TaxTMI 
TaxTMI 
2022 (11) TMI 625
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....s 40(b) of the I.T. Act on account of service tax paid & remuneration paid to partners. 2. On the facts and circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income-tax has erred in holding that on money disclosed by assessee has to be taxed u/s 69A of the Act & that the provisions of section 115BBE of the Act are applicable. 3. On the facts and circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income-tax has erred in holding that assessee is not eligible to claim deduction of Rs.39,33,270/- on account of service tax paid u/s 37 of the I.T. Act and Rs.24,00,000/- on account of partners remuneration u/s 40(b) of the I.T. Act. 4. It is therefore prayed that order passed by the Pr. Commissioner of Income-tax u/s 263 of the I.T. Act setting aside the order of assessing officer and directing assessing officer to make fresh investigation into the claim for deduction of interest income may please be quashed. 5. Appellant craves to add, alter or delete any ground(s) either before or in the course of hearing of the appeal." 3. Brief facts qua the issue are that in this case, the assessee-firm filed its re....
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....elow:- "............ It is seen from the records that survey action u/s 133A was carried out in your case on 25. 09.2014. During the course of survey proceedings, statement of Shri Parvatbhai Muljibhai Kakadia partner of the firm was recorded on oath u/s 131 of the Act. In reply to Q no. 21 and 22 of the statement, Shri P M Kakadia had admitted receipt of unaccounted income of the firm, in the form of on money of Rs.11,00,08,500/- and disclosed the same as income over and above the regular income of the firm for FY.2014-15 relevant to AY.2015-16. You have shown the amount of Rs.11,00,08,500/- in the P & L A/c under the head ' Income declared in I.T Survey and computed the income accordingly. However, against the disclosed income of Rs.11,00,08,500/- the firm has shown total income of Rs.10,36,75,230/- in the return of income for AY 2015-16, which is less by Rs.63,32,270/-. You have claimed this amount of Rs.63,32,270/- as expenses against the disclosed income, which is irregular in view of provisions of sec. 115 BBE of the Act. As per the provisions of sec. 115 BBE(2), no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision....
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....laim higher amount of remuneration to partners as per limit prescribed u/s 40(b). It was also submitted that the income disclosed during the survey proceedings was business income of the assessee firm and not an income from other sources, therefore, provision of sec. 115BBE of the Act are not applicable for the said income. The assessee further submitted that it has paid service tax of Rs.39,33,270/- towards the income disclosed in survey proceedings and further has claimed remuneration paid to the tune of Rs.24,00,000/-. It was accordingly submitted that the net income after such claim of expenses at Rs.10,36,75,230/- was determined and disclosed in the return as 'Business Income' and not income from other sources and, therefore, the provisions of sec. 115BBE are not applicable in their case. Furthermore, it was submitted that the assessee has not claimed any business or construction expenses from the income declared in survey proceedings. The assessee also submitted as under: "(a) The Service Tax is a tax paid on the income declared in survey. There is no denial that the said tax is payable and paid by the assessee. Further, it is payable and paid by the assessee. Further, it....
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....ax paid of Rs.39,33,270/- and deduction claimed u/s 40(b) of the Act towards remuneration paid to partners at Rs.24,00,000/-, net income in the return was declared at Rs.10,36,75,230/- by the assessee, which was accepted by the AO in the impugned assessment order passed u/s 143(3) of the Act on 29.09.2017. In view of the provisions of sec. 115BBE(2) of the Act and in the facts and circumstances of the case, the Assessing Officer allowed such erroneous claim of total deduction made by the assessee of Rs.63,32,270/-. Therefore, Ld. PCIT held that the assessment order u/s 143(3) passed on 29.09.2017 (for Asstt Year 2015-16) is found to be erroneous in so far as it is prejudicial to the interest of Revenue and Ld. PCIT directed the Assessing Officer to frame the assessment de novo. 9. Aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us. 10. Learned Counsel for the assessee submitted that in the survey proceedings itself, the assessee has explained the nature of 'on money', as money relating to his business. To substantiate this, the Ld. Counsel for the assessee submitted the English translation of relevant statement of Piyuskumar C. Patel, partner of M/s. Shi....
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....s and it was the on-money relating to assessee's business and therefore assessee is entitled to claim the deduction on account of service tax which is related to on money and remuneration paid to partners. 12. On the other hand, Learned Departmental Representative (Ld. DR) for the Revenue relied on the para no.6.2, 6.3 and 6.4 of the order of the ld. PCIT and contended that the ld. PCIT has passed an elaborate order and therefore his finding may be confirmed. 13. We have heard both the parties and noted that the issue under consideration is no longer res integra. The service tax which is related to "on money" and remuneration paid to partners are allowable expenses out of on money declared by assessee as the on money so declared by assessee was business income. For that, on identical facts, the reliance can be placed on the judgment of Hon'ble Gujarat High Court in the case of Suman Papers & Boards Ltd. , 314 ITR 119 (Guj.) wherein it was held as follows: "2. The controversy relates to block period commencing from asst. yr. 1986-87 and ending on 6th Jan., 1996. The respondent assessee, a limited company, claimed deduction under ss. 80-I or 80-IA of the Act in relation to th....
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....ome declared in Form No. 2B as the same is not a part of the report of the chartered accountant and quantitative information in relation to that income is not annexed to the audit report, is not tenable, because by its very nature, the undisclosed income could not be certified by the auditor in the audit report; because if the undisclosed income is certified in the audit report, then it will cease to be undisclosed and will become disclosed income, and then there would be no question of any undisclosed income. It is also pertinent to note that the undisclosed income declared in Form No. 2B is under the head business income from industrial undertaking as the only activity of the assessee companies is the manufacture and sale of board paper and craft paper, which has been all along assessed as business income and in all the assessment years falling within the block periods, there has been no other head of income except 'Business income', (ii) During the course of search from the records seized, there is no evidence that the assessee companies were having income assessable under any other head namely, house property, capital gains or income from other source except business in....
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.... decision of this Court in the case of CIT v. Khedut Sahakari Khand Udyog Mandli, 104 ITR 206. This view was reiterated by this Court in the case of Gujarat State Fertilizer & Chemicals Ltd v. Asst. CIT, (2009) 313 ITR 244 (Guj) as also by the Apex Court in the case of Deputy CIT v. Core Health Care Ltd., (2008) 298 ITR 194(SC). Therefore, the said ground does not hold valid. With respect to second question, we may notice that the assessee's stand is that its sole business was that of running a hospital. It had no other source of income and that therefore, treating such undisclosed income from other source was not justified. In the case of Deputy CIT v. Radhe Developers India Ltd., (2010) 329 ITR 1(Guj.), this Court while distinguishing the decision in the case of Fakir Mohmed Haji Hasan (supra), observed as under: "The decisions of this Court in the case of Fakir Mohmed Haji Hasan (supra) and Krishna Textiles (supra) are neither relevant nor germane to the issue considering the fact that in none of the decisions the Legislative Scheme emanating from conjoint reading of provisions of sections 14 & 56 of the Act have been considered. The Apex Court in the case of D.P.Sandu....
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....me received by the assessee in the instant case is from business and not from other sources. If the Tribunal has come to the conclusion that the additional income is from business, the remuneration paid to the partners has to be deducted while considering the profit and loss. In the circumstances, we are of the opinion that on facts the Revenue has no case on the merits. So far as the question of law is concerned, we have to answer the same in favour of the Revenue." In view of the above discussion, we do not find any question of law arises. Tax Appeal is therefore, dismissed." 16. Thus, it is abundantly clear from the above judgment that additional income, i.e. on money received by assessee is from business, therefore the service tax which relates to "on-money" should be allowed as deduction and partners' remuneration should also be allowed as deduction. We note that during the assessment proceedings, the Assessing Officer issued notice to the assessee asking the assessee to justify service tax and partners' remuneration. The said notice of Assessing Officer is placed at paper book page no.16. In response to the show-cause notice of the Assessing Officer, the assessee submitted....