M/s. Navbharat Packaging Co., Gandhinagar V. The Income tax Officer, Ward-3, Gandhinagar

ITA 70/AHD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72823 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 25-10-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 07-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: S N DIVATIAAR
• Keywords: Unexplained investment; Business income; Salary income; Principle of natural justice; Deemed to accrue or arise in india
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD , , , , BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND , SHRI T.R. MEENA, ACCOUNTANT MEMBER .. , ! ' ! ' ! ' ! ' ITA NO. 70/AHD/2013 ASSESSMENT YEAR : 2003-04 NAVBHARAT PACKAGING CO. 207, GIDC, MANSA DIST. GANDHINAGAR V/S . ITO, WARD-3, GANDHINAGAR PAN NO. A ABFN2702R (APPELLANT) .. (RESPONDENT) #$ % & BY APPELLANT SHRI S. N. DIVATIA, A.R. '(#$ % & /BY RESPONDENT SHRI O. P. BATHEJA, SR. D.R. )* % /DATE OF HEARING 25.10.2013 +,- % /DATE OF PRONOUNCEMENT 10.01.2014 O R D E R PER : SHRI T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF ASSESSEE WHICH H AS EMANATED FROM THE ORDER OF CIT(A), GANDHINAGAR, DATED 18.10.2012 FOR ASSESSMENT YEAR 2003-04. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UN DER: 1.1 THE ORDER PASSED U/S.250 ON 18.10.2012 FOR A.Y .2003-04 BY CIT(A)-GNR, ABAD PARTLY UPHOLDING THE DISALLOWANCE OF PARTNERS REMUNERATION U/S.40(B) IN RESPECT OF THE DISCLOSED INCOME RELATING TO CASH AND FACTORY SHED IS WHOLLY ILLEGAL, UNLAWFU L AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. ITA NO. 70/AHD/2013, A.Y. 03-04 PAGE 2 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN NOT CONSIDERING FULLY AND PROPERLY THE SUBMISSIONS MADE AND EVIDENCE PRODUCED BY THE APPELLANT WITH REGARD TO T HE IMPUGNED DISALLOWANCE. 2.1 THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND O N FACTS IN UPHOLDING THAT THE INCOME DISCLOSED DURING THE COUR SE OF SURVEY INSOFAR AS IT RELATED TO THE CASH AND FACTORY SHED WAS NOT BUSINESS INCOME SO THAT PARTNERS REMUNERATION, U / S . 40(B) WAS NOT ADMISSIBLE THEREON. 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE UPHELD THAT THE IN COME DISCLOSED DURING THE COURSE OF SURVEY INSOFAR AS IT RELATED T O THE CASH AND FACTORY SHED WAS NOT BUSINESS INCOME SO THAT PARTNE RS REMUNERATION U/S.40(B) WAS NOT ADMISSIBLE THEREON. 2.3 WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTER NATIVE, EVEN IF THE SAID INCOME WAS HELD TO BE NON-BUSINESS INCOME, PAR TNERS REMUNERATION U/S.40(B) WAS ADMISSIBLE IN VIEW OF TH E EXPLANATION TO SCC.40(B). 2. SUM AND SUBSTANCE OF THE GROUND OF APPEAL TAKEN BY THE APPELLANT IS THAT THE INCOME DISCLOSED DURING THE SURVEY IS BUSI NESS INCOME AND QUALIFIED FOR THE REMUNERATION TO THE PARTNERS U/S. 40(B) OF THE I. T. ACT. THE LD. A.O. OBSERVED THAT THERE WAS A SURVEY U/S. 133A AT THE B USINESS PREMISES OF THE ASSESSEE ON 25.10.2002. THE ASSESSEE HAS DISCLOSED ADDITIONAL INCOME OF RS. 15,00,000/- ON ACCOUNT OF UNACCOUNTED INVESTMEN T IN FACTORY SHEDS, UNACCOUNTED CASH AND UNACCOUNTED STOCK. HOWEVER, TH E ASSESSEE RETRACTED FROM THE DISCLOSURE AND IT IS SHOWN AS AN INCOME BY REVISING THE HEADS OF AN INCOME AS UNDER : 1. UNACCOUNTED INVESTMENT IN FACTORY SHED 56,3 00 ITA NO. 70/AHD/2013, A.Y. 03-04 PAGE 3 2. UNACCOUNTED CASH 1,89,594 3. UNACCOUNTED STOCK 98,039 ------------ 3,43,803 2.1 THE LD. A.O. HAD A VIEW THAT THE DISCLOSURE MAD E U/S. 133A CANNOT BE SET OFF AGAINST ANY OTHER HEAD OF INCOME BEING DEEM ED INCOME U/S. 69, 69A, 69B OR 69C. THE ASSESSEE IS NOT ENTITLED TO ADJUST BUSINESS LOSS OF RS.2,48,213/- AGAINST THIS INCOME. THE HONBLE ITA T, A BENCH, IN ITA NO. 2164/AHD/2007 DATED 07.08.2009 HAD SET ASIDE THIS I SSUE TO THE LD. A.O. TO RECONSIDER THIS ISSUE. THE ASSESSEE RELIED UPON THE ITAT, B BENCH, DECISION IN CASE OF M/S. FASHION WORLD VS. ACIT, CIRCLE-12, WHICH WAS NOT SQUARELY APPLICABLE ON THE ASSESSEES CASE AS HELD BY THE LD . A.O. AFTER CONSIDERING THE ASSESSEES REPLY AND LEGAL POSITION ON THIS ISS UE, THE DEEMED INCOME SEPARATED AT RS. 3,99,340/- AND NO SET OFF OF BUSIN ESS LOSS IS ALLOWED AGAINST THIS INCOME. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). IN SECOND ROUND THE LD. CIT(A) APPLIED HONBLE GUJARAT HIGH C OURT DECISION IN CASE OF FAKIR MOHMMAD HAJEE HUSSAIN 247 ITR 290 AND HELD TH AT THE DEEMED INCOME IS NOT COVERED BY ANY HEAD OF INCOME SPECIFI ED IN SECTION 14 OF THE ACT. ACCORDINGLY, IT CANNOT BE SET OFF AGAINST THE BUSINESS LOSS. HE FURTHER OBSERVED THAT THE ASSESSEE DID NOT CORRELATE THE IN COME DISCLOSED AND EARNED FROM THE BUSINESS EITHER EXCESS CASH DISCLOSED OR I NVESTMENT MADE IN FACTORY PREMISES BUT UNDISCLOSED STOCK WAS TREATED AS BUSI NESS INCOME FOLLOWING THE ITAT, AHMEDABAD DECISION IN CASE OF FASHION WOR LD VS. CIT(A) (SUPRA). ACCORDINGLY, HE ALLOWED THE APPEAL PARTLY. THE ASSE SSEES A.R. IN SECOND ROUND ALSO CONTENDED THAT THE WHOLE DISCLOSURE MADE UNDER 2 HEADS I.E. ITA NO. 70/AHD/2013, A.Y. 03-04 PAGE 4 DISCLOSURE ON ACCOUNT OF EXCESS CASH & INVESTMENT M ADE IN FACTORY PREMISES IS A BUSINESS INCOME. HE FURTHER RELIED UPON THE DE CISION IN CASE OF CHOKSHI HIRALAL MANGANLAL VS. DCIT, CIRCLE-12, AHMEDABAD (2 011) 45 SOT TAXMAN.COM 300 AHD AND HONBLE GUJARAT HIGH COURT D ECISION IN CASE OF CIT VS. DAT INDUSTRIES LTD. TAX APPEAL NO. 16/2010 ORDE R DATED 15.06.2011, AND ARGUED THAT BOTH THE DISCLOSURE ARE COVERED BY THIS ORDERS AND IS LIABLE TO BE HELD AS BUSINESS INCOME. AT THE OUTSET, LD. DR SUPP ORTED THE ORDER OF THE LD. CIT(A). 2.3 WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL RECORD. THE ASSESSEE MADE DISCLOSURE ON ACCOUNT EXCESS CASH AND INVESTMENT IN FACTORY SHED DURING THE SURVEY PROCEEDINGS. THE ASS ESSEE-FIRM IS A MANUFACTURER OF PACKING MATERIALS. THE SECTION 14 P RESCRIBES HEAD OF INCOME WHICH ARE AS UNDER : (I) INCOME FROM SALARY (II) INCOME FROM HOUSE PROPERTY (III) CAPITAL GAIN (IV) INCOME FROM BUSINESS AND PROFESSION (V) INCOME FROM OTHER SOURCES. 2.4 THE CO-ORDINATE BENCH IN CASE OF CHOKSHI HIRALA L MAGANLAL VS. DCIT, CIRCLE-12, AHMEDABAD (SUPRA) HAS HELD THAT EXCESS S TOCK FOUND DURING THE SURVEY PROCEEDINGS IS BUSINESS INCOME. SIMILARLY, H ONBLE HIGH COURT OF GUJARAT IN CASE OF DAT INDUSTRIES LTD. (SUPRA) HELD THAT THE DISCLOSURE MADE DURING THE COURSE OF SURVEY PROCEEDINGS IS TO BE TR EATED AS AN INCOME FROM THE BUSINESS AND PROFESSION. BY FOLLOWING THE DECIS ION OF RADHE DEVELOPER (I) LTD. (2010) 329 ITR 1 (GUJ) WHEREIN THE DIVISION BE NCH OF HONBLE GUJARAT ITA NO. 70/AHD/2013, A.Y. 03-04 PAGE 5 HIGH COURT HELD THAT THERE CANNOT BE A HEADLESS INC OME OF THE ASSESSEE HIMSELF FOR ANY OF THE HEADS SPECIFIED IN SECTION 1 4 OF THE I. T. ACT. ACCORDINGLY, HONBLE HIGH COURT ALLOWED THE SET OFF OF BUSINESS LOSS OR ADDITIONAL DISCLOSURE MADE BY THE ASSESSEE DURING T HE COURSE OF SURVEY PROCEEDINGS. ACCORDINGLY, THE DISCLOSURE MADE ON AC COUNT OF EXCESS CASH AND INVESTMENT IN FACTORY IS INCOME FROM THE BUSINESS I N CASE OF THE APPELLANT. HOWEVER, IN GROUNDS OF APPEAL, THE LD. AR RAISED A NEW GROUND ON REMUNERATION TO THE PARTNERS U/S. 40(B) OF THE ACT WHICH WAS NEVER RAISED BEFORE THE LD. CIT(A) IN FIRST ROUND AS WELL AS IN SECOND ROUND. THEREFORE, THE ASSESSEES APPEAL IS PARTY ALLOWED. 3. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLO WED. THIS ORDER PRONOUNCED IN OPEN COURT ON 10.01.2014 SD/- SD/- ( MUKUL KR. SHRAWAT) (T.R. MEENA) JUDICIAL MEM BER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA . . . . % %% % '/ '/ '/ '/ 0/- 0/- 0/- 0/- / COPY OF ORDER FORWARDED TO:- 1. #$ / APPELLANT 2. '(#$ / RESPONDENT 3. 44 5 / CONCERNED CIT 4. 5- / CIT (A) 5. /9: ') , , / DR, ITAT, AHMEDABAD 6. :<= >? / GUARD FILE. BY ORDER/ . , @/ 4B , '