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2010 (2) TMI 1171
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....ial value end hence the income disclosed pursuant to such declaration be not considered as undisclosed income of the appellant. The learned CIT(A) erred in rejecting the above ground of the appellant. It is submitted that it be so held now. 3. Without prejudice to above, the learned A.O. as well as learned CIT(A) erred in treating the amount of Rs. 10,06,250/- disclosed by the appellant in its statement recorded u/s. l33A and which was credited in its business books of accounts as unexplained investment/income and consequently, erred in taxing them u/s 69of the Act. It is submitted that income/investments representing this amount of Rs. 10,06,250/- having already been entered in the books of accounts of the appellant and arising from the only source being business of the appellant cannot be considered and taxed as deemed income representing unexplained investment u/s. 69 and have to be considered as business income to be taxed as business income of the appellant. It is submitted that it be so held now and the income/investment representing Rs. 10,06,250/- be taxed as business income of the appellant. 4. The learned CIT(A) erred in holding that the income represent....
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....facts of the case are that the assessee is dealing in ready made garments. A survey under section 133A was carried out at the business premises of the assessee on 15.2.2002. During the course of survey certain discrepancies in the stock and documents were found. Statement of the partner Shri Sunil P. Agrawal was recorded on that date. The authorised officer required Shri Sunil P. Agrawal to furnish stock position as on 31.1.2002. This was worked out by him by considering GP rate of20% and sales and purchases upto 15.2.2002. Accordingly, stock as perbooks was determined at Rs. 9,87,718/-. On physical verification the stock was valued at Rs. 25,14,306/-. However, stock as per books was reworked after applying GP margin of 28.5%. The difference between stock as per-books and that physically found was finally determined at Rs. 8,10,011 In addition to this the AO found unaccounted investment in furniture and fixtures at Rs. 91,000/-. It was also found that four air conditioners were fitted in the premises in which unexplained investment of Rs. 1,06,250/-(1,20,000 - 13,750/- was worked out. Thus total undisclosed investment of Rs. 10,06,250/- (Rs.8,10,011 + 91,000 + 1,12,250) was determi....
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....d order. He referred to the decision of Hon. Gujarat High Court in Fakir Mohmed Haji Hasan vs. CIT (2002) 120 Taxman 11,17 (247 ITR 290) and held that addition under section 69 has to be separately made as deemed income. There is one more issue. The assessee claimed partners' remuneration u/s 40(b)considering that an addition of Rs. 10,07,261/- is made by the AO. The ld.CIT(A) dismissed the related ground of the assessee on the ground that income determined from business is loss. 4. While upholding the addition of Rs. 10,06,250/- as made by the AO, ld. CIT(A) observed that deemed income under section 69 does notneed any head of income and, therefore, cannot be set off against business loss. Ld. CIT(A) also declined to give telescoping effect of either Rs. 2 lacs being unexplained credit in the account of partner or of Rs. 97,000/-being investment in furniture and fixtures out of Rs. 10,06,250/- on the ground that this sum is already found invested in stock and, therefore, it will not be available for investing elsewhere. 5. Before us, assessee has raised several grounds as above. The ld.AR did not press ground Nos.1 & 2 and, therefore, they are rejected as not pressed. 6. ....
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....ubmissions and perused the materialon record. In our considered view there is some misunderstanding about the interpretation of decision of Hon. Gujarat High Court in the case of Fakir Mohmed Haji Hasan vs. CIT (supra). For the sake of conveniencewe reproduce the head notes from that decision as under :- "The scheme of sections 69, 69A, 69B and 69C of the Income-tax Act,1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money orvalue of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. When the income cannot be so classified under....
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....entification of source and its genuineness. To explain "Nature" it would require the assessee to explain what is description of investment or expenditure, period and the manner in which it was done. To explain the source it would require the assessee to explain the corpus or fund from where investment or expenditure has been met and also the head under which the investment or expenditure would fall such as whether investment/expenditure pertains to business or relates to acquisition of capital asset or to other source or to agriculture. Where the assessee is able to explain nature and source of investment/expenditure and also if they are recorded in the books of account then such investment/expenditure will not be treated as deemed income but where investment /expenditure is not recorded in the books of account and/or their nature and source is not explained or not satisfactory explained, deeming provision under these four sections can be invoked by the AO and investment/expenditure would be treated as deemed income of the assessee. Thus for invoking these deeming sections first condition has to be necessarily satisfied that they are not recorded in the books of account regularly m....
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....head capital gains and section 74A provides for treatment to loss arising from sources under the head 'income from other sources'. Section 75 provides for losses in case of firm and section 78 in respect of carry forward and set off of loss in case of change in constitution of the firm and section 79 provides for carry forward and set off of loss in the cases of certain companies. Thus treatment of loss arising under the head business is provided only under section 72 which directs to carry forward the unabsorbed loss to the next year unless it is otherwise provided in any other section of Chapter -VI. We have gone through all the sections under Chapter -VI and we do not find any provision for setting off of business loss against deemed income under sections 69, 69A, 69B & 69C. 11. But this does not mean that loss computed under any of the fiveheads mentioned in section 14 - (i) 'salary', (ii) 'income from house property', (iii) 'profits and gains from business or profession', (iv)'capital gains' and (v) 'income from other sources' - cannot at all be adjusted against unexplained investment or expenditure. What is necessary as per Hon. Gujarat High Court is that source of acquisi....
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....t and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to find out link of undeclared investment/expenditure with the known head, give opportunity to the assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is only where no nexus is established with any head then it should be considered as deemed income undersection 69, 69A, 69B & 69C as the case may be. It is because when assessee fails to explain satisfactorily the source of such investment the nit should be taxed under section 69, 69A, 69B & 69C as the case may be. It should not be done at the first instance without giving opportunity to the assessee to establish nexus. Therefore, there is no conflict with the decision of Hon. Gujarat High Court in the case of Fakir Mohmed Haji Hasan (supra) where investment in an asset or expenditure is notidentifiable and no nexus was established then with any head of in com....