The DCIT, Circle-6, Surat V. M/s. D.N. Diamond, Surat

ITA 718/AHD/2011

• Counselvise Citation: 71820514 RSA 2011
• Duration Of Justice: 4 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Business income; Deemed to accrue or arise in india

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ./ I.T.A. NO.718/AHD/2011 ( / ASSESSMENT YEAR : 2007-08) DY.CIT CIRCLE-6 SURAT / VS. M/S.D.N.DIAMOND 411,412,413, WDC BUILDING HAT FALIA MAHIDHARPURA SURAT ./ ./ PAN/GIR NO. : AABFD 7804 N ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI P.L. KUREEL, SR.DR / RESPONDENT BY : SHRI MEHUL SHAH, A.R. / DATE OF HEARING 24/04/2015 !'# / DATE OF PRONOUNCEMENT 09/06/2015 / O R D E R PER S.S. GODARA, JUDICIAL MEMBER : THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2007-08 IS DIRECTED AGAINST ORDER OF THE CIT(A)-IV, SURAT DATED 29/11/2010 IN CASE NO.CAS- IV/184/09-10, IN PROCEEDINGS U/S.143(3) OF THE INCO ME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE REVENUES GROUNDS READ AS UNDER:- ITA NO.718 /AHD /2011 DCIT VS.M/S.D.N.DIAMOND ASST.YEAR 2007-08 - 2 - [1] ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E HONBLE CIT(A) HAS ERRED IN DELETING THE ENTIRE ADDITION MADE BY A .O. ON ACCOUNT OF DISALLOWANCE OF PAYMENT TO PARTNERS REMU NERATION. [2] ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE HONBLE CIT(A) HAS ERRED IN TREATING THE DEEMED INCOME AS INCOME F ROM BUSINESS TRANSACTIONS; [3] ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE HONBLE CIT(A) ERRED IN MAKING ERRONEOUS INTERPRETATION OF RELEVAN T FACTS AND IMPROPERLY REJECTING PROPER LAW. [4] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AND IN LAW, THE LD.CIT(A), SURAT OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. [5] IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD.CIT(A)-IV/SURAT MAY BE SET-ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE ASSESSEE-FIRM MANUFACTURES/TRADES, IMPORTS A ND EXPORTS DIAMONDS. IT HAS GOT TWO PARTNERS; S/SHRI DINESH R AJAKARANLAL MEHTA AND NARESH DHIRAJLAL MEHTA HAVING 50% STAKES EACH. THE DEPARTMENT CONDUCTED A SURVEY ON 16/03/2007 IN ASSESSEES CASE . IT INVENTORISED ASSESSEES BOOKS AND OTHER DOCUMENTS. THE SAME R EVEALED PHYSICAL STOCK OF DIAMONDS OF RS.2,27,24,683/- AS AGAINST AS SESSEES BOOKS DEMONSTRATING IT TO BE THAT OF RS.1,82,44,489/-. THE ASSESSEES LATTER PARTNER GOT RECORDED HIS STATEMENT DISCLOSING ADDIT IONAL INCOME OF RS.51,65,132/- ON ACCOUNT OF UNRECORDED CASH AMOUNT ING TO RS.6,84,938/- AND PHYSICAL STOCK OF ROUGH/REJECTED/ POLISHED DIAMONDS OF A SUM OF RS.44,80,144/-. ITA NO.718 /AHD /2011 DCIT VS.M/S.D.N.DIAMOND ASST.YEAR 2007-08 - 3 - 4. THE ASSESSEE FILED ITS RETURN ON 31/07/2007 ADMI TTING INCOME OF RS.28,27,741/- AFTER CONSIDERING INTEREST AND SALAR Y PAID TO ITS PARTNERS. THE ASSESSING OFFICER TOOK UP SCRUTINY. HE SOUGHT TO DISALLOW THE ASSESSEES CLAIM OF SALARY ABOVESAID BY TREATING IT S ADDITIONAL INCOME TO HAVE BEEN DERIVED FROM OTHER SOURCES THAN BUSINES S INCOME. THE ASSESSEE PLEADED ITS ADDITIONAL INCOME TO BE OUT OF UNACCOUNTED BUSINESS ACTIVITIES WAS ENTITLED TO BE TREATED AS BUSINESS I NCOME AND ITS PARTNERS REMUNERATION WAS ALLOWABLE. THE ASSESSING OFFICER FRAMED ASSESSMENT ON 31/12/2009 RECOUNTING THE CHAIN OF EVENTS DURING SURVEY LEADING TO DISCLOSURE OF ASSESSEES ADDITIONAL INCOME AND HELD IT TO HAVE ARISEN FROM ASSETS FOUND IN EXCESS LEADING TO A CONCLUSION THAT THE SAME HAVE BEEN ACQUIRED FROM UNDISCLOSED SOURCES. HE TREATED THE ASSESSEES ADDITIONAL INCOME AS FROM OTHER SOURCES AND ALSO DISALLOWED THE PARTNERS REMUNERATION CLAIM. 5. THE ASSESSEE PREFERRED AN APPEAL. THE CIT(A) H AS ACCEPTED ITS CONTENTIONS AS UNDER:- 3. I HAVE GONE THROUGH, THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT BEFORE ME. THE DE CLARATION OF ADDITIONAL INCOME DURING THE COURSE OF SURVEY WAS O N ACCOUNT OF ASSETS UNEARTHED AT THE BUSINESS PREMISES OF THE APPELLANT FIRM. THE APPELLANT IS A TRADER/EXPORTER OF DIAMONDS. NOTHING HAS BEEN BROUGHT ON RECORD BY THE A.O TO SHOW THAT THESE ASSETS WERE NOT EARNE D ON ACCOUNT OF UNDISCLOSED BUSINESS ACTIVITIES. THE PARTNER OF THE APPELLANT FIRM HAD CATEGORICALLY MENTIONED IN THE STATEMENT RECORDED T HAT THE ASSETS HAD BEEN GENERATED OUT OF BUSINESS TRANSACTIONS. DEEMED INCOME U/S 69/69A ETC. HAVE NOT BEEN ASSIGNED ANY HEAD OF INCOME. IT HAS BEEN MENTIONED ITA NO.718 /AHD /2011 DCIT VS.M/S.D.N.DIAMOND ASST.YEAR 2007-08 - 4 - IN CHAPTER-VL WHICH IS SEPARATE FROM CHAPTER-VI (CO MPUTATION OF INCOME). THEREFORE DEPENDING UPON THE FACTS OF EACH CASE, THE DEEMED INCOME HAS TO BE BROUGHT TO TAX UNDER THE RELEVANT HEAD. SINCE THE DEEMED INCOME WAS ON ACCOUNT OF EXCESS STOCK/ CASH RECOVERED AT THE BUSINESS PREMISES AND THE APPELLANT WAS A TRADER IN SIMILAR GOODS, IT WOULD BE FAIR TO ASSUME THAT THE INCOME AROSE OUT O F THE BUSINESS ACTIVITIES OF THE APPELLANT. THE DEEMED INCOME THEN PARTAKES THE CHARACTER OF BUSINESS INCOME. SINCE THE ADDITIONAL INCOME IS HELD TO BE IN THE NATURE OF BUSINESS INCOME, REMUNERATION TO P ARTNERS WAS ADMISSIBLE SUBJECT TO PROVISIONS OF SECTION 40(B) O F THE ACT. IT IS THEREFORE HELD THAT THE APPELLANT WAS ENTITLED TO C ONSIDER THE DEEMED INCOME (ADDITIONAL INCOME DISCLOSED DURING SURVEY O N ACCOUNT OF EXCESS CASH/STOCK) FOR PURPOSE OF COMPUTING THE AMOUNT OF REMUNERATION ADMISSIBLE TO THE PARTNERS. GROUND NO.1 IS THEREFORE ALLOWED TO THE APPELLANT. SINCE GROUND NO.L IS ALLOWED TO THE APPE LLANT, THE ALTERNATE GROUND TAKEN (GROUND NO.2) BECOMES ACADEMIC AND NOT BEING ADJUDICATED. THIS LEAVES THE REVENUE AGGRIEVED. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE CASE FILE. FACTS RELEVANT TO THE ISSUE ALREADY STAND NARRATED. THE REVENUE SEEKS TO TREAT THE ASSESSEES ADDITIONAL INCOME OF RS.51,65, 132/- (SUPRA) UNDER THE HEAD OTHER SOURCES INSTEAD OF BUSINESS INCOME F OR DISALLOWING ITS PARTNERS REMUNERATION. THE ASSESSEES CASE IS TH AT ITS ADDITIONAL INCOME HAS ARISEN FROM ITS BUSINESS ACTIVITY ONLY. WE REI TERATE THAT THE MAIN COMPONENT OF THE IMPUGNED ADDITIONAL INCOME IS EXCE SS PHYSICAL STOCK OF DIAMONDS AMOUNTING TO RS.44,80,194/-. THERE IS NO DISPUTE THAT THE ASSESSEE IS ALREADY IN DIAMOND BUSINESS. ITS PARTN ER HAS STATED ABOUT SOME OTHER BUSINESS IN STOCKS, ETC. HOWEVER, THE F ACT ALSO REMAINS THAT THE REVENUE FAILS TO POINT OUT ANY IRREGULARITY IN THE CONCERNED BOOKS. ITA NO.718 /AHD /2011 DCIT VS.M/S.D.N.DIAMOND ASST.YEAR 2007-08 - 5 - THE ASSESSEE DOES NOT HAVE ANY OTHER SOURCE OF INCO ME AS WELL. IN THESE CIRCUMSTANCES, THE ONLY INFERENCE THAT CAN BE DRAWN IS THAT THE ASSESSEES ADDITIONAL INCOME IS ITS UNACCOUNTED BUSINESS INCOM E. THE REVENUE AT THIS STAGE SUBMITS THAT ITS CASH AMOUNT IN QUESTION OF RS.6,84,938/- IS NOT LIABLE TO BE TREATED UNDER THE HEAD BUSINESS INCOM E. WE FIND THAT A COORDINATE BENCH IN CASE OF DCIT VS. NEW UMIYA VIJA Y SAW MILL REPORTED AS (2012) 40CCH 413 (AHD.TRIB.) HOLDS THAT SUCH A BIFURCATION IS NOT PERMISSIBLE QUA AN UNDISCLOSED INCOME UNEART HED IN THE COURSE OF SURVEY. THE REVENUE FAILS TO POINT OUT ANY DISTIN CTION ON FACTS OR LAW. WE HOLD IN THESE PECULIAR FACTS THAT THE CIT(A) HAS RIGHTLY HELD THE ASSESSEES ADDITIONAL INCOME OF RS.51,65,132/-(SUPR A) UNDER THE HEAD BUSINESS INCOME SO AS TO HOLD IT ENTITLED FOR CLA IMING REMUNERATION TO ITS PARTNERS. THE CIT(A)S ORDER IS AFFIRMED. THE REVENUES GROUND FAILS. 7. THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 9TH JUNE, 2015 AT AHMEDABAD. SD/- SD/- ( PRAMOD KUMAR ) ( S.S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 09/ 06 /2015 ORDER PRONOUNCED ON 09/06/2015 &.., .(../ T.C. NAIR, SR. PS SD/- SD/- (N.S. SAINI) (S.S. G ODARA) A.M. J.M. ITA NO.718 /AHD /2011 DCIT VS.M/S.D.N.DIAMOND ASST.YEAR 2007-08 - 6 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-IV, SURAT 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 21.5.2015 (DIRECT ON COMPUT ER) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..21.5.2015 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.9.6.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 9.6.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER