TMI Blog2011 (3) TMI 1782X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.191 kg. was found which was valued at ₹ 42.87 lacs. This amount was surrendered by the assessee at the time of survey but in the return of income total income was disclosed at ₹ 32,87,000/- only. The assessee had disclosed the sum of ₹ 42.82 lacs in the profit and loss account but if the amount of disclosure is excluded, there would be loss in the normal business. The assessee is dealing in tobacco and its income was estimated by applying the provisions of section 145(3). During the course of assessment proceedings, the AO treated the sum of ₹ 42,87,228/- as deemed income and worked out the business loss at ₹ 6,87,734/- and allowed it to carry forward. In addition to this he also allowed the sum of ₹ 1,29,691/- being depreciation to be carried forward to next years. The ld. CIT(A) treated the disclosed sum of ₹ 42,87,228/- as income from profits and gains as per Chapter IV-D on the ground that excess stock represented unaccounted stock from the firm and it was found from the godown of the firm, therefore, it was undisclosed income under the head business. 3. The ld. DR submitted that in view of the decision of Hon. Gujarat High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese cases, the source not being known, such deemed income will not fall even under the head Income from other sources . Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions : Held, on the facts, that it was clear that when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such gold, which was deemed to be the income of the assessee, as a deductible trading loss on its confiscation, because such deemed income did not fall under the head of income profits and gains of business or profession . Therefore, the Tribunal was perfectly right in holding that the value of the gold was liable to be includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisition and on its failure to do so the trading loss on the confiscation of the asset could not be set off. 10. We notice that the set off of any trading loss against deemed income assessed under sections 69, 69A, 69B 69C is not directly discernible from sections 72 to 79 falling in Chapter-VI. To summarily refer to these provisions we note that in Chapter VI, section 70 provides set off of loss from one source against income from another source under the same head of income. In other words, if under the head business there are two businesses one is resulting in income and the other is resulting in loss, they are to be set off against each other. Similarly, if there is a loss under the head capital gains in respect of short-term capital gains and there is income in respect of other capital assets then that can be set off as per section 70. Section 71 provides set off of loss from one head against income from another head. Thus where there is a loss under one head being loss other than loss under the head capital gains then it can be set off against any income assessable under another head. Section 71A and section 71B provide for carry forward of set off of loss from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 25,14,306/- was part of the same business. Both kind of stock i.e. what is recorded in the books and what was found over and above the stock recorded in the books, were held and dealt uniformly by the assessee. There was no physical distinction between the accounted stock or unaccounted stock. No such physical distinction was found by the Revenue either. The assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxable under section 69. The department has ignored this claim of the assessee and sought to tax the difference between book-stock and physical-stock as unaccounted investment under section 69 without considering the claim of the assessee that first the business receipt has to be considered and then investment should be treated as coming out of such unaccounted income. The difference in stock so worked out by the authorities below had no independent identity of its own and it is part and parcel of entire lot of stock. The difference between declared stock in the books and what is physically found would only be a mathematical expression in terms of value and not a separate independent identifiable asset. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude sum of ₹ 8,10,011/- being difference in stock is represented by undeclared business income. It does not have a separate physical identity. It is to be only taxed under the head business . Other assets have separate physical identity being furniture and fixtures, air conditioners etc. They cannot have a direct nexus with business and therefore investment therein has to be considered under section 69 only. 15. In view of the above, AO is directed to consider the sum of ₹ 8,10,011/- as undisclosed business income assessable under the head business and other two sums under section 69. The business income including application of section 40(b) has to be considered accordingly. For calculation of income in view of our above observations, we restore the matter to the file of AO. Thus in the above case it is held that excess stock should be treated as part of the business as it does not have any separate physical identity. 5. Since the only issue involved in this appeal is whether excess stock should be treated as from business or as deemed income and other consequences would follow, we hold, following the decision in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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