Sagar Samrat, Nashik V. Assistant Commissioner of Income tax, Nashik

ITA 546/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4139 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-10-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 07-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income; CHAPTER IV
• Section: 40(b); 133A; 69A; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.546/PUN/2017 / ASSESSMENT YEAR : 2012-13 SAGAR SAMRAT, 1/2, KALYANI PARK, NEAR PATIDAR BHAVAN, NASHIK DWARKA, NASHIK 422 001 PAN : AAUFS0395L VS. ACIT, CIRCLE-2, NASHIK APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DA TED 26-12-2016 PASSED BY THE COMMISSIONER OF INCOME-TAX (AP PEALS)- 2, NASHIK IN RELATION TO THE ASSESSMENT YEAR 2012-13. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF SALARY TO PARTNERS CLAIMED U/S.40(B) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CA LLED THE ACT) ON THE AMOUNT OF INCOME DECLARED IN THE SURVEY CARR IED OUT U/S 133A OF THE ACT AND ALSO OFFERED FOR TAXATION. ASSESSEE BY SHRI M.K. KULKARNI REVENUE BY SHRI SUDHENDHU DAS DATE OF HEARING 26-10-2020 DATE OF PRONOUNCEMENT 27-10-2020 ITA NO.546/PUN/2017 SAGAR SAMRAT 2 3. SUCCINCTLY, THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSES SEE WAS SUBJECTED TO SURVEY U/S.133A OF THE ACT ON 03-10-2011 . CERTAIN DISCREPANCIES WERE FOUND IN CASH AND STOCK DURING THE COURSE OF SURVEY. THE ASSESSEE MADE TOTAL DECLARATION OF INCOME OF RS.50,25,997/- CONSISTING OF ADDITIONAL INCOME ON ACCOUNT OF EXCESS CASH AT RS.8,15,090/-; EXCESS STOCK AT RS.13,12, 907/-; AND UNDISCLOSED ADVANCES RECEIVABLE AT RS.28,98,000/-. SUCH AMOUNT OF RS.50.25 LAKH WAS CREDITED BY THE ASSESSEE TO ITS PROFIT A ND LOSS ACCOUNT AT THE TIME OF FINALIZATION OF ACCOUNTS. RETURN WAS FILED DECLARING SUCH ADDITIONAL INCOME OF RS.50.25 LAKH. THE ASS ESSEE CLAIMED DEDUCTION TOWARDS REMUNERATION TO PARTNERS ON THE BUSINESS INCOME CONSISTING OF SUCH DECLARATION OF RS.50.25 LAKH. THE ASSESSING OFFICER (AO) HELD THAT THE EXCESS CASH AND STOCK AMOUNTING TO RS.21,27,997/- WERE TAXABLE AS UNEXPLAINED M ONEY ETC. U/S. 69A AND UNDISCLOSED ADVANCES RECEIVABLE OF RS.28,98,000/- WERE IN THE NATURE OF UNEXPLAINED INVESTME NT U/S.69 OF THE ACT. HE, THEREFORE, DID NOT ALLOW DEDUCTION ON ACCOUNT OF SALARY TO THE PARTNERS ON SUCH AMOUNTS BY HO LDING IT TO BE OUTSIDE THE PURVIEW OF BOOK PROFIT. THE LD. CIT(A) PA RTLY AGREED WITH THE ASSESSEES CONTENTION. HE TREATED EXCESS STOCK OF RS.13,12,907/- AS BUSINESS INCOME. HOWEVER, THE RE MAINING ITA NO.546/PUN/2017 SAGAR SAMRAT 3 AMOUNTS OF EXCESS CASH AND UNDISCLOSED ADVANCES RECEIV ABLES WERE NOT MADE ELIGIBLE AS BUSINESS INCOME. CONSEQUENTLY REMUNERATIO N TO PARTNERS ON SUCH AMOUNTS WAS HELD TO HAVE BEEN RIGHTLY N OT ALLOWABLE. AGGRIEVED THEREBY, THE ASSESSEE IS IN APPEAL BEFO RE THE TRIBUNAL. 4. HAVING HEARD BOTH THE SIDES THROUGH VIRTUAL COURT AND GO NE THROUGH THE RELEVANT MATERIAL ON RECORD, IT IS FOUND AS AN A DMITTED POSITION THAT DURING THE COURSE OF SURVEY AT THE BUSINESS PR EMISES OF THE ASSESSEE CERTAIN EXCESS CASH, EXCESS STOCK AND U NDISCLOSED ADVANCES RECEIVABLE TOTALING RS.50.25 LAKH AND ODD WERE FO UND AND THE ASSESSEE OFFERED THE SAME AS ADDITIONAL INCOME. ON SUCH DECLARATION, NECESSARY ENTRIES WERE PASSED AND THE AMOUNT WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT AT THE TIME OF FINALIZATION OF ACCOUNTS AND ALSO OFFERED IT FOR TAXATION. THE ASSESSEE WO RKED OUT THE AMOUNT OF PARTNERS REMUNERATION BY INCLUDING SUCH SURRENDERED AMOUNT. THE AO CAME TO HOLD THAT SUCH SURREN DERED AMOUNT WAS SEPARATELY TAXABLE UNDER SECTIONS 69/69A AND HE NCE DOES NOT FALL UNDER CHAPTER IV-D DEALING WITH THE INCOME UNDE R THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. ITA NO.546/PUN/2017 SAGAR SAMRAT 4 5. SECTION 40(B) OF THE ACT PROVIDES FOR ALLOWING REMUNER ATION AND INTEREST TO PARTNERS ON THE AMOUNT OF `BOOK-PROFIT. TH IS EXPRESSION HAS BEEN DEFINED IN EXPLANATION 3 TO MEAN `THE NET PROFIT, AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR, COMPUTED IN THE MANNER LAID DOWN IN CHAPTER IV- D. THE CRUX OF THE CONTROVERSY IS TO ASCERTAIN WHETHER TH E INCOME OFFERED BY THE ASSESSEE IS COVERED U/SS 69/69A OF THE ACT AS HELD BY THE AO OR CAN BE CLASSIFIED AS `BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. 6. SECTION 69 PROVIDES THAT: `WHERE IN THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR THE ASSESSEE H AS MADE INVESTMENTS WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOU NT, IF ANY, MAINTAINED BY HIM FOR ANY SOURCE OF INCOME, AND THE ASSES SEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF THE INVESTMENTS OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THE VALUE OF THE INVESTMENTS MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE OF SUCH FINA NCIAL YEAR. . SECTION 69A IS ALSO ALMOST SIMILARLY WORDED TO THIS EXTENT BY PROVIDING THAT: `WHERE IN ANY FINANCIAL YEAR THE ASSESSE E IS FOUND TO BE THE OWNER OF ANY MONEY, BULLION, JEWELLERY OR O THER VALUABLE ARTICLE AND SUCH MONEY, BULLION, JEWELLERY OR VALUABLE ITA NO.546/PUN/2017 SAGAR SAMRAT 5 ARTICLE IS NOT RECORDED IN THE BOOKS OF ACCOUNT, IF ANY, MAIN TAINED BY HIM FOR ANY SOURCE OF INCOME, AND THE ASSESSEE OFF ERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF ACQUISITION OF TH E MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE, OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE AS SESSING OFFICER, SATISFACTORY, THE MONEY AND THE VALUE OF THE BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE MAY BE DEEMED TO BE THE INC OME OF THE ASSESSEE FOR SUCH FINANCIAL YEAR .. 7. AT THIS JUNCTURE, IT IS SIGNIFICANT TO TAKE NOTE OF SECTION 14 OF THE ACT, WITH THE CAPTION `HEADS OF INCOME, WHICH PROVIDES THAT : `SAVE AS OTHERWISE PROVIDED BY THIS ACT, ALL INCOME SHALL, FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL IN COME, BE CLASSIFIED UNDER THE FOLLOWING HEADS OF INCOME... THERE ARE FIVE HEADS, WHICH INCLUDE `PROFITS AND GAINS OF BUSINESS OR PRO FESSION. SECTIONS 69 AND 69A FALL UNDER THE CHAPTER VI OF THE ACT WITH SUB- HEAD `AGGREGATION OF INCOME. FROM THE LANGUAGE OF THESE SECTIONS AS REPRODUCED SUPRA , IT IS OVERT THAT THEY DEAL WITH DEEMING UNEXPLAINED INVESTMENTS AND UNEXPLAINED MONEY ETC. AS INCOME OF THE FINANCIAL YEAR IN WHICH THE ASSESSEE HAS MAD E UNEXPLAINED INVESTMENTS OR FOUND TO BE OWNER OF UNEXPLAINE D MONEY ETC. THESE PROVISIONS DO NOT PROVIDE FOR ANY SEPAR ATE HEAD ITA NO.546/PUN/2017 SAGAR SAMRAT 6 UNDER WHICH SUCH INCOMES ARE TO BE COVERED. ON A CONJO INT READING OF SECTION 14 POR UNA PARTE AND SECTIONS 69/69A POR OTRA PARTE , IT TURNS OUT THAT SUCH INCOMES HAVE TO BE CLASSIFIED UNDER ONE OF THE FIVE HEADS. THIS PROPOSITION OF LAW HAS BEEN JUDICIALLY RECOGNISED IN CERTAIN DECISIONS INCLUDING CIT VS. SHILPA DYEING & PRINTING MILLS (P.) LTD. (2013) 219 TAXMAN 279 (GUJARAT). 8. IT IS OBSERVED THAT THE SURVEY WAS CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE. EXCESS CASH, STOCK AND UNRE CORDED ADVANCES WERE FOUND FROM THE BUSINESS PREMISES ONLY. THE AO HAS NOT REFERRED TO ANY OTHER SOURCE OF INCOME OF THE AS SESSEE-FIRM APART FROM THE BUSINESS CARRIED ON BY IT. IN SUCH CIRCUMS TANCES, THE ONLY CIRCUMSTANTIAL INFERENCE THAT CAN BE DRAWN IS THAT THE EXCE SS CASH, STOCK AND ADVANCES WERE GENERATED FROM THE INCOME EARNED FROM THE BUSINESS CARRIED ON BY THE ASSESSEE, THEREFORE , ALSO JUSTIFYING TREATING SUCH AMOUNT AS `BUSINESS INCOME. 9. EARNING AN INCOME AND SPENDING IT ARE TWO DIFFEREN T THINGS. INCOME EARNED IS INDICATIVE OF THE SOURCE OF INCOME AND NO T ITS DESTINATION IN THE END UTILIZATION. IF SUPPOSE SOME INCOME FROM BUSINESS IS EARNED OUTSIDE THE BOOKS OF ACCOUNT AND THE SA ME IS INVESTED IN PURCHASE OF SOME IMMOVABLE NON-BUSINESS PRO PERTY, ITA NO.546/PUN/2017 SAGAR SAMRAT 7 WE WILL DETERMINE THE SOURCE OF INCOME BY SEEING WHEREFROM THE INCOME WAS EARNED AND NOT WHERE IT WAS SPENT. ADVERTING TO SECTIONS 69/69A OF THE ACT, IT IS NOTICED THAT THESE ARE ATTRACTED WHEN : `THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF THE INVESTMENTS .. EMPHASIS IN THIS PROVISION IS ON THE NON-SATISFACTORY EXPLANATION ABOUT THE SOURCE OF INVESTMENT AND NOT THE INVESTMENT ITSELF. AMOUNT OF INVESTMENT IS ONLY A MEA SURE FOR QUANTIFYING THE AMOUNT OF ADDITION. RAISON DETRE FOR THE ADDITION IS NOT GIVING ANY SATISFACTORY EXPLANATION ABOUT THE SO URCE OF INCOME, WHICH WAS USED FOR INVESTMENT. IF SOURCE IS EXPLAINED, THERE CAN BE NO ADDITION ON ACCOUNT OF INVESTMENT. 10. EXTANTLY, WE ARE CONFRONTED WITH A SITUATION, IN WHICH BOTH THE SOURCE AND DESTINATION ARE BUSINESS INASMUCH AS THE SOU RCE OF THE INCOME IS BUSINESS AND THE DESTINATION OF SUCH INCOME IS AGAIN IN THE NATURE OF BUSINESS ASSETS, THAT IS, STOCK, CASH AND R ECEIVABLES. AS A FORTIORI , SUCH AN INCOME WILL BE CONSIDERED AS `BUSINESS INCOME COVERED UNDER CHAPTER IV-D OF THE ACT FORMING PA RT OF BOOK-PROFIT FOR THE PURPOSES OF ALLOWING REMUNERATION TO PA RTNERS. AS THE ASSESSEE OFFERED RS. 50,25,997/- IN THE RETURN OF INCOME BY TREATING THE SAME AS PART OF BUSINESS PROFIT, IN OUR VIEW, THE AO WAS OBLIGED TO CONSIDER IT THE SAME WAY AT THE TIME OF COMPUTA TION ITA NO.546/PUN/2017 SAGAR SAMRAT 8 OF BOOK PROFIT BY ALLOWING CLAIM OF REMUNERATION ETC. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER AND RESTORE THE A SSESSEES CALCULATION OF REMUNERATION TO PARTNERS ETC. 11. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH OCTOBER, 2020. SD/- SD/- (S.S. VISWANETHRA RAVI) (R.S.SY AL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 27 TH OCTOBER, 2020 SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-2, NASHIK 4. 5. THE PR.CIT-2, NASHIK , , / DR B, ITAT, PUNE 6. / GUARD FILE / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NO.546/PUN/2017 SAGAR SAMRAT 9 DATE 1. DRAFT DICTATED ON 26-10-2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 27-10-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *