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TMI Blog2010 (2) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... Haji Hasan [ 2000 (8) TMI 44 - GUJARAT HIGH COURT] held that 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. To conclude sum 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 u/s 69 only. In view of the above, AO is directed to consider the su as undisclosed business income assessable under the head business and other two sums u/s 69. The business income including applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings was earned m earlier year. It is submitted that such finding has no basis. 5. The learned CLT(A) erred m confirming the action of learned A.O.in segregating the income of the appellant in two ports namely income disclosed during survey u/s. 133A and other regular income and also erred in taxing the entire declared income of ₹ 10,06,250/- without setting it off against the loss incurred or reducing ft by the Joss suffered in its regular business under the head business income at ₹ 4,47,580/- subject to the appeal effect order. It is submitted that it be so held now and the loss incurred under the head business income without considering the declared income be allowed to be set off against or deducted from such declared income of ₹ 10,06,250/- 6. The learned CIT(A) grossly erred in confirming the action of learned A.O. in computing total income of the appellant at ₹ 10,06,250/- and allowing carry forward of normal business loss to the Succeeding assessment year without setting off or granting deduction of such business loss against the declared income of ₹ 10,06,250/-. It i5 submitted that such treatment is in clear violation of the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn for the Asst. Year 2002-03 declared total income of ₹ 5,58,670/-. There was no independent declaration of any undisclosed investment found during course of survey. On being asked to explain, it was stated by the assessee that sales in the last two months i.e. February March were made at very low rates as it is decided to close the business due to recession in the market. The AO did not agree with this explanation and made addition of ₹ 10,06,250/-separately under section 69 to the income computed as per profit and loss account. In fact what the AO did was that he worked out income from business separately and made addition under section 69 separately. His working for the sake of convenience is given below :- Income as per statement of income i.e. returned income i.e. returned income Less: The additional income as disclosed by the Assessee u/s 133A to be taxed separately (-) ₹ 10,06,250/- Balance Regular Total income subject to Adjustment as discussed in the preceding paras (-) ₹ 4,47,580/- 16. Subject to the above remarks the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be available for investing elsewhere. 5. Before us, assessee has raised several grounds as above. The ld.AR did not press ground Nos.1 2 and, therefore, they are rejected as not pressed. 6. Regarding addition of ₹ 10,06,250/- under section 69 ld. AR submitted that this has to be considered as business income as what is found is business stock . It cannot have a different character than the business income. He submitted that in any case, tax has to be levied on total income after clubbing income under different heads including income under section 69. Therefore, there is no separate identity of addition under section 69 even if one follows the decision of Hon. Gujarat High Court in the case of Fakir Mohmed Haji Hasan vs. CIT(supra). He then claimed that once investment in stock is considered as business outgoing then partners of the firm are entitled for higher remuneration as per section 40(b). Ld. AR referred to the decision of Hon. Supreme Court in Lakhmichand Baijnath vs. CIT 35 ITR 416(SC)for the proposition that if credits are found in the business account of the assessee then the Income-tax authorities are entitled to treat the receipts as business receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. The provisions of sections 69, 69A, 69B and 69C,treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head Income from other sources . Therefore, the corresponding deductions which are applicable to the incomes under any of the sevarious heads, will not be attracted in the case of deemed incomes which are covered under the provisions of sections 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions : Held, on the facts, that it was clear that when the investment in or acquisition of gold, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as deemed income of the assessee. Thus for invoking these deeming sections first condition has to be necessarily satisfied that they are not recorded in the books of account regularly maintained by the assessee. But for establishing nexus of such investment/expenditure with a head of income and to take the benefit of set off, assessee has to necessarily explain the nature and source of such investment/expenditure and establish its nexus with any head of income. Hon. Gujarat High Court further held that for claiming trading loss in respect of an asset whose investment was found unexplained, it was necessary for the assessee to explain the nature and source of its acquisition and on its failure to do so the trading loss on the confiscation of the asset could not be set off. 10. We notice that the set off of any trading loss against deemed income assessed under sections 69, 69A, 69B 69C is not directly discernible from sections 72 to 79 falling in Chapter-VI. To summarily refer to these provisions we note that in Chapter VI, section 70 provid esset off of loss from one source against income from another source under the same head of income. In other words, if under the hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains and (v) income from other sources cannot at all be adjusted against unexplained investment or expenditure. What is necessary as per Hon. Gujarat High Court is that source of acquisition of asset or expenditure should be clearly identifiable. In the case before Hon. 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 ₹ 25,14,306/- was part of the same business. Both kind of stock i.e. what is recorded in the book sand 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. The department has ignored this cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Hon. Gujarat High Court in the case of Fakir Mohmed Haji Hasan (supra) where investment in an asset or expenditure is notidentifiable and no nexus was established then with any head of in come 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 ₹ 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 assessable under the head bus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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