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TMI Blog2018 (6) TMI 1729X X X X Extracts X X X X X X X X Extracts X X X X ..... why income disclosed shall not be treated as deemed income u/s.69/69B of the Act. At the end of the assessment proceedings u/s.143(3) r.w.s. 147 of the Act, AO rejected the explanation given by the assessee and made addition of Rs. 1.25 to the total income of the assessee. 3. In the First Appellate proceedings, the CIT(A) considered the submissions made by the assessee vide his letter dated 16-10-2015. However, the CIT(A) relying on the judgment of Hon'ble Gujarat High Court in the case of Fakir Mohmed Hazi Hasan 247 ITR 290 and the judgment of Hon'ble Chattisgarh High Court in the case of Chanush General Stores Vs. CIT 339 651, upheld the addition made by the AO. 4. Aggrieved with the order of CIT(A), the assessee is in appeal with the following ground : "1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act it be held that, the AO has erred in taxing the additional income of Rs. 1,25,00,000/- declared by the firm in the course of survey as deemed income by wrongly applying the provisions of sec.69/69B of the Act. It further be held that the 1st appellate authority is not justified in confirming the action of the AO in this respect. Jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 7. Gera Developments Pvt. Ltd. Vs. ACIT and Vice versa - ITA Nos.597, 767/PUN/2013 and ITA No.1609/PUN/2014, dated 01-06-2018 8. DCIT Vs. Shri Ram Narayan Birla - ITA No.482/JP/2015, dated 30-09-2016 9. S.P. Equipment & Services Vs. ACIT 36 SOT 325 (JP) 10. Chokshi HIralal Maganlal Vs. DCIT 45 SOT 349 (Ahmedabad) 11. M/s. Fashion World Vs. ACIT - ITA No.1634/Ahd/2006, dated 12-02-2010. 7. On the other hand, Ld. DR for the Revenue relied heavily on the orders of AO and the CIT(A) and argued that the said additional income offered by the assessee constitutes only "deemed profits" and the same should not be considered for granting deduction u/s.40(b) of the Act to the assessee. 8. On hearing both the parties on this limited issue, we find there is no dispute that there was survey action on the assessee and the same resulted in the disclosure of additional income of Rs. 1.25 crores on account of excess stock of gold and jewellery. It is also a fact that the assessee reflected the said income in the profit and loss account while filing the return of income. The requisite taxes were also paid on the said income. We find disclosure of said additional income is closely linked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T. Act. It is the submission of the Ld. Counsel for the assessee that such excess stock found during the course of survey which was offered as additional income by the assessee constitutes business income and the assessee is entitled to get deduction towards remuneration to partners and interest on capital as per provisions of section 40(b) of the I.T. Act. 14. I find some force in the above submission of the Ld. Counsel for the assessee. I find similar issue had been decided by the Pune Bench of the Tribunal in difference cases. In the case of Shri Venkatesh Textile Mills (Supra) the assessee firm was engaged in the business of manufacturing & trading of textile products. During the course of survey u/s.133A of the Act on 22-02-2007, the assessee has declared additional income of Rs. 50,08,220/- on account of (a) unrecorded debtors/sales of Rs. 35,06,600/- and (b) excess stock of Rs. 15,01,620/-. The assessee included the aforesaid declaration in the return of income filed for the relevant assessment year and claimed deduction u/s.40(b) of the Act amounting to Rs. 9,63,920/- on account of remuneration paid to the partners. It was noted by the AO that the assessee has computed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess stock'. 9. As already noted earlier the discrepancy in stock position was accepted by the assessee in the course of survey and such amount was offered as additional income for the assessment year 2007- 08. In the deposition of the assessee, accepting the said discrepancy there is no explanation as to the manner in which the income represented by the aforesaid stock was earned by the assessee. In an answer to Question No.22, assessee was explaining the rounded and unrounded amounts found noted in the computerized print- out of the sales register. While the unrounded amounts were declared as unrecorded debtors/sales, the rounded amounts were explained to be sale amounts which have been received in cash. In this context, assessee's partner specifically contended that the "rounded amounts ........ which are received in cash are again invested in stock of respective business". It was further deposed that such amount of cash received is included in the excess stock declared earlier. In this manner, the partner of the assessee explained that such amount of cash was included in the stock declaration. This explanation of the assessee made in the course of statement recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of ascertaining net profit should be the only income from business alone and not from other sources. Section 29 provides how the income from profits and gains of business or profession should be computed and this has to be done as provided under Section 30 to 43D. By virtue of Section 5 of the said Act that total incomes of any previous years includes all income from whatever source derived. Thus for the purpose of Section 40(b)(v) read with Explanation there cannot be separate method of accounting for ascertaining net profit and/or book-profit. The said section nowhere provides as rightly pointed by Mr. Khaitan, learned Senior Advocate that the net profit as shown in the profit and loss account not the profit computed under the head profit and gains of business or profession. The decision of the Supreme Court in the case of Apollo Tyres Ltd. v. Commissioner of Income Tax reported in (2002) 255 ITR 273 (SC) is an appropriate guidance of this point as to what should be done in order to ascertain the net profit in case of this nature. At page 280 in the first paragraph of the report the Supreme Court observed as follows:- "Sub-section (1A) of section 115J does not empower th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer to calculate the allowable remuneration by ascertaining not only income from business but also income from other sources." 15. Similarly, the Ahmedabad Bench of the Tribunal has also an occasion to decide such an issue by distinguishing the decision of Hon'ble Gujarat High Court in the case of Fakir Mohamed Haji Hasan (Supra) which has been relied on by the CIT(A). In that case also the assessee was dealing in readymade garments. A survey u/s.133A was carried out at the business premises of the assessee on 15-02-2002. During the course of survey certain discrepancies in the stock and documents were found and the statement of the partner was recorded on that date. While the stock as per books was Rs. 9,87,718/- the physical verification of the stock was valued at Rs. 25,14,306/-. Subsequently, the stock as per books were re-worked after applying GP margin of 28.5% and finally the difference between the stock as per books and the physical verification was determined at Rs. 8,10,011/-. Further, unaccounted investment in furniture and fixtures and air conditioners to the tune of Rs. 1,97,250/- was found. Thus, the total undisclosed investment of Rs. 10,06,250/- wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 these various 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, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such gold, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 provides set off of loss from one source against income from another source under the same head of income. In other words, if under the head 'business' there are two businesses -one is resulting in income and the other is resulting in loss, they are to be set off against each other. Similarly, if there is a loss under the head capital gains in respect of short-term capital gains and there is income in respect of other capital assets then that can be set off as per section 70. Section 71 provides set off of loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. The department has ignored this claim of the assessee and sought to tax the difference between book-stock and physical-stock as unaccounted investment under section 69 without considering the claim of the assessee that first the business receipt has to be considered and then investment should be treated as coming out of such unaccounted income. The difference in st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment 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 assessable under the head 'business' and other two sums under section 69. The business income including application of section 40(b) has to be considered accordingly. For calculation of income in view of our above observations, we restore the matter to the file of AO." 16. Similar view has been taken by the Pune Bench of the Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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