TaxTMI 
TaxTMI 
2014 (12) TMI 346
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....her source of income to the firm & there is no evidence contrary to these facts & excess income declared is forming part of books profit entitled for remuneration." 3. Briefly put, the relevant facts are as follows. The appellant is a partnership firm engaged in the business of manufacture and trading of textile products. In the course of a survey a2ct ion u/s 133A of the Act carried out at the business premises of the assessee on 22.02.2007, the appellant had declared additional income of Rs. 50,08,220/-. The additional income so declared was comprising of two components, namely, (i) unrecorded debtors/sales - Rs. 35,06,600/-; and, (ii) excess stock of Rs. 15,01,620/-. The aforesaid declaration was also included in the return of income filed for the assessment year under consideration. In the assessment proceedings, the Assessing Officer noted that assessee had claimed deduction u/s 40(b) of the Act of Rs. 9,63,920/- on account of remuneration paid to the partners. It was found that the remuneration to partners calculated at Rs. 9,63,920/- was after considering the additional income of Rs. 50,08,220/- declared during the survey as 'business income'. The Assessing Officer disagr....
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....s to be treated as 'business income'. Be that as it may, when the material found in the course of survey itself reflects that the amount of Rs. 35,06,600/- represented sales, its nature thereof has to be accepted as 'business income'. 6. Now, we may come to the other limb of additional income declared by the assessee of Rs. 15,01,620/- representing excess stock. In this context, Question Nos. 16, 17, 18 and 22 of the survey statement show that the survey party physically counted the inventory lying at various places and prepared inventory valuation as per the market value of all the goods. On this basis, stock position was arrived at, which was agreed to by the assessee. In an answer to Question No.16, the partner of the assessee firm confirmed that the physical verification was carried out in the presence of the assessee and also that method used for valuation was a4c ceptable to the assessee-firm. The inventory valuation so prepared was compared with the tentative Trading account of the assessee which revealed a difference of Rs. 15,01,620/-. In an answer to Question No.18, with respect to the said discrepancy, the partner of the assessee firm accepted the same and declared su....
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....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 business and therefore the remuneration paid to the partners was held liable to be deducted. Be that as it may, we may now examine the facts of the present case, qua the additional income of Rs. 15,01,620/- declared by the assessee as 'excess stock'. 9. As already noted earlier the discrepancy in stock position was accepted by the assessee in the course of survey and such amount was offered as additional income for the assessment year 2007-08. In the deposition of the assessee, accepting the said discrepancy there is no explanation as to the manner in which the income represented by the aforesaid stock was earned by the assessee. In an answer to Question No.22, assessee was explaining the rounded a....
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.... 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 High Court in calculating the allowable remuneration, profit means profit as per the Profit & Loss Account. The following discussion in the order of the Hon'ble High Court is worthy of notice :- "The said chapter nowhere provides that method of accounting for the purpose of ascertaining net profit should be the only income from business alone and not from other sources. Section 29 provides how the income from profits and gains of business or profession should be computed and this has to be done as provided under Section 30 to 43D. By virtue of Section 5 of the said Act that total incomes of any previous years includes all income from whatever source derived. Thus for the purpose of Section 40(b)(v) read with Explanation there cannot be separate method of accounting for as....