TMI Blog2018 (6) TMI 1729X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the same is eligible, for quantifying the remuneration u/s.40(b) of the Act. Therefore, we are of the considered view that the order of the CIT(A) needs to be reversed. Consequently, the grounds/additional grounds raised by the assessee are allowed. - ITA No.893/PUN/2016 - - - Dated:- 29-6-2018 - SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM For the Assessee : Shri Rajeev Thakkar For the Revenue : Shri Mukesh Jha ORDER PER D. KARUNAKARA RAO, AM: This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-12, Pune, dated 02.03.2016 for the Assessment Year 2010-11. 2. Briefly stated relevant facts are that the assessee is engaged in the business of manufacturing and trading in Gold Silver ornaments articles and accessories. Assessee filed the return of income on 13.10.2010 declaring total income of ₹ 1,10,32,380/-. There was survey action u/s.133A of the Act in this case. In the said survey, assessee disclosed ₹ 1.25 crores and offered the same for taxation for discrepancies in the stock of gold and silver. The said disclosure of ₹ 1.25 crores is reflected in the profit and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee being purely a legal one and all facts are already before the lower authorities, therefore, the same are admitted for adjudication in the light of various binding judgments on the same. 6. Before us, the learned Counsel for assessee was critical of the decision of Assessing Officer and CIT(A) and submitted that the said amount of ₹ 1.25 crores is relatable to the excess stock of business discovered by the survey party. Therefore, there is no dispute about the existence of business nexus of the said amount and thus, the additional income constitutes business profits and not the deemed profits or Income from other sources. Once the same is accepted, then deductions available under the statute should be granted to the assessee in respect of quantifying of remuneration under section 40(b) of the Act also. For this proposition, Ld. Counsel for the assessee relied on following series of decisions: 1. Bajargan Traders Vs. ACIT ITA No.258/2017, dated 12-09-2017. 2. Md. Serajuddin Bros Vs. CIT 24 taxmann.com 46 (Cal.) 3. Solanki Jewellers Vs. DCIT ITA No.858/PN/2016, dated 18-11-2016. 4. M/s. Surekh Jewellers Vs. DCIT ITA No.18/PN/2016, dated 12-08-2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook filed on behalf of the assessee. I have also considered the various decisions cited before me. There is no dispute to the fact that the assessee, which is a partnership firm engaged in the business of manufacturing and trading in gold and silver ornaments and articles and diamond jewellery, had declared additional income of ₹ 41 lakhs on account of excess stock. I find the assessee in the return of income while crediting the amount of additional income to the profit and loss account, however, has claimed remuneration to partners and interest on capital and thereby declared the net income of ₹ 34,70,590/- which is less than the additional income of ₹ 41 lakhs declared during the course of survey. I find the AO held that the amount of ₹ 41 lakhs declared during the course of survey is to be treated as deemed income u/s.69B of the I.T. Act and the assessee is not entitled to any remuneration or interest as per the provisions of section 40(b) of the I.T. Act. I find in appeal the CIT(A), following the decision of Hon ble Gujarat High Court in the case of Fakir Mohamed Haji Hasan (Supra) and the decision of Hon ble Chattisgarh High Court in the case of Dhanus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions. At the outset, it is to be observed that whether or not additional income surrendered during the course of survey is assessable as income from business or not is essentially a question, which has to be decided having regard to the particular facts and circumstances of each case. Ostensibly, there cannot be an absolute proposition that any income surrendered during the survey is a business income or vice versa. Even before the Hon'ble Punjab Haryana High Court in the case of Kim Pharma (P.) Ltd. (supra), assessee was found to have failed to explain the source of the cash found during the course of survey, which was offered as an additional income; and, therefore in the absence of the nature of source of cash being proved it was held not to be assessable as income from business. We may also refer to a judgement of the Hon'ble Karnataka High Court in the case of CIT vs. S. K. Srigiri and Bros. (2008) 298 ITR 13 (Kar), which has been rendered in the context of section 40(b)(iii) of the Act. In the case before the Hon'ble Karnataka High Court, the Tribunal had come to a factual finding that the additional income declared in the course of survey was from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be considered from business, is only a presumption, which cannot take the place of evidence. 10. In this background, now we may address the controversy as to whether the additional income of ₹ 50,08,220/- is eligible for the purposes of computing the partners' remuneration. In so far as the income offered at the time of survey which has been found to be assessable as 'income from business' is concerned, there is no dispute that it forms a part of the profit for the purposes of computing the remuneration of the partners. In so far as the additional income declared which is not found to be assessable as 'income from business', the stand of the Revenue is that the same cannot qualify for the purposes of section 40(b) of the Act. In this context, we have noticed that the Hon'ble Calcutta High Court in the case of Md. Serajuddin Brothers vs. CIT, (2012) 80 DTR 46 (Cal.) has considered a similar controversy. According to the Hon'ble High Court, for the purpose of computation of allowable remuneration to partners, book-profit has to be ascertained not only from income of business alone but also income from other sources. As per the Hon'ble Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here cannot be two incomes one for the purpose of the Companies Act and another for the purpose of income-tax both maintained under the same Act. If the Legislature intended the Assessing Officer to reassess the company's income, then it would have stated in section 115J that income of the company as accepted by the Assessing Officer . In the absence of the same and on the language of section 115J, it will have to held that view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal. At page 282 of the said report the Supreme Court has also observed amongst: other- The fact that it is shown under a different head of income would not deprive the company of its benefit under section 32AB so long as it is held that the investment in the units of the UTI by the assessee-company is in the course of its eligible business . Therefore, in our opinion, the dividend income earned by the assessee-company from its investment in the UTI should be included in computing the profits of eligible business under section 32AB of the Act. Thus it emerges as follows: Even if the income from other sources is included in the profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om such income. The relevant observation of the Tribunal from para 9 onwards read as under : 9. We have considered the rival submissions and perused the material on record. In our considered view there is some misunderstanding about the interpretation of decision of Hon. Gujarat High Court in the case of Fakir Mohmed Haji Hasan vs. CIT (supra). For the sake of convenience we reproduce the head notes from that decision as under :- The scheme of sections 69, 69A, 69B 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 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lained satisfactorily The expression nature and source used in this section should be understood to mean requirement of identification of source and its genuineness. To explain Nature it would require the assessee to explain what is description of investment or expenditure, period and the manner in which it was done. To explain the source it would require the assessee to explain the corpus or fund from where investment or expenditure has been met and also the head under which the investment or expenditure would fall such as whether investment/expenditure pertains to business or relates to acquisition of capital asset or to other source or to agriculture. Where the assessee is able to explain nature and source of investment/expenditure and also if they are recorded in the books of account then such investment/expenditure will not be treated as deemed income but where investment /expenditure is not recorded in the books of account and/or their nature and source is not explained or not satisfactory explained, deeming provision under these four sections can be invoked by the AO and investment/expenditure would be treated as deemed income of the assessee. Thus for invoking these dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-op. banks. Section 73 provides for treatment of loss in speculation business. Section 74 provides for treatment of loss under the head capital gains and section 74A provides for treatment to loss arising from sources under the head 'income from other sources'. Section 75provides for losses in case of firm and section 78 in respect of carry forward and set off of loss in case of change in constitution of the firm and section 79 provides for carry forward and set off of loss in the cases of certain companies. Thus treatment of loss arising under the head business is provided only under section 72 which directs to carry forward the unabsorbed loss to the next year unless it is otherwise provided in any other section of Chapter -VI. We have gone through all the sections under Chapter -VI and we do not find any provision for setting off of business loss against deemed income under sections 69, 69A, 69B 69C. 11. But this does not mean that loss computed under any of the five heads mentioned in section 14- (i) 'salary', (ii) 'income from house property', (iii) 'profits and gains from business or profession', (iv) 'capital gains' and (v) ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunity to the assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is only where no nexus is established with any head then it should be considered as deemed income under section 69, 69A,69B 69C as the case may be. It is because when assessee fails to explain satisfactorily the source of such investment then it should be taxed under section 69, 69A, 69B 69C as the case may be. It should not be done at the first instance without giving opportunity to the assessee to establish nexus. Therefore, there is no conflict with the decision of Hon. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble jurisdictional High Court brought to our notice by either side, therefore, following the ratio of the decision of Hon ble Supreme Court in the case of CIT Vs. Vegetable products reported in 88 ITR 192 I hold that the decision, which is in favour of the assessee, has to be followed. 18. In the light of the above discussion, I hold that the amount of ₹ 41 lakhs declared by the assessee during the course of survey partakes the character of business income and the assessee is entitled to remuneration and interest on capital as per the provisions of section 40(b) of the I.T. Act on such income. I hold and direct accordingly. The additional ground as well as the ground raised by the assessee are accordingly decided in favour of the assessee. From the above, we find the facts in the present case as similar to the facts in the case of M/s. Surekh Jewellers (supra)/others cited above. The excess stock linked additional income partakes not only the character of business profit but the same is eligible, for quantifying the remuneration u/s.40(b) of the Act. Therefore, we are of the considered view that the order of the CIT(A) needs to be reversed. Consequently, the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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