TaxTMI 
TaxTMI 
2013 (11) TMI 472
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....f the partners and impounded dairies during the survey proceedings being contrary to Honourable CBDT's circular is not legal. Learned CIT(Appls) has also erred in confirming D.C. of IT's action. (3) After the amendment of assessing partners, sec.40(b) of I..Act, 1961 overides all other sections. Remuneration to the working partners if paid as per the specified limits, learned DCIT is not justified to disallow such claim made on the basis of books profit shown by the appellant. Learned DCIT and CIT(Appls) has erred in confirming disallowance of Rs.19,17,916/- on this score. (4) Learned D.C. and CIT(Appls) has erred to add an amount of Rs.22,35,685/- claimed against disclosed income and Rs.69,43,250/- amount credited under the head work in progress. There is no possibility to earn book profit of Rs.26,87,800/-. Thus additions made by DC of IT and confirmed by CIT(Appls) is not proper and just." 3. Originally, in this case, the ld. Co-ordinate 'D' Bench, Ahmadabad has dismissed the assessee's appeal by applying the CIT vs. Multiplan India (Pvt.) Ltd., 38 ITD 320 (Del), which was recalled by the M.A. No. 05/Ahd/2011 by 'D' Bench, vide order dated 02.03.2012....
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.... Rs.22,35,685/-. The A.O. gave reasonable opportunity of being heard on this issue, as the appellant has adjusted this amount against the work in progress, after crediting the additional income of disclosed, during the course of survey at Rs.42,00,000/-. The ld. A.O. after relying upon the Hon'ble Delhi High Court decision in case of Yadu Hari Dalmiya vs. CIT (1980) 126 ITR 48 (Delhi), he had disallowed the expenses. Further he has observed that during the course of survey, the books of account by the current assessment year were not found. It is also stated by A.O. that no stock register was maintained by the assessee firm. No details of expenses on construction or other administrative expenses or payment of interest and remuneration to the partner was available at the time of survey. 6. The assessee carried the matter before the CIT(A) who had confirmed the addition by observing as under: "6. I have carefully considered both the position. The basic contention of the Assessee is that, even though the expenses to the extent of Rs.22,35,685/- were found not accounted for in course of the survey, yet, after the survey, since the relevant entries were passed in the book....
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....ppachan and Others (2012) 252 CTR 407 - In respect of unaccounted expenditure explanation to section 37(1) and proviso to section 69C cannot be made applicable. ii. Laxmanbhai R. Jalu vs. ITO, ITA No.1772/Ahd/2005 A.Y. 2002-03 - Condition to invoke provisions of section 69C cannot be made applicable. iii. CIT vs. Radhika Creation, ITA NO.692 of 2009 Jd. Dtd. 30.04.2010 - Weather expenses can be disallowed u/s 69C when there is assessee's admission that it was not in a position to produce vouchers or authenticate the genuineness of exp. iv. CIT vs. Lakshmi Hospital (2011) 245 CTR 0471 - Against unaccofunted income disclosed in search, department is bound to give deduction of expenses, if proved, against such income. v. Dhanvarsha Builders & Developers P. Ltd. v. Dy. CIT (2007) 289 ITR (AT) 50 Pune - The expenditure around sum of Rs.40 lakhs became admissible to the assessee as cash expenditure in relation to cash receipts of the assessee. vi. CIT vs. Navsari Cotton Mills 135 ITR 546 (Guj.) - Conditions to claim expenses u/s 37 of I.T. Act. Ld. Counsel contended that unaccounted expenditure cannot be disallowed u/....
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....it stood prior to its substitution by the Finance Act, 1992 with effect from 1.04.1993. The order of the Hon. Court is dated 20.9.1999. However, a close study of the text shows that as per the Hon. Court, the word 'any' in section 40(b) is a word of wide importance, which imposes an absolute embargo against deduction in respect of any payment made by a firm to any partner of the firm. There was nothing in the provisions to indicate that any category of salary, remuneration etc. paid to a partner could fall outside the scope of such provisions. The Hon. Court further held that the prohibition against the deduction of the amounts of the nature covered under clause (b) of Sec.40 is not dependent on whether or not such payment is made for the purpose of earning profit or whether it is made out of the profit and, if any such distinction is to be read in clause (b) of sec. 40, it would be unreal. The Hon. Court then went on to observe that the provisions of sec. 40A have effect notwithstanding anything contained to the contrary in any of the provisions of the Act relating to the computation of income under the head of "Profits and gains of business or profession". Sub. Sec.2(a) and (b) i....
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....o the partners was covered by Sec. 40(b), the provisions of Sec. 40A(2)(b) would not apply. Therefore, the AR's submissions regarding the partners being actively engaged in the day to-day conduct of the business etc. is also of no relevance at all. 10.2 On the other hand, the AO noted that the Assessee had never claimed such huge interest and remuneration to the partners in the earlier years, even though, it has been claimed by the AR that, in the year relevant to the AY 2001-02, a total remuneration of Rs.5,99,842 had been paid to the partners. Whatever may have been the terms and conditions laid down in the partnership deed yet, in the year under consideration, it was absolutely clear that the Assessee had claimed the payment of interest totalling Rs.19,17,916 simply to neutralise the additional burden of tax that had arisen due to the unaccounted income disclosed in course of the survey. Moreover, as correctly pointed out by the AO, in the case of M/s. Whiteline Chemicals (supra) the Hon. ITAT has clearly held that the income which is disclosed in course of a survey would have to be shown in the return of income in addition to the normal current year's profit. This....
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....& Bros. 298 ITR 13 (Karn-HC) - Deduction u/s 40(b)(iv) and 40(b)(v) allowable against income disclosed in survey. vi. Kathiawadi Hotel vs. ITO, Valsad, ITA No. 827/Ahd/2007 - Deduction u/s. 40(b)(iv) and 40(b)(v) allowable against disclosure of stock in survey. vii. S.K. Engineering v. Jt. CIT 14(II) ITCL 51 (Bang.Trib) - Without giving finding as to what was the excessive or unreasonable portion in total expenses, expenses could not be disallowed on the ground that in earlier year it was paid at lower rate was not justified. viii. Chhaged Steel Corporation vs. ACIT 77 ITD 0419 - Section 40A(2)(b) will not be applied for computing deduction u/s.40(b). At the outset, ld. Sr. D.R. relied upon the orders of CIT(A) & A.O. and requested to confirm the order of the CIT(A). 12. We have perused the orders and gone through the case laws referred by the A.R. The appellant heavily relied in case of CIT vs. Yoganand Textiles 202 ITR 869 (Guj.) for A.Y. 1976-77, order dated 20th September, 1991, wherein it was held that any amount paid by way of the salary, bonus, commission or remuneration to the partners - scope of Section 40(b) - Provision is very ....
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....neration to the partners at Rs.19,17,916/-. This penalty was imposed by the A.O. on the basis of ld. CIT(A)-II, Surat had dismissed the assessee's appeal in quantum case. 17. The assessee carried the penalty matter before the CIT(A) who had deleted the penalty by observing as under: "6. I have carefully considered the view taken by the AO as also the written submission of the AR. First of all, it must be accepted that the unaccounted expenses of Rs.22,35,685/- was included in the total disclosure of Rs.42 lacs made during the survey. The break-up of this sum has been shown by the AO in para-4 of the penalty order, according to which this sum included Rs.15,63,111 on the basis of a diary pertaining to the Bhagwati Ashish-1 project, and Rs.6,72,574/- as recorded in a diary pertaining to the Bhagwati Ashish-2 project. These sums were subsequently accounted for in the books of account after the survey. The accounting results which emerged at the end of the relevant financial year and which was incorporated in the return of income, could not be treated as representing the furnishing of inaccurate particulars of income or the concealment of income. Even though the disallow....