2014 (7) TMI 1058 - AT - Income Tax

Claim of partner s salary u/s 40(b) against income disclosed during survey Held that - The contention of the assessee is accepted that if statement of the partner at the time of survey was to be relied for making this addition/disallowance, the statement should not be relied in part and should have been relied in full - at the time of survey, assessee disclosed the entire income as business income, the AO was not justified in bifurcating the same into income from other sources and income from business or profession thus, the order of the CIT(A) treating the disclosed income of the assessee as business income and allowing the partner s remuneration u/s. 40(b) of the Act is upheld Decided against Revenue. Unexplained expenses u/s 69C - Assessee has not claimed any expenditure for earning such job work receipt ignored Held that - CIT(A) was rightly of the view that the AO should have made the disallowance on the basis of same evidence or material on record - no defect in the books of accounts and documents maintained by the assessee has been found by the assessee, therefore the addition made by AO was only on the basis of suspicion or bare guess which is not sustainable in law there was no infirmity in the finding of the CIT(A) Decided against Revenue. Addition of Business & Profession - Net income returned is less than the disclosure amount Held that - CIT(A) was of the view that the amount as income from business and profession - assesseee has already shown the total of both the amounts as business income in the return of income and has also paid tax on it, there is no justification on the part of the AO for making an addition while computing the income of the assessee and the has rightly deleted by CIT(A) thus, the order of CIT(A) is upheld Decided against Revenue.

Issues Involved:
1. Deletion of addition made on account of remuneration paid to partners.
2. Treatment of Rs. 36,03,000/- as income from business versus income from other sources.
3. Deletion of addition made on account of unexplained expenditure under Section 69C.
4. Deletion of addition of Rs. 3,93,537/- made on account of business and profession.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made on Account of Remuneration Paid to Partners:
The revenue contended that the remuneration paid to partners should be taxed in the hands of the firm, as the disclosure was made in respect of the firm and not the partners. The AO disallowed Rs. 13 lacs as partners' remuneration under Section 40(b) against the income disclosed during the survey, treating Rs. 36,03,000/- as "income from other sources" and Rs. 3,93,537/- as "income from business and profession." The AO relied on the decisions of ITAT Ahmedabad and Gujarat High Court, concluding that the disclosed income would be treated under "income from other sources," disallowing corresponding deductions applicable to "income from business and profession."

The CIT(A) allowed the appeal, noting that the partner's statement during the survey indicated that the undisclosed income was from business activities. The CIT(A) emphasized that the undisclosed income was business income, thus eligible for deductions like interest and remuneration paid to partners. The Tribunal upheld the CIT(A)'s decision, agreeing that the AO's bifurcation of income was unjustified and that the entire disclosed income should be treated as business income, allowing the partners' remuneration under Section 40(b).

2. Treatment of Rs. 36,03,000/- as Income from Business Versus Income from Other Sources:
The AO treated Rs. 36,03,000/- as "income from other sources" because the assessee had not shown job work income in earlier years. The CIT(A) found that the partner's statement during the survey clearly stated that the undisclosed income was from business activities. The Tribunal upheld the CIT(A)'s decision, noting that the AO's bifurcation of income was based on incorrect facts and that the entire disclosed income should be treated as business income.

3. Deletion of Addition Made on Account of Unexplained Expenditure Under Section 69C:
The AO added Rs. 18,01,500/- as unexplained expenditure under Section 69C, assuming that the net job work receipts of Rs. 36,03,000/- had unexplained expenditure. The CIT(A) deleted this addition, stating that the AO's disallowance was based on suspicion without any defect found in the books of accounts. The Tribunal upheld the CIT(A)'s decision, agreeing that the addition was not sustainable in law.

4. Deletion of Addition of Rs. 3,93,537/- Made on Account of Business and Profession:
The AO bifurcated the total disclosure of Rs. 39,96,537/- into Rs. 36,03,000/- as "income from other sources" and Rs. 3,93,537/- as "income from business and profession." The Tribunal upheld the CIT(A)'s decision to treat the entire amount as business income, noting that the assessee had already shown the total amount as business income in the return and paid tax on it. The addition of Rs. 3,93,537/- was found to be unjustified and was rightly deleted by the CIT(A).

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The disclosed income was treated as business income, allowing the partners' remuneration and deleting the additions made by the AO on account of unexplained expenditure and bifurcation of income.

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