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2016 (11) TMI 942 - ITAT CHANDIGARH

2016 (11) TMI 942 - ITAT CHANDIGARH - [2016] 51 ITR (Trib) 320 - Revision u/s 263 - Held that:- Ample queries regarding the nature and source of income were made by the Assessing Officer during the assessment proceedings, which were duly replied to by the assessee. We do not hesitate to hold that even if the Assessing Officer has not mentioned the fact of the surrendered income being business income, specifically in his order, we understand that the Assessing Officer was satisfied to the effect .....

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section 263 of the Act, twin conditions of the order being erroneous as well prejudicial to the interest of the Revenue are to be applied simultaneously. Since we have already recorded that there is no error in the order of the Assessing Officer, the Commissioner of Income Tax cannot assume jurisdiction under section 263 of the Act. Accordingly, we quash the order of the Commissioner of Income Tax passed under section 263 of the Act. - Decided in favour of assessee. - ITA No. 525/Chd/2014 - Date .....

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return of income for the relevant assessment year declaring total income of ₹ 6,79,273/-. The assessment under section 143(3) of the Act was completed as on 23.12.2011. Later on, on perusal of the record, the Commissioner of Income Tax formed an opinion that the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the Revenue and hence, notice under section 263 of the Act was issued to the assessee. The main contention of the learned Commissioner of .....

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the view that this issue has not been examined by the Assessing Officer as per the legal connotations of section 40(b) of the Act and excess remuneration has been claimed by the assessee over and above the sum allowable under section 40(b) of the Act. The assessee treated the income of ₹ 16 lacs disclosed during the course of survey as unaccounted business income and thus, credited this amount to the Profit & Loss Account for computing the allowable remuneration to the partners. The A .....

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placed on a number of judicial pronouncements. 3. After considering the submissions of the assessee, the Commissioner of Income Tax did not find any force in the same. He relied on a judgment of Gujarat High Court in the case of Fakir Mohmed Haji Hasan Vs. CIT (2001) 247 ITR 290, whereby the scope and description of the scheme of sections 69, 69A, 69B and 69C of the Act were interpreted. The proposition laid down by the Gujarat High Court has also been approved by the Hon'ble Punjab & H .....

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& Bros. (2008) 298 ITR 13 (Kar). Reliance was placed by the assessee on this judgment stating that in the said judgment, the finding of fact was recorded that the assessee received additional income from business only and, therefore, it was entitled to deduction on account of remuneration paid to the partners. The Commissioner of Income Tax was of the view that in the present case no such finding has been recorded and no evidence was furnished before the Assessing Officer in support of the .....

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s of the firm and reassess the income of the firm as well as the partners of the firm accordingly. 4. Aggrieved by this, the assessee has come up in appeal before us, raising the following grounds of appeal : "1. That order passed u/s 263 of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Central), Gurgaon is against law and facts on the file in as much as he was not justified to arbitrarily hold that assessment order dated 23.12.2011 passed by the Ld, Deputy Commissioner of .....

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tio in as much asthe principles of natural justice have been grossly violated as the order was passed on 27-03-14 without affording a reasonable opportunity of hearing, whereas the proceedings were adjourned by the Ld. CIT for 10-04-14." 5. The learned counsel for the assessee mainly reiterated the submissions made before the Commissioner of Income Tax. His main force was on the argument that the issue of surrendered income being business income has been duly examined by the Assessing Offic .....

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whereby at Point No.11, a detailed query regarding surrendered amount was raised, which reads as under : "11. During the course of survey operation at your business premises you have made a total surrender of ₹ 16.00,000/- as undisclosed income over and above your regular income. The relevant extract of your letter is reproduced as under:- "Due to some loose papers, hooks etc found and difference in stocks found during the course of survey, I am unable to reconcile the issue at .....

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h you are a partner/director/member. (iii) Please substantiate the manner in which the additional undisclosed was earned by you. (iv) Please mention amount of the taxes paid on additional undisclosed income." 6. The reply of the said questionnaire was given by the assessee vide its letter dated 15.11.2011, whereby at Point No.10(c) it was clarified that the income surrendered in the hands of the firm was earned out of business of the assessee only. In another letter dated 19.12.2011 at Poin .....

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amp; Loss Account to ascertain the net profit qua book profit for computation of the remuneration of the partners, the same cannot be discarded. 7. The learned D.R. relied on the order of the Commissioner of Income Tax and stated that the Assessing Officer in the original proceedings has wrongly allowed remuneration to the partners on the basis of book profits computed after crediting the income of ₹ 16 lacs surrendered in the case of survey under section 133A of the Act. Reliance was plac .....

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ring in section 263. f. CIT vs Vallabhdas Vithaldas 56 taxmann.com 300 (Guj) - The Hon'ble High Court has also explored the meaning of the word 'record' as appearing in section 263. 8. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. On perusal of the Paper Book pages to which our attention was invited by the learned counsel for the assessee, we observe that the issue of surre .....

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e decided to treat the surrendered income as business income. Time and again in the letters submitted by the assessee before the Assessing Officer, it stuck to the stand that the surrendered income was its business income. The Assessing Officer was aware of this stand of the assessee and only then he allowed it the deduction available out of business income. With these plethora of evi dences on record, we cannot just brush aside the fact that the Assessing Officer without applyi ng his mind has .....

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emed incomes and no benefit, which is available out of business income can be availed by the assessee on these incomes. However, if we read closely the said judgment we also find some other proposition lying behind it. The findings of the Hon'ble Gujarat High Court in the case of have been recorded by the Commissioner of Income Tax in his order at page 2 onwards, which read as under : "7. The scheme of Sections 69, 69A. 69B and 69C of the Income-tax Act, 1961, would show that in cases w .....

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tion 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 the 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 one of the heads of income under Section 14 of the Act, it would not be possible to classify such deemed income under any .....

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and 69C will riot apply, in which event, the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted. 8. The opening words of Section 14 "save as otherwise provided by this Act" clearly leave scope for "deemed income" of the nature covered under the scheme of Sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits .....

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l 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." 9. On reading of the very first paragraph of the judgment of Gujarat High Court, we see that the very first impression of the Hon'ble High Co .....

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of incomes, these will be treated as deemed incomes. Applying the said proposition in the facts of the present case, we see that the assessee has all along been saying that the surrendered income is out of its business. The Assessing Officer was seized off these explanations of the assessee and formed an opinion that the source of these surrendered incomes has been explained by the assessee to be out of its business. We should not forget that the assessee is a firm engaged in the business and m .....

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Commissioner of Income Tax has also relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of M/s Kim Pharma (P) Ltd. (supra). We wish to state here that in that case, the only issue was with regard to the cash surrendered at the time of survey and no other incomes. Since other incomes were already treated by the Assessing Officer himself as business income, therefore, the proposition of that case is not applicable to the present case. Another point raised by the Commi .....

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were duly replied to by the assessee. We do not hesitate to hold that even if the Assessing Officer has not mentioned the fact of the surrendered income being business income, specifically in his order, we understand that the Assessing Officer was satisfied to the effect that the income surrendered pertained to the business of the assessee. In view of this, we see that the Assessing Officer had made detailed enquiries and formed an opinion which was not illegal and his opinion is based on materi .....

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