TMI Blog2022 (11) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the AO can be held to be erroneous order, that is (i) if the AO s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)AO s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the AO can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. Hon ble Supreme Court in the case of Malabar Industries [ 2000 (2) TMI 10 - SUPREME COURT] held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the AO. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of the revenue. When the AO adopted one of the courses permissible in law and it has resulted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,33,270/- on account of service tax paid u/s 37 of the I.T. Act and Rs.24,00,000/- on account of partners remuneration u/s 40(b) of the I.T. Act. 4. It is therefore prayed that order passed by the Pr. Commissioner of Income-tax u/s 263 of the I.T. Act setting aside the order of assessing officer and directing assessing officer to make fresh investigation into the claim for deduction of interest income may please be quashed. 5. Appellant craves to add, alter or delete any ground(s) either before or in the course of hearing of the appeal. 3. Brief facts qua the issue are that in this case, the assessee-firm filed its return of income for the A.Y.2015-16 on 29.03.2016 declaring total income at Rs.10,36,75,230/-. The assessee is engaged in the business of construction. 4. Later on, Ld. PCIT exercised his jurisdiction under section 263 of the Act and noticed from the records that a survey action u/s 133A of the IT Act (herein after referred to the Act ) was carried out on 25.09.2014 and statement of Shri Parvatbhai Muljibhai Kakadia, one of the partners of the firm, was recorded on oath u/s 131 of the Act. In his statement, the partner admitted receipt of unac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY.2015-16. You have shown the amount of Rs.11,00,08,500/- in the P L A/c under the head ' Income declared in I.T Survey and computed the income accordingly. However, against the disclosed income of Rs.11,00,08,500/- the firm has shown total income of Rs.10,36,75,230/- in the return of income for AY 2015-16, which is less by Rs.63,32,270/-. You have claimed this amount of Rs.63,32,270/- as expenses against the disclosed income, which is irregular in view of provisions of sec. 115 BBE of the Act. As per the provisions of sec. 115 BBE(2), no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provisions of the Act in computing the income referred to in clause (a) of sub - sec (1). Despite such facts and circumstances and specific provisions of law, in sec. 115BBE(2) of the Act, AO has completed assessment determining total at Rs.10,36,75,230/- and thereby allowing your erroneous claim to the tune of Rs.63,32,270/- rendering the assessment so completed as erroneous in so far it is prejudicial to the interest of revenue.... Therefore, the undersigned propose to pass an order u/s 263 of the Act against the assessment order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tune of Rs.24,00,000/-. It was accordingly submitted that the net income after such claim of expenses at Rs.10,36,75,230/- was determined and disclosed in the return as Business Income and not income from other sources and, therefore, the provisions of sec. 115BBE are not applicable in their case. Furthermore, it was submitted that the assessee has not claimed any business or construction expenses from the income declared in survey proceedings. The assessee also submitted as under: (a) The Service Tax is a tax paid on the income declared in survey. There is no denial that the said tax is payable and paid by the assessee. Further, it is payable and paid by the assessee. Further, it is rightly allowable as expense u/s 37(1) and 43B. Hence, the assessee firm has not claimed anything not genuine. Payment of service tax on the declared income is implied and mandatory and deduction of the same cannot be denied because the same is a legal expenses paid to the government and there is nothing like a false claim or afterthought of claim (b) Regarding the remuneration to partners, the same is also rightly allowable as expenses u/s 40(b)(iv) In fact the remuneration all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total deduction made by the assessee of Rs.63,32,270/-. Therefore, Ld. PCIT held that the assessment order u/s 143(3) passed on 29.09.2017 (for Asstt Year 2015-16) is found to be erroneous in so far as it is prejudicial to the interest of Revenue and Ld. PCIT directed the Assessing Officer to frame the assessment de novo. 9. Aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us. 10. Learned Counsel for the assessee submitted that in the survey proceedings itself, the assessee has explained the nature of on money , as money relating to his business. To substantiate this, the Ld. Counsel for the assessee submitted the English translation of relevant statement of Piyuskumar C. Patel, partner of M/s. Shivam Developers recorded under section 133A of the Act, which is reproduced below: Que. 20 Today in the course of survey proceedings, some papers/ books were found which were inventorised as per Annexure BF-1. Kindly provide us the explanation of the above papers/books after inspecting the same. Ans. 20 .. PAGE NO. 75 - This page was found during the course of survey proceedings from my wallet. This paper relates to our MIDAS S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore his finding may be confirmed. 13. We have heard both the parties and noted that the issue under consideration is no longer res integra. The service tax which is related to on money and remuneration paid to partners are allowable expenses out of on money declared by assessee as the on money so declared by assessee was business income. For that, on identical facts, the reliance can be placed on the judgment of Hon'ble Gujarat High Court in the case of Suman Papers Boards Ltd. , 314 ITR 119 (Guj.) wherein it was held as follows: 2. The controversy relates to block period commencing from asst. yr. 1986-87 and ending on 6th Jan., 1996. The respondent assessee, a limited company, claimed deduction under ss. 80-I or 80-IA of the Act in relation to the total undisclosed income of the block period. The said claim was rejected by the AO and the matter carried before Tribunal. The Tribunal vide its impugned order dt. 18th May, 1988 [sic-1998] allowed the relief for the reasons recorded in paragraph No. 21 of the impugned order, material portion whereof reads as under: From the above, it is clear that as per the provisions of s. 158BB(1), the undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sclosed and will become disclosed income, and then there would be no question of any undisclosed income. It is also pertinent to note that the undisclosed income declared in Form No. 2B is under the head business income from industrial undertaking as the only activity of the assessee companies is the manufacture and sale of board paper and craft paper, which has been all along assessed as business income and in all the assessment years falling within the block periods, there has been no other head of income except 'Business income', (ii) During the course of search from the records seized, there is no evidence that the assessee companies were having income assessable under any other head namely, house property, capital gains or income from other source except business income, (iii). The chairman of the companies Shri N.R. Agrawal in the various statements recorded under s. 132(4) has specified the manner of earning undisclosed income out of the trading activities of the assessee companies relating to the manufactured goods namely, board paper and craft paper by under-invoicing of sales and over-invoicing of purchases and inflation of expenses etc. Thus, on a correct interpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to second question, we may notice that the assessee's stand is that its sole business was that of running a hospital. It had no other source of income and that therefore, treating such undisclosed income from other source was not justified. In the case of Deputy CIT v. Radhe Developers India Ltd., (2010) 329 ITR 1(Guj.), this Court while distinguishing the decision in the case of Fakir Mohmed Haji Hasan (supra), observed as under: The decisions of this Court in the case of Fakir Mohmed Haji Hasan (supra) and Krishna Textiles (supra) are neither relevant nor germane to the issue considering the fact that in none of the decisions the Legislative Scheme emanating from conjoint reading of provisions of sections 14 56 of the Act have been considered. The Apex Court in the case of D.P.Sandu Bros.Chembur P. Ltd.,(supra) has dealt with this very issue while deciding the treatment to be given to a transaction of surrender of tenancy right. The earlier decisions of the Apex Court commencing from case of United Commercial Bank Ltd.Vs. CIT (1957) 32 ITR 688 (SC) have been considered by the Apex Court and, hence, it is not necessary to repeat the same. Suffice it to state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he merits. So far as the question of law is concerned, we have to answer the same in favour of the Revenue. In view of the above discussion, we do not find any question of law arises. Tax Appeal is therefore, dismissed. 16. Thus, it is abundantly clear from the above judgment that additional income, i.e. on money received by assessee is from business, therefore the service tax which relates to on-money should be allowed as deduction and partners remuneration should also be allowed as deduction. We note that during the assessment proceedings, the Assessing Officer issued notice to the assessee asking the assessee to justify service tax and partners remuneration. The said notice of Assessing Officer is placed at paper book page no.16. In response to the show-cause notice of the Assessing Officer, the assessee submitted its reply to the Assessing Officer which is placed at paper book page no.14. Thus, we note that Assessing Officer has conducted inquiry on the issues raised by Ld. PCIT in his order under section 263 of the Act. The Assessing Officer also applied his mind and took possible view, thus order passed by the Assessing Officer is neither erroneous nor prej ..... X X X X Extracts X X X X X X X X Extracts X X X X
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