034. V. M/S ROSHAN, NO.33, SOUTH USMAN ROAD, T. NAGAR, CHENNAI - 600 017. PAN : AAIFR 7046 M (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : DR. B. NISCHAL, JCIT -.+, / 0 / RESPONDENT BY : SHRI K. RAVI, ADVOCATE 1 / 2% / DATE OF HEARING : 15.03.2016 3') / 2% / DATE OF PRONOUNCEMENT : 07.04.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) VI, CHEN NAI, DATED 30.11.2012 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2. DR. B. NISCHAL, THE LD. DEPARTMENTAL REPRESENTAT IVE, SUBMITTED THAT THERE WAS A SURVEY IN THE PREMISES O F THE ASSESSEE 2 I.T.A. NO.393/MDS/13 ON 25.09.2008. DURING THE COURSE OF SURVEY OPERATI ON, PHYSICAL INVENTORY OF STOCK WAS TAKEN. THE VALUE OF STOCK D URING THE COURSE OF SURVEY OPERATION WAS FOUND TO BE ` 1,61,05,613/-. THE ASSESSEE WAS NOT MAINTAINING ANY STOCK REGISTER AND THE DETA ILS OF CLOSING STOCK AS ON 01.04.2008 WERE ALSO NOT AVAILABLE. WH EN THE ASSESSING OFFICER EXAMINED, ONE OF THE PARTNERS OF THE ASSESSEE- FIRM CLARIFIED THAT THE VALUE OF TRADING GOODS WAS TAKEN ON MRP MENTIONED ON EACH ITEM. IN THE CASE OF NON-BRANDED ITEMS WHERE THERE ARE MRP RATES, THOSE RATES ARE TAKEN AND IN C ASE OF OTHER ITEMS, THE GROSS SALE VALUE WRITTEN ON THE ITEM IS TAKEN AS VALUE OF THE STOCK. HE COULD NOT CLARIFY THE CLOSING STOCK AS ON 31.03.2008. DURING THE ASSESSMENT PROCEEDING, THE ASSESSEE FILE D THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING 31.03.2008 AND ALS O THE BALANCE SHEET AS ON 31.03.2008 DISCLOSING THE CLOSING STOCK OF ` 65,44,570.38. ACCORDING TO THE LD. D.R., WHEN THE ASSESSEE WAS CALLED UPON TO RECONCILE THE VALUE OF INVENTORY FOU ND DURING THE COURSE OF SURVEY OPERATION , THE ASSESSEE OFFERED A SUM OF ` 30 LAKHS AS ADDITIONAL INCOME FOR THE DISCREPANCIES IN THE STOCK. THE ADDITIONAL INCOME OFFERED BY THE ASSESSEE WAS ASSES SED UNDER SECTION 69 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'T HE ACT') AS UNEXPLAINED INVESTMENT IN THE STOCKS. THE ASSESSEE HAS CLAIMED 3 I.T.A. NO.393/MDS/13 REMUNERATION FOR THE PARTNERS IN THE BOOK PROFIT UN DER SECTION 40(B) OF THE ACT. 3. REFERRING TO EXPLANATION 3 TO SECTION 40(B) OF T HE ACT, THE LD. D.R. SUBMITTED THAT BOOK PROFIT SHALL BE THE NET PR OFIT SHOWN IN THE PROFIT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEA R AS COMPUTED UNDER CHAPTER IV-D AND AS INCREASED BY THE AGGREGAT E AMOUNT OF REMUNERATION PAID OR PAYABLE TO ALL THE PARTNERS OF THE FIRM PROVIDED THE AMOUNT WAS DEDUCTED WHILE COMPUTING THE NET PRO FIT. REFERRING TO SECTION 69 OF THE ACT, THE LD. D.R. POINTED OUT THAT UNEXPLAINED INVESTMENT IN THE STOCKS UNDER SECTION 69 OF THE AC T DOES NOT FORM PART OF INCOME REFERRED TO IN SECTION 28 OF THE ACT . IT ALSO DOES NOT FORM PART OF CHAPTER IV-D OF THE ACT. ACCORDING TO THE LD. D.R., SECTION 69 FORMS PART OF CHAPTER VI OF THE ACT, THE REFORE, INCLUSION OF ADDITIONAL INCOME OFFERED ON THE DISCREPANCIES O F THE STOCK CANNOT FORM PART OF BOOK PROFIT FOR THE PURPOSE OF COMPUTING PARTNERS REMUNERATION. 3. DR. B. NISCHAL, THE LD. D.R. FURTHER SUBMITTED T HAT THE INCOME OFFERED BY THE ASSESSEE CONSEQUENT TO SURVEY, IS FR OM UNEXPLAINED SOURCE. ALTHOUGH THE ASSESSEE CLAIMS THE SOURCE OF THE ADDITIONAL INCOME OFFERED FOR TAXATION IS THE BUSINESS OF THE ASSESSEE, NO 4 I.T.A. NO.393/MDS/13 MATERIAL EVIDENCE WAS PRODUCED TO INDICATE THAT THE ADDITIONAL INCOME OFFERED WAS GENERATED IN THE COURSE OF BUSIN ESS TRANSACTIONS. THEREFORE, THE ADDITIONAL INCOME OFF ERED BY THE ASSESSEE CANNOT BE TREATED AS BUSINESS INCOME FOR T HE PURPOSE OF COMPUTING BOOK PROFIT. CONSEQUENTLY, THE SAME CANN OT BE CONSIDERED FOR ALLOWING THE PARTNERS REMUNERATION. HOWEVER, ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) FOUND WHAT WAS OFFERED BY THE ASSESSEE IS AS INCOME AND NOT AS STOCK. THE REFORE, THE ADDITIONAL INCOME OFFERED BY THE ASSESSEE DURING TH E COURSE OF SURVEY OPERATION, WHICH WAS TAKEN AS UNEXPLAINED IN VESTMENT UNDER SECTION 69 OF THE ACT, HAS TO BE TAKEN AS BUS INESS INCOME AND THE PARTNERS REMUNERATION HAS TO BE ALLOWED UN DER SECTION 40(B) OF THE ACT. ACCORDING TO THE LD. D.R., WHAT WAS OFFERED BY THE ASSESSEE IS MONEY. HOWEVER, THE SOURCE FOR GENERAT ING MONEY IS NOT EXPLAINED EITHER BEFORE THE ASSESSING OFFICER O R BEFORE THE CIT(APPEALS). THEREFORE, ACCORDING TO THE LD. D.R. , TREATING THE ADDITIONAL INCOME OF ` 30 LAKHS AS BUSINESS INCOME FOR THE PURPOSE OF COMPUTING PARTNERS REMUNERATION IS NOT JUSTIFIE D. 4. ON THE CONTRARY, SHRI K. RAVI, THE LD. COUNSEL F OR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE IS A PARTNERS HIP FIRM. DURING 5 I.T.A. NO.393/MDS/13 THE COURSE OF SURVEY OPERATION, THE INVENTORY OF ST OCK WAS TAKEN AND VALUE OF STOCK WAS DETERMINED BY THE REVENUE AUTHOR ITIES AT ` 1,61,05,613/-. THE ASSESSEE HAS OFFERED A SUM OF ` 30 LAKHS AS ADDITIONAL INCOME IN ORDER TO AVOID LITIGATION WITH THE DEPARTMENT TO PURCHASE PEACE. THIS AMOUNT OF ` 30 LAKHS OFFERED BY THE ASSESSEE WAS CONSIDERED AS UNEXPLAINED INVESTMENT IN THE STO CKS. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE HAS NO OTHER SOURC E OF INCOME OTHER THAN THE BUSINESS OF THE FIRM. THE BUSINESS OF THE FIRM HAS GENERATED INCOME WHICH WAS INVESTED IN THE STOCKS. THEREFORE, THE ASSESSEE OFFERED A SUM OF ` 30 LAKHS FOR TAXATION JUST TO AVOID PROLONGED LITIGATION. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. DURING THE COURSE OF SURVEY OPERATION, THE ASSESSEE OFFERED A SUM OF ` 30 LAKHS AS ADDITIONAL INCOME. THIS AMOUNT OF ` 30 LAKHS OFFERED BY THE ASSESSEE WAS TAKEN AS UNEXPLAINED INVESTMENT UNDER SECTION 69 OF THE ACT AND THE ASSESSING OFFICER DISALLOWED THE PA RTNERS REMUNERATION ON THE AMOUNT OFFERED BY THE ASSESSEE ON THE GROUND THAT SECTION 69 DOES NOT FORM PART OF CHAPTER IV-D OF THE ACT, THEREFORE, THE ADDITIONAL INCOME OF ` 30 LAKHS OFFERED BY THE 6 I.T.A. NO.393/MDS/13 ASSESSEE CANNOT BE TAKEN AS INCOME UNDER SECTION 28 OF THE ACT. IT IS NOBODYS CASE THAT THE PARTNERS HAVE INTRODUC ED ANY UNACCOUNTED MONEY IN THE ACCOUNTS OF THE PARTNERSHI P FIRM. THE PARTNERSHIP FIRM COULD GENERATE INCOME ONLY FROM IT S BUSINESS. THEREFORE, THE INCOME OF THE PARTNERSHIP FIRM MAY B E EITHER FROM THE TRANSACTIONS ACCOUNTED IN THE BOOKS OF ACCOUNT OR I N RESPECT OF THE TRANSACTIONS WHICH WERE NOT RECORDED IN THE BOOKS O F ACCOUNT. WHATEVER MAY BE THE NATURE OF TRANSACTION, WHETHER IT IS RECORDED IN THE BOOKS OF ACCOUNT OR NOT RECORDED IN THE BOOKS O F ACCOUNT, THE SOURCE OF GENERATING ADDITIONAL INCOME FOR INVESTIN G IN THE STOCKS OF THE ASSESSEE IS ONLY THE BUSINESS TRANSACTIONS. OT HER THAN THE BUSINESS TRANSACTIONS, THE ASSESSEE HAS NO OTHER SO URCE OF INCOME. SINCE THE ASSESSEE HAS OFFERED ADDITIONAL INCOME OF ` 30 LAKHS WHEN THE DISCREPANCIES FOUND IN THE STOCKS, THE SAM E WAS CLASSIFIED AS UNEXPLAINED INCOME UNDER SECTION 69 OF THE ACT. THIS DOES NOT MEAN THAT THE INCOME WAS NOT GENERATED FROM THE BUS INESS. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE INCO ME WAS GENERATED IN THE BUSINESS OF THE ASSESSEE-FIRM, THEREFORE, IT HAS TO BE NECESSARILY CONSIDERED FOR COMPUTING THE REMUNERATI ON OF THE PARTNERS UNDER SECTION 40(B) OF THE ACT. IN VIEW O F THE ABOVE, THIS 7 I.T.A. NO.393/MDS/13 TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRM ED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON 7 TH APRIL, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 7 TH APRIL, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-VI, CHENNAI 4. 1 92 /CIT-IV, CHENNAI 5. 7: -2 /DR 6. ( ; /GF.