TaxTMI 
TaxTMI 
2016 (11) TMI 942
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....ioner of Income Tax was that the Assessing Officer has allowed the entire deduction without working out the allowbility of deduction as per the scheme of section 40(b) of the Act. As per the provisions of the Act, the remuneration is allowable only up to the extent as provided in the partnership deed and further restricted by the provisions of section 40(b) of the Act, which allows remuneration only out of book profit from business and profession of the firm. The learned Commissioner of Income Tax was of the view that this issue has not been examined by the Assessing Officer as per the legal connotations of section 40(b) of the Act and excess remuneration has been claimed by the assessee over and above the sum allowable under section 40(b) of the Act. The assessee treated the income of Rs. 16 lacs disclosed during the course of survey as unaccounted business income and thus, credited this amount to the Profit & Loss Account for computing the allowable remuneration to the partners. The Assessing Officer has allowed remuneration to the partners on the basis of the book profit computed after crediting the surrendered income of Rs. 16 lacs to the Profit & Loss Account. The assessee fil....
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....the assessee has come up in appeal before us, raising the following grounds of appeal : "1. That order passed u/s 263 of the Income Tax Act, 1961 by the Ld. Commissioner of Income Tax (Central), Gurgaon is against law and facts on the file in as much as he was not justified to arbitrarily hold that assessment order dated 23.12.2011 passed by the Ld, Deputy Commissioner of Income Tax, Central Circle-l, Chandigarh is erroneous and prejudicial to the interest of the revenue. 2. That he was further not justified to direct the Ld. Assessing Officer to recompute the allowability of remuneration to the Partners by excluding the surrendered income of 16,00,000/- f rom book prof its as the sum of Rs. 16,00,000/- surrendered during the course of survey were as a result of business activities and was declared as business income. 3. That the impugned order is void abinitio in as much asthe principles of natural justice have been grossly violated as the order was passed on 27-03-14 without affording a reasonable opportunity of hearing, whereas the proceedings were adjourned by the Ld. CIT for 10-04-14." 5. The learned counsel for the assessee mainly reiterated the submissions made bef....
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....view the said order. In the alternative, reliance was placed on the judgment of Calcutta High Court in the case of MD.Serajuddin & Brothers Vs. CIT (2012) 80 DTR 46 (Cal), whereby it was held that even if the income from other sources is included in the Profit & Loss Account to ascertain the net profit qua book profit for computation of the remuneration of the partners, the same cannot be discarded. 7. The learned D.R. relied on the order of the Commissioner of Income Tax and stated that the Assessing Officer in the original proceedings has wrongly allowed remuneration to the partners on the basis of book profits computed after crediting the income of Rs. 16 lacs surrendered in the case of survey under section 133A of the Act. Reliance was placed on the following judgments : a. Bassera Realtors P Ltd vs CIT - 55 taxmann.com 327 (ITAT, Chandigarh) b. CIT vs Ansal Housing & Construction Ltd. - 51 taxmann.com 376 (SC) c. CIT, Karnal vs Rajesh Mahajan - 16 taxmann.com 85 (P&H) d. Vodafone South Ltd vs CIT (TDS) - 61 taxmann.com 108 (ITAT, Chandigarh) e. CIT vs Shree Manjunathesware Packing Products And Camphor Works - 231 ITR 53(SC )- The Hon'ble Supreme Court has al....
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....in his order at page 2 onwards, which read as under : "7. 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 or the value 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. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under Section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from "oth....
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....hese kind of incomes, these will be treated as deemed incomes. Applying the said proposition in the facts of the present case, we see that the assessee has all along been saying that the surrendered income is out of its business. The Assessing Officer was seized off these explanations of the assessee and formed an opinion that the source of these surrendered incomes has been explained by the assessee to be out of its business. We should not forget that the assessee is a firm engaged in the business and most of the incomes even if not disclosed in its books of account primarily consists of its business income. In view of this, even applying the proposition laid down by the Gujarat High Court, we can very easily infer that the Assessing Officer only being satisfied by the explanation given by the assessee with regard to the nature of the surrendered income has allowed it to be treated as business income and in consequence, allowed the deduction under section 40(b) of the Act accordingly. 10. The Commissioner of Income Tax has also relied on the judgment of Hon'ble Punjab & Haryana High Court in the case of M/s Kim Pharma (P) Ltd. (supra). We wish to state here that in that case,....