Zevraat, Yamunanagar V. DCIT, Yamunanagar

ITA 621/CHANDI/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6943 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-02-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 12-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Business income; Deemed to accrue or arise in india
• Section: 133A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.621/CHD/2014 (ASSESSMENT YEAR : 2006-07) ZEVRAT, VS. THE D.C.I.T., GOBINDPURI ROAD, INCOME TAX OFFICE, YAMUNA NAGAR. YAMUNA NAGAR. PAN: ABFPG9036N (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 24.05.2017 DATE OF PRONOUNCEMENT : 18.08.2017 .2017 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD.CIT(APPEALS), PANCHKULA DATED 15.5.2014 RELATING TO ASSESSMENT YEAR 2006-07, CONFIRMING THE LEVY OF PENALTY U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ORDER OF THE LEARNED DCIT, CIRCLE, YAM UNANAGAR IS WRONG, ILLEGAL AND AGAINST THE FACTS OF THE CASE. 2. THAT THE LD. DCIT, CIRCLE, YAMUNA NAGAR IS WRONG IN LEVYING PENALTY OF RS.3 87900/-. 3. THE APPELLANT RESERVES A RIGHT TO ADD, AMEND OR ALTER ANY OF THE GROUNDS OF APPEAL. 4. THE APPELLANT PRAYS THAT THE APPEAL MAY VERY KIN DLY BE ALLOWED IN TOTAL. 2 3. PENALTY IN THE PRESENT CASE HAS BEEN LEVIED ON T HE EXCESS DEDUCTION CLAIMED ON ACCOUNT OF SALARY PAID TO PARTNERS AS PER THE PROVISIONS OF SECTION 40(B) OF THE ACT. THE FACTS LEADING TO THE SAME BEING THAT SURVEY U/S 133A OF THE ACT ,WAS CONDUCTED AT THE ASSESSEES PREMISES, CERTAIN DISCREPANCIES WERE FOUND ON ACCOUNT OF WHICH THE AS SESSEE SURRENDERED A SUM OF RS.40 LACS, BEING RS.15 LACS O N ACCOUNT OF EXCESS CASH AND RS.25 LACS ON ACCOUNT OF EXCESS STOCK FOUND . THE SURRENDERED SUM WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. ACCORDINGL Y, THE REMUNERATION PAID TO THE PARTNERS, UNDER SECTION 40 (B) OF THE ACT, WAS CLAIMED AT RS.12 LACS AFTER INCLUDING THE SURRENDERED AMOUNT IN THE PROFITS OF THE ASSESSEE. THE ASSESSING OFFICER TREATING THE AMOUNT SURRENDERED A S DEEMED INCOME UNDER SECTION 69/69A OF THE ACT AND A S CONSEQUENCE THEREOF DISALLOWED THE EXCESS DEDUCTION CLAIMED OF REMUNERATION PAID TO THE PARTNERS TO THE EXTENT OF RS.11.50 LACS, AFTER ALLOWING RS.50,000/- ON ACC OUNT OF THE SAME. THE LD.CIT (APPEALS) UPHELD THE SAID DISALLOWANCE. THEREAFTER THE ASSESSING OFFICER LEVI ED PENALTY ON THE DISALLOWANCE SO MADE OF SALARY PAID TO THE PARTNERS TO THE EXTENT OF RS.11.50 LACS, HOLDING TH AT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF IN COME BY DECLARING THE SURRENDER OF RS.40 LACS AS BUSINESS I NCOME INSTEAD OF DEEMED INCOME UNDER SECTION 69/69A OF TH E ACT AND FURTHER THAT THE ASSESSEE HAD CONCEALED INCOME BY 3 CLAIMING EXCESS DEDUCTION ON ACCOUNT OF SALARY TO T HE PARTNERS . THUS THE ASSESSING OFFICER IMPOSED PENA LTY OF RS.3,87,090/- U/S 271(1)(C) OF THE ACT. 4. AGGRIEVED BY THE SAME, THE ASSESSEE FILED APPEAL BEFORE THE LD.CIT (APPEALS) WHO UPHELD THE ORDER OF THE AS SESSING OFFICER. 5. AGGRIEVED BY THE SAME, THE ASSESSEE HAS NOW COME UP IN APPEAL BEFORE US. DURING THE COURSE OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTEN TION TO THE FACT THAT THE I.T.A.T. IN QUANTUM PROCEEDINGS H AD HELD THE SURRENDERED INCOME TO THE EXTENT OF RS.25 LACS, MADE ON ACCOUNT OF EXCESS STOCK FOUND DURING SURVEY, AS THE BUSINESS INCOME OF THE ASSESSEE AND DIRECTED THE AS SESSING OFFICER TO COMPUTE THE REMUNERATION TO PARTNERS UND ER SECTION 40(B) OF THE ACT BY INCLUDING THE SAID AMOU NT OF RS.25 LACS. THE LD. COUNSEL FOR THE ASSESSEE PLACE D THE COPY OF THE ORDER OF THE TRIBUNAL IN ITA NO.1173/CH D/2009 DATED 28.10.2015 AND FURTHER DREW OUR ATTENTION TO PARAS 13 AND 14 OF THE ORDER WHICH STATED AS UNDER: 13. IN VIEW OF THIS, THE FIRST QUESTION TO BE DECIDED BY US IS THE HEAD UNDER WHICH THIS SURRENDERED INCOME IS TO BE CHARGED TO TAX. A NUMBER OF JUDICIAL PRONOUNCEMENTS HAVE BEEN CITED DURING THE COURSE OF HEARING. HOWEVER, WE FIND THERE IS A JUDGMENT OF HON'BLE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT IN THE CASE OF KIM PHARMA (P) LTD. VS. CIT IN ITA NO.106 OF 2011 (O&M) DATED 27.4.2011, WHICH IS QUITE RELEVANT TO DECIDE THE ISSUE IN QUESTION. ON PERUSAL OF THE SAID JUDGMENT, WE FIND THAT THE ISSUE IN THAT CASE WAS OF TAXABILITY OF CASH SURRENDERED DURING THE COURSE OF SURVEY AS THE ASSESSEE HAD ALSO SURRENDERED INCOME OF RS.10 LACS ON ACCOUNT OF SUNDRY CREDITS, REPAIR TO BUILDING AND ADVANCES 4 TO STAFF, WHICH BEING RELATABLE TO BUSINESS CARRIED ON BY THE ASSESSEE WERE ALREADY INCLUDED AS INCOME FROM BUSINESS. IN THE PRESENT CASE, AS WE HAVE ALREADY STATED THAT THE SURRENDER WAS MADE ON ACCOUNT OF CASH FOUND DURING THE COURSE OF SURVEY AND ON ACCOUNT OF EXCESS STOCK. BY NO STRETCH OF IMAGINATION, EXCESS STOCK FOUND CAN BE CONSIDERED AS INCOME NOT FROM THE BUSINESS OF THE ASSESSEE. THE ASSESSING OFFICER IN HIS ORDER HAS NOT BEEN ABLE TO BRING ON RECORD ANY MATERIAL TO THE EFFECT THAT THE INCOME SURRENDERED DURING THE COURSE OF SURVEY ON ACCOUNT OF EXCESS STOCK WAS NOT OUT OF THE BUSINESS OF THE ASSESSEE. NOW, FOLLOWING THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF KIM PHARMA (P) LTD. (SUPRA), ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE CAN SAFELY INFER THAT THE OTHER COMPONENTS OF THE SURRENDERED INCOME I.E. EXCESS STOCK CAN BE BROUGHT TO TAX UNDER THE HEAD BUSINESS INCOME. THIS VIEW HAS ALSO BEEN HELD IN A RECENT ORDER OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF GAURISH STEELS PVT. LTD. VS. ACIT, ITA NO.1080/CHD/2014 DATED 17.9.2015, WHERE THE ISSUE WAS THAT OF SET OFF OF UNABSORBED LOSSES, BUT IT WAS HELD THAT APART FROM CASH SURRENDERED DURING THE COURSE OF SURVEY, ALL OTHER SURRENDERED INCOMES TO BE CHARGED UNDER THE HEAD BUSINESS INCOME. IN VIEW OF THIS, WE HOLD THAT THE SURRENDER ON ACCOUNT OF STOCK AMOUNTING TO RS.25 LACS BE TREATED AS INCOME UNDER THE HEAD BUSINESS WHILE THE SURRENDER ON ACCOUNT OF CASH BE TREATED AS DEEMED INCOME. 14. NOW, COMING TO THE ISSUE OF COMPUTATION OF REMUNERATION TO PARTNERS UNDER SECTION 40(B) OF THE ACT. FROM THE ABOVE FINDINGS, IT IS VERY CLEAR THAT THE SURRENDERED INCOME ON ACCOUNT OF STOCK BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE SAID REMUNERATION. THE ASSESSING OFFICER IS HEREBY DIRECTED TO COMPUTE THE REMUNERATION TO PARTNERS UNDER SECTION 40(B) OF THE ACT INCLUDING THE EXCESS STOCK AMOUNTING TO RS.25 LACS TO THE INCOME OF THE ASSESSEE. 6. THE LD. COUNSEL FOR ASSESSEE, THEREFORE, STATED THAT PENALTY TO THIS EXTENT WAS IN ANY CASE WAS NOT LEVI ABLE SINCE THE ASSESSEE HAD RIGHTLY CLAIMED THE REMUNERATION O F PARTNERS TO THIS EXTENT AS AFFIRMED BY THE I.T.A.T. ALSO. 5 7. AS FOR REMUNERATION CALCULATED ON ACCOUNT OF THE AMOUNT SURRENDERED OF RS.15 LACS BEING EXCESS CASH FOUND DURING SURVEY, THE LD. COUNSEL FOR ASSESSEE PRIMARI LY URGED TWO ARGUMENTS IN SUPPORT OF ITS CONTENTION THAT NO PENALTY WAS LEVIABLE; I) THAT NO INACCURATE PARTICULARS OF INCOME HAD BEE N FURNISHED BY THE ASSESSEE SINCE THE ENTIRE SURRENDE R HAD BEEN DULY DISCLOSED IN THE PROFIT & LOSS ACCOUN T OF THE ASSESSEE. AND, II) THE ISSUE OF ALLOWANCE OF REMUNERATION TO PARTN ERS ON PROFITS WHETHER THEY WOULD INCLUDE ALL ITEMS REFLECTED IN THE PROFIT & LOSS ACCOUNT OR WOULD BE RESTRICTED TO THE PROFITS AS COMPUTED UNDER THE HEA D INCOME FROM BUSINESS AND PROFESSION WAS A DEBATAB LE ISSUE. THE LD. COUNSEL FOR ASSESSEE RELIED UPON TH E FOLLOWING DECISIONS OF THE I.T.A.T. IN THIS REGARD: 1) ACIT VS. SETH BROTHERS (2006) 99 TTJ (RAJKOT) 189 2) ROYALE SUNRISE VS. ITO (2006) 99 TTJ (BANG.) 1305 8. THE LD. DR, ON THE OTHER HAND RELIED UPON THE OR DER OF THE LD.CIT(APPEALS). THE LD. DR STATED THAT BY DIS CLOSING THE SURRENDERED INCOME AS BUSINESS INCOME OF THE AS SESSEE THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS O F INCOME, WHEN ACTUALLY THE NATURE OF THE INCOME WAS DEEMED INCOME U/S 69/69A OF THE ACT. THE LD. DR ST ATED THAT BY CLAIMING EXCESS DEDUCTION OF REMUNERATION, BY INCLUDING THE SAID SURRENDERED INCOME FOR THE PURPO SE OF 6 CALCULATING THE SALARY PAYABLE TO PARTNERS U/S 40(B ) OF THE ACT, THE ASSESSEE HAD CONCEALED PARTICULARS OF INCO ME ALSO. THUS, THE LD. DR SUPPORTED THE ORDER OF THE LD.CIT(APPEALS). 9. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIE S, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND GON E THROUGH THE DOCUMENTS AND ORDERS REFERRED TO BEFORE US. PENALTY IN THE PRESENT CASE HAS BEEN LEVIED FOR THE REASON THAT THE ASSESSEE HAD TREATED THE INCOME SURRENDERE D ON ACCOUNT OF EXCESS STOCK AND EXCESS CASH FOUND DURIN G SURVEY AS BUSINESS INCOME AND CALCULATED THE REMUNE RATION PAYABLE TO PARTNERS AS PER SECTION 40(B) OF THE ACT BY INCLUDING THE SAME IN THE BOOK PROFITS OF THE ASSES SEE. THE EXCESS DEDUCTION SO CLAIMED AMOUNTED TO RS.11.50 LA CS, ON WHICH PENALTY OF RS.3,87,090/- HAS BEEN LEVIED. 10. TO THE EXTENT OF INCOME SURRENDERED ON ACCOUNT OF EXCESS STOCK AMOUNTING TO RS.25 LAC WE FIND THAT T HE SAME HAS BEEN HELD TO BE THE BUSINESS INCOME OF THE ASSE SSEE AND DEDUCTION ON ACCOUNT OF REMUNERATION PAID TO PA RTNERS AS PER SECTION 40(B) TO BE ALLOWABLE BY THE I.T.A.T . IN QUANTUM PROCEEDINGS BEFORE IT IN ITA NO.1173/CHD/20 09 DATED 28.10.2015. TO THIS EXTENT, WE HOLD, THERE I S NO CASE OF FURNISHING OF ANY INACCURATE PARTICULARS OF INCO ME OR CONCEALING OF ANY PARTICULARS OF INCOME .THEREFORE NO QUESTION OF LEVY OF PENALTY ON THE SAME ARISES AND TO THAT EXTENT PENALTY LEVIED IS DIRECTED TO BE DELETED. 7 11. AS TO THE DEDUCTION CLAIMED ON ACCOUNT OF REMUNERATION TO PARTNERS U/S 40(B) ON THE BALANCE SURRENDER OF RS.15 LACS PERTAINING TO EXCESS CASH F OUND DURING SURVEY, IT IS NOT DISPUTED THAT THE SAID AMO UNT HAD BEEN DULY DISCLOSED IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. UNDOUBTEDLY, THE ASSESSEE HAS ALL ALONG TREATED AND CLAIMED THE SURRENDER TO BE ON ACCOUNT OF EXCES S CASH FOUND DURING SURVEY. THEREFORE, THE PARTICULARS RE LATING TO THE SURRENDER OF INCOME MADE CANNOT BE SAID TO BE INACCURATE. VIS-A-VIS THE CLAIM OF THE ASSESSEE OF REMUNERATION TO PARTNERS U/S 40(B) OF THE ACT ON TH E SAID SURRENDER WHICH HAS BEEN HELD TO BE NOT IN THE NATU RE OF BUSINESS INCOME, WE FIND THAT THERE ARE CONFLICTING DECISIONS OF THE I.T.A.T. ON THIS ISSUE. THE RAJKO T BENCH OF THE I.T.A.T. IN THE CASE OF SETH BROTHERS (SUPRA) H AS HELD THAT ALL INCOME EMBEDDED IN THE NET PROFITS AS AP PEARING IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE FIRM W AS TO BE TAKEN INTO ACCOUNT FOR ALLOWING DEDUCTION OF REMUNE RATION PAID TO PARTNERS U/S 40(B) OF THE ACT. THE REASONI NG BEING THAT THE WHOLE INCOME OF THE FIRM UNDER DIFFERENT H EADS IS LIABLE TO BE ASSESSED IN THE HANDS OF THE FIRM AND REMUNERATION TO PARTNERS CANNOT BE BROKEN DOWN INTO DIFFERENT COMPONENTS TO BE ALLOCATED TO THE INCOME COMPUTED UNDER DIFFERENT HEADS. THE SAID PROPOSITI ON HAS ALSO BEEN REITERATED BY THE I.T.A.T. IN THE CASE OF ROYALE SUNRISE (SUPRA). THEREFORE, WE FIND THAT THE EXPLA NATION GIVEN BY THE ASSESSEE FOR CLAIMING REMUNERATION ON THE EXCESS CASH SURRENDERED REPLY CANNOT BE TERMED TO B E FALSE 8 OR FOR THAT MATTER UNSUBSTANTIATED. ON THE OTHER H AND, WE FIND THE EXPLANATION TO BE PLAUSIBLE. IN VIEW THE REOF, WE HOLD THAT THE ASSESSEE HAS NEITHER FURNISHED INACCU RATE PARTICULARS OF INCOME, NOR CONCEALED PARTICULARS OF INCOME EVEN ON ACCOUNT OF REMUNERATION CLAIMED U/S 40(B) B Y INCLUDING SURRENDER MADE ON ACCOUNT OF EXCESS CASH FOUND DURING SURVEY. IN VIEW OF THE ABOVE PENALTY LEVIED U/S 271(1)(C) O F THE ACT OF RS. 3,87,090/-IS DIRECTED TO BE DELETED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 18 TH AUGUST, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH