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TMI Blog2011 (1) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... ated:- 21-1-2011 - ORDER D.C. Agrawal, Accountant Member This is an appeal filed by the assessee raising following grounds : (1) The order passed by the CIT(A)-XX, Ahmedabad on 12.10.2007 partly upholding the order of assessment passed u/s 143(3) for Asst. Year 2004-05 on 6.12.2006 by the DCIT, Cir-12, Ahmedabad is wholly illegal, unlawful and against the principles of natural justice. (2.1) The ld. CIT(A) has erred in law and/or on facts in upholding that the income of Rs. 37,70,518 by way of excess stock found during the course of survey was not assessable under the head "profits and gains of business or profession" but as deemed income u/s 69A/B/C of the Act. (2.2) That in the facts and circumstances of the case as well as in law, the ld. CIT(A) has erred in upholding that the income by way of excess stock was not assessable under the head "profits and gains of business or profession". (2.3) The ld. CIT(A) has erred in relying upon the decision of Fakir Mohd. Haji Hasan (supra), though it was distinguishable both on facts and in law. (3.1) The ld. CIT(A) has erred in law and/or on facts in upholding that the deduction u/s 40(b) of the Act was not admissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is permitted from this income because there are no provisions in this regard under the Act. Also this income is not eligible for set off against loss under any head of income including the head "profits and gains of business or profession". Moreover, this is a deemed income and no deduction can be allowed out of this on account of partners' remuneration etc." 3. Taking above view, the AO separately added Rs. 35,70,518 and after reducing the same from total income disclosed by the assessee, he worked out final computation of income was as under : Total income as per statement Rs. 27,98,970 Less: Disclosed income of excess stock Rs. 35,70,518 (-) Rs. 7,71,548 Add: Disallowable of remuneration paid to partners Rs. 19,50,131 Rs. 11,78,583 Add: Unexplained cash credit Rs. 1,05,000 Add: Under valuation on account of stock of silver as discussed above Rs. 1,53,252 Add: On account of telephone petrol expenses depreciation Rs. 35,223 Rs. 14,72,058 Add: Addition m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n considered by the apex court and, hence, it is not necessary to repeat the same. Suffice it to state that the Act does not envisage taxing any income under any head not specified in section 14 of the Act. In the circumstances, there is no question of trying to read any conflict in the two judgments of this court as submitted by the learned counsel for the Revenue." Relying on the above judgment the ld. AR submitted that the decision in Fakir Mohmed Haji Hasan (supra) would not be applicable to the facts of the present case. He then submitted that income has to be computed under any one of the heads as mentioned in section 14 and any income to be taxed cannot be kept head-less. In other words all types of income liable to be taxed has to be included in one head or another as enumerated in section 14. He referred para 10 from that judgment as under : "In relation to the addition made and sustained by the Tribunal under section 69C of the Act, it was contended that the case of the Revenue was only under the provisions of section 69B of the Act and there was no question of any unexplained expenditure having been incurred which was to be added back. The Tribunal had failed to app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness or profession', (iv) 'capital gains' and (v) 'income from other sources' cannot at all be adjusted against unexplained investment or expenditure. What is necessary as per Hon ble Gujarat High Court is that source of acquisition of asset or expenditure should be clearly identifiable. In the case before Hon ble Gujarat High Court the source of gold confiscated was not identifiable and hence adjustment was not permitted. 12. Thus the important aspect that emerges from the entire discussion is that for invoking deeming provisions under sections 69, 69A, 69B 69C there should be clearly identifiable asset or expenditure. In the present case we find that entire physical stock of Rs. 25,14,306 was part of the same business. Both kind of stock i.e. what is recorded in the books and what was found over and above the stock recorded in the books, were held and dealt uniformly by the assessee. There was no physical distinction between the accounted stock or unaccounted stock. No such physical distinction was found by the Revenue either. The assessee has repeatedly claimed that unaccounted business income is invested in stock and there is no amount separately taxable under section 69. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no conflict with the decision of Hon ble Gujarat High Court in the case of Fakir Mohmed Haji Hasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head. Therefore, we hold that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. 14. To conclude sum of Rs. 8,10,011 being difference in stock is represented by undeclared business income. It does not have a separate physical identity. It is to be only taxed under the head 'business'. Other assets have separate physical identity being furniture and fixtures, air conditioners etc. They cannot have a direct nexus with business and therefore investment therein has to be considered under section 69 only. 15. In view of the above, AO is directed to consider the sum of Rs. 8,10,011 as undisclosed business income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable as primary condition for invoking the provisions of section 69A, 69B is that the asset should be separately identifiable and it should have independent physical existence of its own. Since excess stock is a result of suppression of profit from business other the years and has not been kept identifiable separately but is the part of overall physical stock found, the investment in the excess stock has to be treated as business income as per detailed reasons given in the case of Fashion World (supra). Once excess stock is treated as business income then assessee is entitled for higher remuneration to the partners as per section 40(b). As a result, this ground of assessee is allowed. 10. The next issue is about cash credit of Rs. 1,05,000. During the course of assessment proceedings the AO found that the assessee has advanced a sum of Rs. 1,65,000 to various persons. The AO required the assessee to submit the details of the transactions as under : i. What is the mode of the payment ? ii. What is the source of above payment-produce necessary evidence? Please state your annual income. iii. If books are maintained the same may be produced together with ban ..... X X X X Extracts X X X X X X X X Extracts X X X X
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