TMI Blog2016 (9) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... y to partners can be made in the present case and thus the ground of assessee is allowed. - I.T.A. No.430/Ahd/2011 - - - Dated:- 28-7-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER And SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER For The Appellant : Shri Manish J. Shah, AR For The Respondent : Shri Sanjay Kumar, Sr.DR ORDER PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : This appeal by the Assessee is directed against the order of the ld.Commissioner of Income Tax(Appeals)-II, Surat dated 16/12/2010 for Assessment Year (AY) 2007-08. 2. The relevant facts as culled out from the materials on record are as under:- 2.2. Assessee is a partnership-firm stated to be engaged in the business of construction. Survey proceedings u/s.133A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) was carried out on 23/03/2007 of the business premises of the assessee-firm and at that time it was found that assessee had received unaccounted receipts amounting to ₹ 1.75 crores. The working partner of the firm in his statement had admitted to have received the amount in cash which was not recorded in the books of accounts. Assessee thereafter filed its return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses of salary and interest to partners, against the undisclosed sources cannot be allowed. He accordingly disallowed the expenses of ₹ 17,04,950/-. Aggrieved by the order of AO, assessee carried the matter before the ld.CIT(A) who upheld the order of AO by holding as under:- 3. Decision : 3.1. I have duly considered the submission of the appellant. In so far as disclosure of ₹ 1.75 crore made by the appellant vide the statement of the working partner recorded during the course of survey on 23.3.2007 on the business premises of the appellant is concerned, the same is not in dispute. It is also not in dispute that the above income disclosed by the appellant is on the basis of undisclosed receipts of the appellant firm recorded in a small diary titled Astral Aquarisic found in 'Annexure BF8' at the time of survey. The undisclosed receipts of? ₹ 1.75 crcre are mentioned in pages 2,3 and 4 of the said diary. Further, while disclosing the above amount, the working partner in his statement said that the entire amount was received in cash and not recorded in the books of a/c., and while disclosing the above unaccounted receipts off ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has since been considered on first principles in the Gujarat High Court decision in the case of Fakir Mohamed Haji Hasan Vs CIT (2001) 247 ITR 290 (Guj). The relevant observations of the High Court are extracted below:- The scheme of section 69, 69A, 693 and 69C of the Income-tax `Act, 1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per provisions of the Act, However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any head and is assessable as such by virtue of the words Save otherwise provided by the Act in section 14. It may be added that by an amendment made by the Finance (No.2) Act, 1998 with effect from 01.4.1999, inserting a proviso to section 69C, it has been specifically enjoined that any explained expenditure which is deemed to be income of the assessee u/s 69C shall not be allowed as a deduction under any head of income. The effect of the Gujarat High Court decision is that it applies the same principles imbibed in the proviso to section 69C to all sections in Chapter VI dealing with deemed income. The fact is that no specific provision akin to the proviso to section 69C was necessary in respect of other sections in this chapter because the income added therein as unexplained investment, unexplained valuables, etc. is even otherwise not allowable as deduction, unlike unexplained expenditure which is otherwise allowable as deduction. 3.3. In view of the above discussion and following the rationale of the decision of the jurisdictional High Court in the case of Fakir Mohamed Haji Hasan(supra), which has also been relied upon by the Assessing Officer, I hold that against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3258/Ahd/2011 order dated 18/05/2012 after considering the various decisions cited therein had agreed with the decision of ld.CIT(A) that once the additional income offered for taxation during the survey is accepted and it has been explained to be as business income as the source then there is no bar in the Act for claiming partners remuneration from such additional business income. 4.1. We further find that Hon ble Calcutta High Court in the case of Md.Serajuddin Brothers vs. CIT reported in (2012) 24 Taxmann.com 46 (Cal.) has held that even if the income from other sources is included in the Profit and Loss accounts, to ascertain the net profits qua book profit for computation of the remuneration of the partners, the same cannot be discarded. We further find that Hon ble Gujarat High Court in the case of J.K. Chokshi vs. ACIT (T.A. No.149 of 2003) order dated 22/12/2014 held as under:- 7. Once it is established that the assessee had no other source of income at the relevant time or in the past, it can be safely concluded that the assessee had no other income other than income from business Now, when the business activity of the assessee has been accepted and no other s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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