Survey surrender taxed as business income; partner remuneration recomputed on revised book profit, but claimed expenditure was disallowed.

Income surrendered during survey was treated as business income where the record linked it to business operations, so section 115BBE did not apply and the addition was directed to be taxed under the business head. Partner remuneration under section 40(b) had to be recalculated on the revised book profit after giving effect to the business additions, and the earlier computation was not sustained in its existing form. By contrast, the claimed expenditure against surrendered income was disallowed because no contemporaneous claim or supporting material was produced to justify the deduction.

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Issues: (i) Whether the expenditure claimed against income surrendered during survey could be disallowed in the absence of any claim or supporting material on record; (ii) whether remuneration to partners under section 40(b) had to be recomputed on the basis of the corrected book profit; (iii) whether the surrendered income was liable to tax under section 115BBE or as business income.

Issue (i): Whether the expenditure claimed against income surrendered during survey could be disallowed in the absence of any claim or supporting material on record.

Analysis: The survey provisions and the statutory presumption regarding books, documents and assets were treated as governing the issue. On the facts noted, the assessee had surrendered income during survey but did not place any contemporaneous claim or supporting evidence for the alleged construction against that surrendered amount. In that situation, the claimed expenditure was not accepted against the surrendered income.

Conclusion: The disallowance of the claimed expenditure was upheld and this issue was decided against the assessee.

Issue (ii): Whether remuneration to partners under section 40(b) had to be recomputed on the basis of the corrected book profit.

Analysis: For the purpose of clause (b) of section 40, remuneration is to be worked out with reference to book profit computed in the manner prescribed in Chapter IV-D. Once the addition relating to the surrendered income and the other business disallowance were taken into account, the base for calculating admissible partner remuneration necessarily changed. The earlier disallowance made by the Assessing Officer was therefore not sustained in its existing form.

Conclusion: The partner remuneration issue was decided in favour of the assessee, with direction to recompute the allowable remuneration on the revised book profit.

Issue (iii): Whether the surrendered income was liable to tax under section 115BBE or as business income.

Analysis: The surrendered amount was treated as income arising in the course of business and not as income falling within the deeming heads that attract section 115BBE. On that footing, the special rate regime under section 115BBE was held inapplicable, and the addition was directed to be assessed as business income.

Conclusion: Application of section 115BBE was set aside and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded only on the partner-remuneration and section 115BBE issues, while the disallowance of the claimed expenditure against surrendered income was sustained.

Ratio Decidendi: Income surrendered during survey, when connected to business operations, is to be assessed as business income and not automatically under section 115BBE, while partner remuneration under section 40(b) must be recomputed on the correct book profit after giving effect to business additions.

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