TMI Blog2022 (7) TMI 1483X X X X Extracts X X X X X X X X Extracts X X X X ..... in physical stock and accounting balance of the stock can not be treated as income from the other source, the same has to be brought to tax under income from business, which the assessee has rightly done. See BAJARGAN TRADERS C/O. KALANI CO. [ 2017 (11) TMI 388 - RAJASTHAN HIGH COURT] Thus we are of the opinion that the investment in the excess stock ought to be taxed under the head business income and not under the head income from other sources . Accordingly, we set aside the orders of the authorities below and direct the AO to delete the addition. Assessee appeal allowed. - SHRI RAVISH SOOD, JM SHRI ARUN KHODPIA, AM For the Assessee by : Shri R.B.Doshi, AR For the Revenue by : Shri G.N.Singh, Sr. DR ORDER Per Bench : These appeals are filed by a group of seven different assessees against separate orders passed by the CIT(A)-II, Raipur, all dated 26.07.2017 for the assessment year 2012-2013. 2. Since the issue involves in all the appeals are common, except different in figures, therefore, all the appeals are heard altogether and disposed off by this consolidated order. For the sake of convenience, first we shall take up the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 69 are not applicable. The AO did not accept the contentions of the assessee mainly for the reasons that income surrendered during survey operations has to be treated as income from undisclosed sources and requires to be assessed u/s. 69 of the Act. Against the said order of AO, the assessee preferred appeal before the CIT(A) and the CIT(A) observed that the AO has rightly placed reliance on the decision of Hon ble jurisdictional High Court in the case of Dhanush General Stores, 339 ITR 651 and, therefore, the CIT(A) confirmed the addition made by the AO under the undisclosed income. Now, the assessee is in further appeal before the Tribunal. 5. Though the ld. AR has filed his written submissions in all the seven appeals, however, the contents of all the written submissions filed in all the seven appeals are same, except variation in the figures. Therefore, the written submission filed in ITA No.249/RPR/2019 is reproduced hereunder:- AO : - Income surrendered during survey assessed as deemed income u/s 69A, page 4 of assessment order. CTT(A): - Page 6 of appellate order. Submission of the assessee 1. Both AO Id. CIT(A) held the surrendered income not as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of PB-1, of all cases) and the net profit as per such profit loss a/c is reflected in the computation of income (PN 4 of PB-1, in all cases). On the basis of such declared income, tax has been paid. It stands established that surrendered income is included in the computation of income. Facts in the case of Dhanush General Stores stands distinguished. 4. Any income is necessarily required to be computed under one of the five heads. Even deemed u/s 69 is to be assessed under one of the five heads. Reliance on: - Raj Dadarkar and Associates vs ACIT (201 7) 394 ITR 592, 607 (SC) Nalinikant Ambalal Mody vs CIT (1966) 61 ITR 428, 430 (SC) Karanpura Development Co. vs CIT (1962) 44 ITR 362 (SC) -Tuticorin Alkali Chemicals vs CIT (1997) 227 ITR 172, 178 (SC) Tinsukia Development Corporation Ltd. Vs CIT (1979) 120 ITR 466, 475 (Cal.) Summary on page no. 1 of PB-2 5. Assessee declared surrendered income as business income. 6. AO admitted in assessment order that excess found during survey is from business income In the assessment order (para no. 3, page no. 2 3), AO has admitted that excess cash and stock was out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, PN 93 to 97 of PB-J, relevant findings on PN 96. 12. No other source of income. impugned income liable to be treated as business income The assessee partnership firm has business income only. Did not have any other source of income in any year. During survey, no other source of income found. Reliance on: - Mansfield Sons vs CIT 48 ITR 254 (Cal.) Lakhmichand Baijnath vs CIT 35 ITR 416 (SC) CIT vs Margaret s Hope Tea Co. Ltd. (1993) 201 ITR 747, 749 (Cal.). Daulatram Rawatmull vs CIT (1967) 64 ITR 593, 61 8 (Cal.) Famina Knit Fab vs ACIT 176 ITD 246 (Chd.). Mahesh Kumar Singhla vs ACIT in ITA no. 419/Jodh/2019 dt. 21.12.2020, para 5. Summary on PN 4 5 of PB-2. 13. The AO says that it is undisclosed income . He does not say that it is income from undisclosed source . It is undisclosed income of business. 6. On the other hand, ld. Sr. DR relied on the orders of the authorities below. Ld Sr Dr submitted that the case of the assessee is squarely covered by the findings of Hon ble Jurisdictional High court of Raipur in the case of Dhanush General Stores Vs. CIT (2011) 339 ITR 651 (CO) and therefore the unexplained inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erifiable from the records that the amount surrendered was duly considered in the Audited P L account and finally was became part of the taxable income in the computation of income. c. During the survey Statement of Mr Suresh Kumar Agarwal as a partner of the assessee partnership firm were taken on oath u/s 131 of the Income Tax Act. Q no 3 and answer given are relevant, which was place in paper book of the assessee at page 9-12, the same is reproduced as under: 9. On perusal of the above question and answer offered by the assessee during the survey proceedings, it is very clear that the excess stock was found in the business premises of the assessee on physical verification by the survey team with the help of employees of the assessee. Assessee, without objecting to the figures of excess stock arrived at by survey team accepted the same and offered the same as undisclosed income for the current year. In this context, we are of the considered view that since the excess stock of rice and paddy are the commodities in which the assessee was dealing under his regular business and accordingly any surrender on account of mismatch in physical stock and accounting ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of the investments may be deemed to be the income of the assessee of such financial year.'. Section 69A is also almost similarly worded to this extent by providing that: `Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.'. 7. At this juncture, it is significant to take note of section 14 of the Act, with the caption `Heads of income', which provides that : `Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income..'. There are fiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was used for investment. If source is explained, there can be no addition on account of investment. 10. Extantly, we are confronted with a situation, in which both the source and destination are business inasmuch as the source of the income is business and the destination of such income is again in the nature of business assets, that is, stock, cash and receivables. As a fortiori, such an income will be considered as `Business income' covered under Chapter IV-D of the Act forming part of book-profit for the purposes of allowing remuneration to partners. As the assessee offered Rs. 50,25,997/- in the return of income by treating the same as part of business profit, in our view, the AO was obliged to consider it the same way at the time of computation of book profit by allowing claim of remuneration etc. We, therefore, overturn the impugned order and restore the assessee's calculation of remuneration to partners etc . ii) Lovish Singhal Ors. Vs. ITO Ors., (2018) 53 CCH 0250 /ITA No.142-146/Jodh/2018, order dated 25.05.2018, the ITAT Jodhpur Bench of the Tribunal has held in para 13 as under :- 13. I have heard the rival contentions and record perused. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) Whether the Tribunal was legally justified in reversing the findings of the CIT(A) and deleting the addition of Rs. 1,39,366/- made on account of less interest charged by the firm from the wife of one of the partner specifically when the interest was paid at higher rates on the loans taken? 3. The Tribunal while considering the matter has observed as under:- 2.7. It is further submitted that the real issue in this case is whether the excess stock surrendered should be made as a part of business income or not and if so, assessee can claim deduction on account of payment of remuneration to partners on account u/s 40b(v). In this regard, our reference was drawn to the decision of Coordinate Bench in case of Shri Ramnarayan Birla (in ITA No. 482/JP/15 dated 30.09.2016). In that case, the question before the Coordinate Bench was whether the CIT(A)-2, Udaipur has erred in directing the AO to assess the unexplained investment surrendered by the assessee under the head income from Business ignoring the decision of the Hon ble Gujarat High Court in the case of Fakir Mohd. Hazi Hasan 247 ITR 290 that unaccounted income ought to be categorized under the residuary hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT(A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found. 2.10. We have heard the rival contentions and perused the material available on record. During the course of survey, the assessee has surrendered an amount of Rs. 70,04,814/- towards investment in stock of rice which had not been recorded in the books of accounts. Subsequently, in the books of accounts, the assessee has incorporated this transaction by debiting the purchase account and crediting the income from undisclosed sources. In the annual accounts, the purchases of Rs. 70,04,814/- were finally reflected as part of total purchases amounting to Rs. 33,47,19,658/- in the profit and loss account and the same also found included as part of the closing stock amount to Rs. 1,94,42,569/- in the profit/loss account since the said stock of rice was not sold out. In addition to the purchase and the closing stock, the amount of RS. 70,04,814/- also found credited in the profit and loss account as income from undisclosed sources. The net effect of this double entry accounti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO is not as per law and the same be deleted. The ld. CIT(A) has confirmed the addition by stating that it is the disallowance of interest. It is submitted that the lower authorities have not disputed about the commercial expediency about the advance given to Smt. Rita Gupta. In fact, the advance was given to Smt. Rita Gupta in earlier years for construction of godown and the same was given on rent by the assessee. Therefore once commercial expediency for giving the advance is established, no part of the interest expenditure can be disallowed in view of the decision of Hon ble Supreme Court in case of S.A. Builders 288 ITR 1 and Hero Cycles Pvt. Ltd. vs. CIT 379 ITR 347 where it was held that the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. If further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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