TaxTMI 
TaxTMI 
2022 (1) TMI 1452
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....g the addition made by the A.O. on account of u/s. 69A on the basis of documents impounded during the course of survey proceedings. ii) Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that had the Department not conducted survey u/s. 133A of the IT Act, 1961 at the premises of the assessee firm and impounded the documents found, the assessee firm would not have disclosed the above unaccounted amount to the Department for taxation. (iii) Whether on facts and the circumstances of the case, the CIT(A) is right in deleting the addition made out of certain expenses amounting to Rs. 1,58,061/- even though similar addition was made for A.Y. 2013-14, which was confirmed in first appeal. (iv) Whether on facts and the circumstances of the case, the CIT(A) is right in deleting the addition of Rs. 36,060/- made on the basis of impounded material, during the course of survey. v) It is therefore, prayed that the order of the CIT(A), be set-aside and that the order of the Assessing Officer be restored. vi) The assessee craves to add, modify or alter any grounds during the course of appeal procee....
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.... claimed partner remuneration and interest to partner as expenses against the said income apart from various expenses. Since, the aforesaid income of Rs. 3,37,03,023/- which was declared as additional income in addition to its regular business income, therefore, assessing officer issued notice to the assessee and assessee was asked to explain as to why the aforesaid income of Rs. 3,37,03,023/- should not be treated as income under section 69A of the Act and the expenses claimed against the same should not be disallowed. 6. In response to the notice of the Assessing Officer, the assessee submitted its reply before the assessing officer, which is reproduced below: "Justification for disclosure of Undisclosed Income under the head" Income from Business & Profession": Sir there was a survey action u/s. 133A, on 15.10.2014 on the premises of the assessee firm. During the course of such proceedings, the assessee firm had voluntarily disclosed an additional income of Rs. 3,37,03,203/- being discrepancies found in stock in trade. Now your good self had asked the AR as to why undisclosed income should be chargeable under the head" income from business and profession" an....
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....e assessee firm had stated that the difference in the stock is nothing but its business income since no material has been brought before the assessee to show that the assessee was engaged in any other activity. Our this view is fully supported by the judgment of Hon. ITAT Ahmedabad in the case of M/s. Nilkanth Developers vs. Income Tax Officer. The assessee firm had duly disclosed the income in its return of income for the year and hence the said has to be taxed u/s. 28 of the Income Tax Act, 1961 and not under any heads of 68, 69, 69A, 69B or 69C as the source of stock was explained to the survey officers. Once it is proved that the undisclosed income is from "Business & Profession" all the expenses claimed by the assessee should be allowed including the interest and remuneration paid to partners. Our this view is upheld by the judgment of Hon'ble High Court of Gujarat in the case of CIT Vs. Mhaskar General Hospital wherein it was held that" since the 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. Also, once it is proved that the additional income ....
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....d on the basis of difference in physical stock as per books of accounts which was not recorded in its regular books of accounts and the assessee was very well aware that as the above stock was not recorded in its regular books of accounts maintained by it and the same was confirmed by the partner in his statement recorded during the course of survey action. Further, the nature and source of acquisition of the above excess stock was not explained by the assessee. Thus, the entire excess stock found during the course of survey should be assessed as income u/s. 69A of the Act. Hence, ld. DR prays the Bench that addition made by the assessing officer should be confirmed. 10. On the other hand, Shri Rajesh Upadhyay, Learned Counsel for the assessee, begins by pointing out that excess stock of Rs. 3,37,03,023/- disclosed during survey was business stock. These were undisclosed business stock, which is taxable under section 28 of the Act. During the survey, the assessee firm had admitted that the difference in the stock is nothing but its business income since no material has been brought before the assessee, by the survey team, to show that the assessee was engaged in any other activi....
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....under the one of the heads of the income u/s. 14 of the Act, it would not be to classified as deemed income under any of these heads including income from other sources which have to be sources known or explained. When the Income cannot be classified under any heads of the income u/s. 14, it follows that the question of giving deduction under the provision which corresponded to such head of income will not arise. 12. Based on these facts, ld. CIT(A) observed that facts of the case of decision of Faqir Mohammad (supra), relied by assessing officer, was distinguishable, as the said person was smuggler involved in anti-social activity whereas the assessee is engaged in genuine business of trading in sarees and dress materials. The assessee had no other business and the physical stock found of Rs. 6,10,35,000/- included both recorded as well as unrecorded stock. The differential stock of Rs. 3,37,03,023/- had no separate identity as regards to quality, quantity, rate, variety etc. Thus, during appellate proceedings, it was argued by assessee that section 69A cannot be applied. The assessee has also relied on the decision of Hon'ble ITAT Ahmedabad in the case of Nilkanth Develope....
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....sessee during survey proceedings. At this juncture, it is appropriate to quote the golden word of Lord Macnaghten, as per Lord Macnaghten, London County Council v. Attorney-General 1901 AC 26, 35-6 (HL), 4 TC 265, 293: "Income Tax, if I may be pardoned for saying so, is a tax on income. It is not meant to be a tax on anything else. It is one tax, not a collection of taxes essentially distinct." 14. Since, interest and remuneration paid to partners are business income in their respective hands and if the partnership firm does not pay interest and remuneration to the partners then the amount so not paid would be taxable under the head business income in the hand of the partnership firm. Partners and partnership firm both are subject to maximum marginal rate of income tax @ 30%, hence there is no loss to the Revenue. 15. Besides, the assessee is engaged only in the business of trading of cloths. Therefore, the differential stock of Rs. 3,37,03,023/- found during the survey relate to his business, hence it is assessable under the head business income. Reference in this regard can be usefully made to the decision of Hon'ble, Gujarat High Court in Mahskar General Hospital (TA N....
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....s that fixed assets of the assessee increased from Rs. 57,49,512/- to Rs. 1,32,36,268/-. The investment in building increased from Rs. 37,65,831/- to Rs. 65,13,410/- and investment in the plant and machinery incurred by Rs. 25,49,930/-. The assessee has not constructed a new hospital and has only added extra facilities in the existing hospital. Therefore, the interest on borrowed funds utilized for expansion of running business deserves to be allowed. However, the A.O. may examine the utilization of borrowed funds for renovation of building for capitalization in the light of the decision of the Hon'ble Supreme Court in the case of Ballimal Naval Kishore 224 ITR 414. The income of Rs. 19,91,701/- was declared by the assessee during survey u/s. 133A of I.T. Act as investment in assets not recorded in the books of A/c. Once the assessee has admitted the income to represent the investment in assets not recorded in the books of accounts, the income has to be assessed u/s. 69 of the I.T. Act. The Department is not to seek or establish any other source of income which could have resulted in such investment." The assessee aggrieved by the said order of the Commissioner approached the T....
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....ds have been utilized for revenue or capital expenditure. Counsel further submitted that the amount of Rs. 19,91,000/- was business income of the assessee. It may have been diverted towards construction of building. It nevertheless arose from the sole activity of the assessee, namely, that of business of running hospital. Remuneration to the partners within the limit prescribed under the law was therefore an allowable deduction. He submitted that in any case, even if it is held that two views are possible, powers under section 263 of the Act should not be exercised. Having thus heard the learned counsel for the parties, in so far as the first question on which the Commissioner sought to reopen the assessment by exercising powers under section 263 of the Act is concerned, same permits no debate. It is by now well settled that interest on borrowed funds would be allowable deduction irrespective of whether such funds are utilized for incurring revenue or capital expenditure. Reference in this regard can be made right from the 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....
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....e possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue. Rampyari Devi Saraogi v. Commissioner of Income-tax, (1968) 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. Commissioner of Income-tax, West Bengal, 88 ITR 323." In the case of S.K. Srigiri and Bros. (supra), the Karnataka High Court held as under: "We have perused the orders of the Tribunal. The Tribunal has carefully considered the questions put by the authority and the answer of the partners of the assessee's firm and based on the same, the Tribunal has come to the conclusion that the additional income 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 i....
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.... books of account of the assessee has gone for estimation on suspicion and conjectures that the assessee may be inflating its expenses. While scrutinizing the expenditure if the expenses claimed are not having any nexus to the business of the assessee or if there is deficiency in the vouchers or there is no bills supporting the incurrence of an expenditure, at the most expenses to the extent that are not supported by the vouchers can be held to be non-genuine and can be disallowed by the AO; and item-wise the AO could have disallowed the expenditure rather than going for ad-hoc disallowance of percentage basis of the expenses claimed by the assessee which action of the AO is arbitrary in nature and cannot be sustained. Considering these facts, we do not find any infirmity in the order of ld. CIT(A), therefore, order of the ld. CIT(A) is hereby approved and confirmed. 18. Ground No. 4 raised by the Revenue relates to deletion of addition of Rs. 36,060/- made by the Assessing Officer. The Revenue has challenged the addition of Rs. 36,060/- on account of unrecorded purchases from Zenisha Creation Pvt. Ltd. on the ground that the same is already included in the physical stock taken ....
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....ing precedent of Hon'ble Gujarat High Court in the case of CIT v/s. Suzlon Energy Ltd. (supra), we delete the addition of Rs. 57,867/-. 20. Coming to ground No. 2 raised by the assessee in his Cross Objection, which relates to addition of Rs. 27,467/- being incurred under section 36(1)(va) r.w.s. 2(24)(x) of the Act on account of Employees Contribution towards Provident Fund (PF) and ESI. Shri Rajesh Upadhyay, has fairly agreed that issue involved in ground No. 2 is covered against the assessee by the judgment of the Hon'ble Gujarat High Court in the case of Gujarat State Road Transport Corporation 41 taxmann.com 100 (Guj.), hence the said ground may be dismissed. 21. We have heard both the parties. We note that Ground No. 2 raised by the assessee in his Cross Objection is covered against the assessee by the judgment of the Hon'ble Gujarat High Court in the case of Gujarat State Road Transport Corporation 41 taxmann.com 100 (Guj.) wherein it was held as follows: "8. In view of the above and for the reasons stated above, and considering section 36(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with re....