The ITO, Ward-1(2), RAJKOT-GUJARAT V. M/s. Anjani Cotton Ind., Wankaner

ITA 556/RJT/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72578 (ITAT-RAJKOT)
• Duration Of Justice: 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-07-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 09-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: SG BHUPTANI
• Keywords: Unexplained investment; Business income; Source of fund; Deemed to accrue or arise in india
• Section: 133A; 69; 145; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH: RAJKOT BEFORE SHRI T K SHARMA, JM AND SHRI D K SRIVASTAVA, AM ITA NO. 556 /RJ T/201 2 ASSESSMENT YEAR : 200 4 - 0 5 ITO, WARD - 1 ( 2 ), RAJKOT V. M/S. ANJANI COTTON INDUSTRIES NATIONAL HIGHWAY, LALPUR WANKANER, DIST. RAJKOT PAN: AAEFA 9663 P DATE OF HEARING : 23 .0 7 .2013 DATE OF PRONOUNCEMENT : 13 . 0 9 .2013 REVENUE BY : SHRI AVINASH KUMAR, DR ASSESSEE BY : SHRI S G BHUPTANI, CA ORDER D. K. SRIVASTAVA : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - II, RAJKOT ON 16 .0 7.2012, ON THE FOLLOWING GROUNDS: - 1. THE LEARNED CIT(A) - II HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO SET OFF THE LOSS OF RS.18 ,37,986/ - AGAINST THE DEEMED INCOME COMPUTED U/S.69. HE HAS ALSO ERRED IN ALLOWING THE REMUNERATION TO PARTNERS AT RS.3,01,512/ - AS AGAINST RS.50,000/ - IGNORING THE PROVISIONS OF SECTION 40(B)(V) OF THE ACT. 2. THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS, THEREFORE, PRAYED THAT THE FINDINGS GIVEN IN THE ORDER OF THE CIT (A) MAY BE DISMISSED/DELETED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. THE REVENUE HAS ALSO RAISE D THE FOLLOWING ADDITIONAL GROUND - THE CIT (A) - 2, RAJKOT, HAS ERRED IN LAW AND IN FACTS IN HOLDING THAT THE INVESTMENT IN UNACCOUNTED STOCK OF RS.25,01,516/ - DETECTED DURING SURVEY OPERATION IS FROM REGULAR COTTON BUSINESS, IGNORING THE FACTS THAT THE SAME IS FROM UNDISCLOSED SOURCES. THEREFOR E, THE ADDITION IS TO BE MADE U/S.69 FOLLOWING THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHAMMAD HAJI HASSAN , (2002) 247 ITR 290. 4. THE ADDITIONAL GROUND TAKEN BY THE REVENUE IS A PURELY LEGAL GROUND SUPPORTING THE MAIN GROUND OF APPE AL. IT SHALL THEREFORE BE TAKEN INTO CONSIDERATION WHILE DISPOSING OF THE MAIN GROUND OF APPEAL. 2 556 - RJT - 2012 ANJANI COTTON INDUSTRIES 3. THE ASSESSEE IS A FIRM. IT IS ENGAGED IN THE BUSINESS AS MANUFACTUR ER AND DEAL ER IN K APAS, K APASIA AND COTTON. SURVEY OPERATIONS U/S 133A OF THE INCOME - TA X ACT WERE CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 16.02.2004 WHICH RESULTED IN DETECTION OF EXCESS STOCK OF RS. 25,01,516/ - . THE EXCESS STOCK SO FOUND WAS ADMITTED BY THE ASSESSEE AS REPRESENTING ITS UNDISCLOSED INCOME ON WHICH THE ASSESSEE ALSO OF FERED TO PAY TAX. RETURN OF INCOME WAS SUBSEQUENTLY FILED ON 26.10.2004 RETURNING TOTAL INCOME AT RS. 2,52,600/ - . THE RETURN WAS ACCOMPANIED BY AUDIT REPORT INCLUDING TRADING AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2004. THE ASSESSEE WAS FO UND TO HAVE CREDITED THE SAID SUM OF RS. 25, 00 , 000 / - DECLARED AS ADDITIONAL INCOME AT THE TIME OF SURVEY TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE PLEADED BEFORE THE ASSESSING OFFICER THAT THE SAID DIFFERENCE IN STOCK SHOULD BE TREATED AS BUSINESS INCOM E IN AS MUCH AS IT HAS BEEN INCLUDED IN THE TRADING ACCOUNT FOR COMPUTATION OF BUSINESS PROFITS. THE ASSESSING OFFICER HOWEVER TREATED THE SAID DIFFERENCE IN STOCK AS UNEXPLAINED INVESTMENTS U/S 69 OF THE INCOME - TAX ACT AND RESULTANTLY REFUSED TO SET OFF B USINESS LOSS AND REMUNERATION TO PARTNERS AGAINST THE AFORESAID UNEXPLAINED INVESTMENTS TAXED U/S 69 , FOLLOWING THE JUDGMENT OF THE HONBLE J URISDICTIONAL HIGH COURT IN FAKIR MOHAMED HAZI HASAN, 247 ITR 290 AND THE DECISION OF THIS TRIBUNAL IN ACIT V. SUBH AM CONSTRUCTION, 2004(1) DTJ 87 (NAGPUR). 4. AGGRIEVED BY THE ORDER PASSED BY THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD . CIT(A). THE LD . CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE, WITH THE FOLLOWING OBSERVATIONS: - 5. 4 THE FACTS AS EMERGED ABOVE, NOWHERE SUGGEST THAT THE INCOME OF RS.25,00,000/ - WAS EARNED BY THE APPELLANT FIRM FROM OTHER SOURCES I.E. OTHER THAN THE BUSINESS ACTIVITIES AS CARRIED OUT BY THE APPELLANT FIRM. TAKING THE INCOME OF RS.25,01,516/ - U/S.69 OF THE ACT IS FOUND TO BE WITHOUT LINKING THE SOURCE OF INCOME WHICH COULD NOT BE CONSIDERED AS FALLING UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. THERE SHOULD BE DIRECT NEXUS BETWEEN THE INCOME AND THE SOURCE OF THAT INCOME AND WHERE IT CANN OT BE ESTABLISHED THAT THE INCOME WAS NOT FALLING UNDER ANY OF THE FOUR HEADS, THE SAME CAN ONLY BE CONSIDERED FOR TAXING U/S.69 OF THE ACT. 3 556 - RJT - 2012 ANJANI COTTON INDUSTRIES THE PROVISIONS OF SECTION 69 ARE REPRODUCED AS UNDER TO UNDERSTAND THE IMPLICATION OF THE AMOUNTS TAXED U/S.69 OF T HE ACT: - SECTION 69: - WHERE IN THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE ASSESSMENT YEAR THE ASSESSEE HAS MADE INVESTMENTS WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT, IF ANY, MAINTAINED BY HIM FOR ANY SOURCE OF INCOME, AND THE ASSESSEE OFFERS N O 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 FINANCIAL YE AR. 5.5. THE ASSESSING OFFICER IS FOUND TO HAVE TAXED THE DIFFERENCE OF UNDISCLOSED STOCK NOT FOUND RECORDED IN THE BOOKS OF ACCOUNTS ON THE DATE OF SURVEY FOR WHICH THE ASSESSEE FURNISHED THE EXPLANATION FOR NOT TAKING THE STOCK IN THE BOOKS OF ACCOUNTS ON THAT DAY. THE A.O. DID NOT ACCEPT THE EXPLANATION AS SATISFACTORY BUT AT THE SAME TIME, HE DID NOT GIVE ANY COGENT REASONS FOR REJECTING IT, PARTICULARLY WHEN THE SURVEY REPORT AND THE STATEMENT OF PARTNER SHRI ASHOKBHAI DID NOT FIND ANY CONTRADICTION W ITH EACH OTHER IN REGARD TO STOCK OF COTTON REMAINED TO BE ENTERED IN THE BOOKS OF ACCOUNTS ON THE DATE OF SURVEY. THE ENTRY ADMITTED AS STOCK IN TRADE IN THE STATEMENT U/S.131 OF THE ACT AND DULY REFLECTED IN THE PROFIT & LOSS ACCOUNT FOR AN AMOUNT OF R S.25,00,000/ - WAS TO BE REGARDED AS BUSINESS INCOME ONLY IN ABSENCE OF ANY ADVERSE FINDING GIVEN BY THE A.O. IN THE ASSESSMENT ORDER DISREGARDING THE FACTS AS BROUGHT BY THE SURVEY TEAM THROUGH SURVEY REPORT AND OTHER RECORDS. THE A.O. DID NOT DISPUTE THE AMOUNT OF RS.25,00,000/ - CREDITED IN THE BOOKS OF ACCOUNTS NOR DID HE REJECT THE BOOKS OF ACCOUNTS AND THE BOOK RESULTS ACCORDINGLY BY INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT. SINCE THE BOOKS OF ACCOUNTS INCORPORATED THE ENTRY OF UNDISCLOSED INC OME OF RS.25,00,000/ - SUBSEQUENT TO THE SURVEY PROCEEDINGS AND IN THE ANNUAL ACCOUNTS FOR THE WHOLE PREVIOUS YEAR, THE PROVISIONS OF SECTION 69 WERE NOT REQUIRED TO BE INVOKED 4 556 - RJT - 2012 ANJANI COTTON INDUSTRIES BY THE A.O. AS THE INVESTMENT HAS BEEN RECORDED IN THE BOOKS OF ACCOUNTS. THE AP PELLANTS A.R. HAS RIGHTLY MADE RELIANCE ON THE DECISION OF RADHE DEVELOPERS INDIA LTD. (SUPRA) IN SUPPORT OF THE CONTENTION THAT SECTION 69 CANNOT BE INVOKED IN THE GIVEN SET OF FACTS. I HAVE ALSO CAREFULLY PERUSED THIS DECISION RENDERED BY THE HONBLE HI GH COURT OF GUJARAT AND THE FACTS OF THE APPELLANT FIRM ARE SQUARELY APPLICABLE SO FAR AS THEY RELATE TO THE APPLICABILITY OF THE DECISION IN THE CASE OF FAKIR MOHMED HAJI HASAN (2001) 274 ITR 290(GUJ. HIGH COURT) AND I FIND THAT THE A.O. WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 69 OF THE ACT AND RE - WORKING THE BUSINESS LOSS WHICH WAS NOT ALLOWED TO BE SET OFF AGAINST THE DISCLOSED INCOME. I, THEREFORE, DIRECT THE A.O. TO ACCEPT THE WORKING OF BUSINESS INCOME AS DECLARED IN THE RETURN OF INCO ME. 5. IN SUPPORT OF APPEAL, THE LD . DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ASSESSMENT ORDER. 6. IN REPLY, THE LD . AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE LD CIT(A). HE HAS FILED A COPY OF SUBMISSION S FILED EAR LIER BY THE ASSESSEE BEFORE THE LD . CIT(A). HE HAS RELIED ON THEM. 7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. SURVEY OPERATIONS U/S 133A OF THE INCOME - TAX ACT WERE CARRIED OUT ON 16.02.2004 AT THE BUSINESS PREMISES OF T HE ASSESSEE DURING WHICH STATEMENT OF SHRI ASHOK GOVINDLAL PATEL, ONE OF THE PARTNERS IN THE ASSESSEE - FIRM, WAS RECORDED. Q UESTION NO.6 PUT TO HIM AND THE ANSWER GIVEN BY HIM READ AS UNDER: - Q - 6 DURING THE COURSE OF THE SURVEY, PHYSICAL STOCK FOUND OF RS .2,00,48,215/ - , WHEREAS AS PER BOOKS OF ACCOUNT THE SAME COMES TO RS.1,75,46,700/ - . PLEASE EXPLAIN THE DIFFERENCE OF RS.25,01,515/ - . A - 6 I HAVE TO STATE THAT THE ABOVE DIFFERENCE OF RS.25,01,515/ - IS OUR UNACCOUNTED STOCK - IN - TRADE, WHICH I DISCLOSE AS UNA CCOUNTED INCOME OF M/S. ANJANI COTTON INDUSTRIES, WHICH IS ACCEPTED BY ME AS WELL AS BY OTHER PARTNERS OF THE FIRM AND I ALSO AGREE TO PAY TAX, WHICH MAY BE WORKED - OUT THEREON. 5 556 - RJT - 2012 ANJANI COTTON INDUSTRIES 8. IT IS APPARENT FROM THE AFORESAID STATEMENT THAT S TOCK PHYSICALLY FOUND AT THE TIME OF SURVEY WAS MORE THAN THAT RECORDED IN THE BOOKS. THE DIFFERENCE IN QUANTITY WAS OF 83994 KGS WHICH WAS VALUED AT RS.25,01,516/ - . AS THE ASSESSEE COULD NOT RECONCILE THE AFORESAID DISCREPANCY IN STOCK, IT OFFERED TO DISCLOSE THE SAME AS ITS INC OME IN UNACCOUNTED STOCK . RESULTANTLY THE ASSESSEE CREDITED A SUM OF RS. 25,00,000/ - TO TRADING AND PROFIT & LOSS ACCOUNT AS ITS INCOME DISCLOSED DURING THE SURVEY OPERATIONS. THUS THERE IS NO DISPUTE THAT THE SAID SUM OF RS.25,00,000/ - REPRESENTS INCOME O F THE ASSESSEE IN UNACCOUNTED STOCK DETECTED AT THE TIME OF SURVEY . 9. THE SHORT ISSUE IS WHETHER SUCH UNEXPLAINED INVESTMENT IN STOCK CAN BE TAXED AS BUSINESS INCOME U/S 28 OR AS INCOME U/S 69/69B OF THE INCOME - TAX ACT. THE FACT THAT THE ASSESSEE HAS A CQUIRED STOCK OUTSIDE THE BOOK S CANNOT BE DISPUTED ON THE FACTS OF THE CASE. THE NATURE AND SOURCE OF FUNDS UTILIZED IN ACQUIRING SUCH STOCK CANNOT THEREFORE BE EXPLAINED WITH REFERENCE TO THE ENTRIES IN THE BOOKS OF ACCOUNTS. IN FACT, NO SUCH EXPLANATION WAS OFFERED WITH REGARD TO THE NATURE AND SOURCE OF U NEXPLAINED INVESTMENT IN STOCK EITHER AT THE TIME OF SURVEY OR EVEN THEREAFTER AND IT IS FOR THIS REASON THAT SUCH UNEXPLAINED INVESTMENT WAS SURRENDERED AS ADDITIONAL INCOME. IN THIS VIEW OF THE MATTER, SUCH UNEXPLAINED INVESTMENT HAS RIGHTLY BEEN TREATED BY THE AO AS INCOME OF THE ASSESSEE U/S 69/69B OF THE INCOME - TAX ACT. THE AFORESAID VIEW IS FULLY SUPPORTED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN FAKIR MOHAMMAD HAJI HASSAN, (2002) 247 ITR 290. THE PRINCIPLES LAID DOWN IN THE AFORE SAID JUDGMENT ARE SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE BEFORE US. THE ACTION OF THE ASSESSING OFFICER IN TREATING THE IMPUGNED UNEXPLAINED INVESTMENT AS INCOME OF THE ASSESSEE U/S 69 IS FULLY IN CONFORMITY WITH THE PRINCIPLES LAID DOWN IN THE AFORESAID JUDGMENT . HIS ORDER IS THEREFORE LIABLE TO BE CONFIRMED AND IS ACCORDINGLY CONFIRMED. 10. AS FURTHER HELD IN THE AFORESAID JUDGMENT, LOSSES CAN BE ADJUSTED AGAINST THE INCOME FALLING VARIOUS HEAD S OF INCOME SPECIFIED IN CHAPTER IV OF THE INCOME - TAX ACT. THEY CANNOT BE ADJUSTED AGAINST UNEXPLAINED INVESTMENTS TAXED U/S 69 6 556 - RJT - 2012 ANJANI COTTON INDUSTRIES BECAUSE THEY ARE NOT TAXED UNDER ANY OF THE HEADS OF INCOME SPECIFIED IN CHAPTER IV OF THE INCOME - TAX ACT . THE ASSESSING OFFICER HAS THEREFORE COMMITTED NO ERROR IN REFUSING TO ADJUST BUSINESS LOSSES AS ALSO REMUNERATION TO PARTNERS AGAINST UNEXPLAINED INVESTMENTS TAXED U/S 69 OF THE INCOME - TAX ACT. HIS ACTION IS FULLY IN CONFORMITY WITH THE PRINCIPLES LAID DOWN BY THE HONBLE J URI SDICTIONAL HIGH COURT IN THE AFORESAID JUDGMENT. 11. THE LD . AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS RELIED UPON SEVERAL DECISIONS , NAMELY, (1) DCIT V. RADHE DEVELOPERS INDIA LTD. & ANR. , 32 9 ITR 0001 ( GUJ ) ; (2) ROYALE SUNRISE V. ITO, 99 TTJ 130 5 ; (3) CIT V. CHENSING VENTURES , 291 ITR 258 (MAD.); (4) M/S. FASHION WORLD V. ACIT, ITA NO. 1634/AHD/2006; (5) LA KH MICHAND BAIJNATH V. CIT, 35 ITR 416 (SC); AND (6) NALINIKANT AMBALAL MODY V. SAL NARAYAN ROW , 61 ITR 428 SC) , IN SUPPORT OF THE ORDER PASSED BY THE LD . CIT(A). WE HAVE CONSIDERED THEM. HOWEVER WE ARE NOT DEALING WITH THEM AS THE ISSUE UNDER APPEAL IS S QUARELY COVERED BY THE PRINCIPLES LAID DOWN IN IDENTICAL FACT - SITUATION BY THE HONBLE J URISDICTIONAL HIGH COURT IN FAKIR MOHAMMAD HAJI HASSAN (SUP RA) , WHICH IS BINDING ON US . 11. IN VIEW OF THE FOREGOING, THE APPEAL FILED BY THE REVENUE IS ALLOWED. ORDER PRONOUNCED ON 13 . 0 9 . 201 3 SD/ - SD/ - (T. K. SHARMA) ( D. K. SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT: 13 . 0 9 .2013 B T COPY OF ORDER FORWARDED TO: - 1 . APPELLANT ITO, WARD - 1(2), RAJKOT 2 . RESPONDENT - M/S. ANJANI COTTON INDUSTRIES, NATIONAL HIGHWAY, LALPUR, WANKANER, DIST. RAJKOT 3 . CONCERNED CIT - I , RAJKOT 4 . CIT (A) - I I , RAJKOT 5 . DR, ITAT, RAJK OT 6 . GUARD FILE. BY ORDER TRUE COPY PRIVATE SECRETARY, ITAT, RAJKOT