TMI Blog2010 (11) TMI 964X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciating facts of the case, has erred in deleting the addition of ₹ 34,88,675/- and allowing remuneration and interest to partners u/s 40(b). 3. The brief facts leading to the above issue are that assessee is a partnership firm engaged in the business of import-export of manufacturing of cut and polished diamonds and trading. The assessee filed return of income on 08-08-2005 declaring total income of ₹ 41,39,960/-. A survey action u/s 133A of the Act was conducted on 01-03-2005 by the Assessing Officer and during survey proceedings the assessee-firm disclosed unaccounted income of ₹ 70 lakh under various head i.e. investment in building, furniture, machinery account, staff members, miscellaneous receivable and cash. Subsequently, assessment proceedings were finalized u/s.143(3) and the total income was determined at ₹ 86,33,746/- by making total addition of ₹ 80,88,509/-. The assessee claimed remuneration to partners and interest on capital on the additional income of ₹ 70 lakh disclosed during the course of survey action. The Assessing Officer rejected the claim on the ground that the additional income was not part of business income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by, and is ins accordance with, the terms of the partnership\deed, but which relates to any period (falling prior to the date of such partnership deed) for which such payment was not authorized by, or is not in accordance with, any earlier partnerships deed, so, however, that the period of authorization for such payment by any earlier partnership deed does not cover any period prior to the date of such earlier partnership deed; or (iv) any payment of interest to any partner which is authorized by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deduction in so far as such amount exceeds the amount calculated at the rate of twelve per cent, simple interest per annum; or From a plain reading of the corresponding provisions it is clear that interest to partners is not dependent on book profit and therefore the AO is directed to allow interest to partners in accordance with the provision of law in this regard. As far as remuneration to partner is concerned the question arises as to under which head the income should be assessed. It is not in dispute that the appellant had known source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2001 decided on 27- 6-2001, IAT Rajkot in the case of ACIT v Prabhudas Shantilal Parekh, ITA No.2408/Ahd/1993.Thus this ground of appeal is held in favour of the appellant. Aggrieved, Revenue came in appeal before the Tribunal. 4. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that during the course of survey disclosure of unaccounted income of ₹ 70 lakh was made by the partner of the assessee-firm as income of the firm. Further, in response to a question asked to one the partner of the firm requiring him to provide detail of investment made out of the unaccounted income and the following reply was made:- Can you tell us as to in which form unaccounted income of ₹ 70 lacs disclosed by the firm invested? Above referred ₹ 70 lacs is invested as follows:- Particulars Amount Unaccounted investment in building 32,50,000 Unaccounted investment in Furniture 3,00,000 Unaccounted investment in Machinery 3,00,000 Advance to staff 6,50,000 Miscellaneous receivables 20,00,000 Cash 5,00,000 Total 70,00,000 The relevant portion of statement of Shri Ravjibhai Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applied to find out the head of income. The head of income has to be determined from the nature of the business the assessee was carrying on at the time of search. In this particular case, the assessee was not carrying on any other activity for earning the income. Therefore, the income disclosed by the assessee u/s.132(4) has to be assessed under business income from the common notion of a practical man. The head income from other sources is a residual head and the income has to be assessed under that head only if the same is not covered under any other head. From the above facts and proposition laid down by Hon ble jurisdictional High Court, we hold that the income disclosed by the assessee-firm during the course of search was business income and the assessee is eligible for deduction of remuneration and interest paid to partners in terms of Section 40(b) of the Act. We uphold the order of CIT(A) on this issue and Revenue s issue is dismissed. 5. The next issue in this appeal of Revenue is against the order of CIT(A) deleting the addition of electricity expenses amounting to ₹ 2,72,870/-. For this, Revenue has raised the following ground No.2:- 2. On the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the income and production from the said premises the AO should not have disallowed the claim of the appellant merely on technical ground. Thus looking to the overall facts of the case disallowance made by the AO is deleted. Aggrieved, Revenue came in appeal before the Tribunal. 7. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the assessee has its factory at two places referred to herein below:- 1. Opp. Community Hall, Vastadevdi Road, Surat ; and 2. 206, Thakordwar Apartment, Gotalawadi, Surat The Assessing Officer noticed from the electricity bill that factory located at 206, Thakordwar Apartment Gotalawadi was in the name of other persons other than the partners of the firm or the firm and accordingly he disallowed electricity expenses at ₹ 1,73,040/- and in respect to factory located at Opposite Community Hall, Vastadevi Road, Surat, the bills were in the name of third party and accordingly he disallowed a sum of ₹ 99,830/-. The assessee s main contention is that the factory at Gotalwadi was acquired but still the electricity connection and municipa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessment proceedings the Assessing Officer disallowed the depreciation on the ground that assessee could not file any proper bills during the course of survey and two machineries purchased during that year. The assessee claimed before us that it has submitted vouchers regarding purchase of machineries on 05-04-2004 and duly backed by bills and payments were made through account payee cheques. We find that the assessee-firm had made additions to factory building, plant machinery and furniture and fittings along with certain other fixed assets and the details of additions made. Even during the course of survey, the assessee has disclosed on account of capital expenditure, addition to factory building for ₹ 32.50 lakh, plant machinery at ₹ 3 lakh and furniture and fittings at ₹ 3 lakh were made out of the income disclosed in survey. The depreciation on addition to plant machinery for ₹ 9.55 lakh was also disallowed by the Assessing Officer and said disallowance out of the depreciation was made on the ground that the assessee-firm did not furnish necessary details for allowance of depreciation that in respect of addition to plant machinery for ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant has not brought on record any material to shown that such polished diamonds were actually made from such rough diamonds and therefore considering the overall facts of the case addition made by the AO in this regard is therefore confirmed. We find that even now before us assessee could not find any fault with the findings of CIT(A) that there is no rejection or process loss in respect of finished diamond. Accordingly, we confirm the findings of CIT(A) and this issue of assessee s appeal is dismissed. 12. The next issue in this appeal of assessee is as regards to the order of CIT(A) confirming the disallowance of expense at 20%. For this, assessee has raised the following ground No.4:- 4. On the facts and in the circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in making disallowance of ₹ 32,910/- being 20% of other expenses. 13. We have heard the rival contentions and going through the facts and circumstances of the case. We find that the Assessing Officer disallowed 20% out of other expenses on account of personal in nature. Before th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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