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TMI Blog2022 (1) TMI 1452X X X X Extracts X X X X X X X X Extracts X X X X ..... f various business expenses such as depreciation on motor car, interest on car loan, motor car expenses, motor car repairing, mobile phone expenses, telephone expenses and travelling expenses - AO had not pointed out any single entry of personal expenses during the scrutiny therefore, ld. CIT(A) deleted the ad hoc addition made by AO - HELD THAT:- We note that AO could have ventured into estimation only after rejecting the books of accounts of the assessee u/s. 145(3) and thereafter by best judgment assessment u/s. 144 of the Act. Here in this case, the AO has not passed any order u/s. 144 - AO thus without rejecting the books of account of the assessee has gone for estimation on suspicion and conjectures that the assessee may be inflating its expenses. While scrutinizing the expenditure if the expenses claimed are not having any nexus to the business of the assessee or if there is deficiency in the vouchers or there is no bills supporting the incurrence of an expenditure, at the most expenses to the extent that are not supported by the vouchers can be held to be non-genuine and can be disallowed by the AO; and item-wise the AO could have disallowed the expenditure rather than goin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Account/ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees' accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees' account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act. - SHRI PAWAN SINGH, JM AND DR. A.L. SAINI, AM For the Assessee : Shri Rajesh Upadhyay, Advocate For the Respondent : Shri H. P. Meena, CIT(DR) ORDER PER DR. A.L. SAINI, AM: 1. Captioned appeal filed by the Revenue and Cross-Objection filed by the assessee, pertaining to Assessment Year (AY) 2015-16, are directed against the order passed by the Commissioner of Income Tax (Appeals), Valsad, [in short the ld. CIT(A) ] in Appeal No. CIT(A)/VLS/1023/17-18/748 dated 20.08.2018, which in turn arise out of an assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 29.12.2017. 2. Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm and filed its return of income for assessment year (A.Y.) 2015-16, on 21.09.2015 declaring total income of Rs. 2,73,42,365/-. The assessee is engaged in the business of trading of cloths. It is deriving income from profit and gains of business or profession. The assessee's case was selected for scrutiny and notice u/s. 143(2) of the Act was issued on 16/08/2016. In assessee's case a survey u/s. 133A of the Act was conducted on 15.10.2014. During the course of survey proceedings, certain incriminating material was found and discrepancies were noticed. To seek clarification/explanation on these incriminating material and discrepancies, statement on oath of Shri Rajeshbhai Kapoorchand Shah, Partner of assessee firm was recorded during the course of survey proceedings wherein difference of Rs. 3,37,03,023/- in stock between physical stock and stock as per books of account was noticed, hence, he declared unaccounted stock of Rs. 3,37,03,023/- as additional income in addition to regular income for the year under consideration in the name of assessee firm. On perusal of the Profit and loss account, it was noticed by AO that assessee has credited Rs. 3,37,03,023/- in its Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts with that which was found during the survey proceedings. The difference in stock so worked out by the authorities had no independent identify of its own and it is part and parcel of entire lot of stock. Thus in a case where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first that is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premise that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Since the assessee firm had admitted that the differential amount in the stock as business income, the same has to be accepted as such and not under any other provisions of sections 69, 69A and 69C. Our this view is fully supported by the judgment of Hon'ble ITAT Ahmedabad in the case of Chokshi Hiral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts and the assessee was very well aware that as the above stock was not recorded in its regular books of accounts maintained by it and the same was confirmed by the partner in his statement recorded during the course of survey action. Thus, the entire excess stock found during the course of survey should be assessed as income under section 69A of the Act. Accordingly, the amount of Rs. 3,37,03,023/- was treated as income of the assessee under section 69A of the Act and expenses claimed against the said income were also disallowed. 8. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved, the Revenue is in appeal before us. 9. Shri H.P. Meena, Ld. CIT(DR) for the Revenue vehemently argued that during the assessment proceedings, the assessee had admitted that during survey u/s. 133A of the Act, the partner of the assessee on oath had offered additional income of Rs. 3,37,03,023/- over and above of its regular income being the difference of stock physically found and as per books of account which was not recorded in its regular books of accounts. Since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75/- u/s. 40(b)(v) of the Act. Though facts have been discussed in detail in the foregoing paragraphs, however in the succinct manner, the relevant facts and background are reiterated in order to appreciate the controversy and the issue for adjudication. These facts are narrated by ld. CIT(A) in his appellate order. In the assessment order, the AO noted that the survey declaration amount in the form of excess stock found during the survey and not recorded in the books of account has to be treated as income from undisclosed sources on the basis of decision of Hon'ble Gujarat High Court in the case of Faqir Mohammad Haji Hasan vs. CIT 247 ITR 290. The AO stated that in the said case of Faqir Mohammad, the Hon'ble High Court held that in cases where the nature of source if investment made by the assessee or nature of source of acquisition of Money Bullion etc. owned by the assessee or the source of expenditure incurred by the assessee are not explained at all or not satisfactorily explained, then such investment/expenditure will be deemed to be income of the assessee. However, when this provision apply and no source of income is disclosed at all on the basis which the income w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, out of book Profits computed which will include the undisclosed income declared during the survey proceedings. Hence, the disallowance of Rs. 1,54,98,765/- as per section 40(b)(iv) of the Act was also deleted by ld. CIT(A). 13. We also find merit in the arguments advanced by Shri Rajesh Upadhyay, Learned Counsel for the assessee, to the effect that 'income of all the partners are taxable at the maximum marginal rate, hence there is no loss to the revenue'. We note that interest and remuneration paid to partners by partnership firm is taxable under the head Business Income , which is subject to maximum marginal rate of income tax @ 30%, and income of the partnership firm is also taxable under the head Business Income , which is also subject to maximum marginal rate of income tax @ 30%, in this scenario, there should not be any loss to the Revenue. The ld. Counsel invited our attention towards paper book page No. 54 wherein we find that total income of most of the partners are subject to maximum marginal rate of income tax @ 30%, hence there should not be any loss to the revenue if partners are getting interest and remuneration out of the amount of excess stock disclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the partners. The Commissioner was of the opinion that such income of Rs. 19,91,000/- has to be assessed under section 69 of the Act. The Commissioner, also noted that the assessee had utilized the borrowed funds not for setting up of business, but for expansion of the business inasmuch as the fixed assets of the assessee firm increased and investment in the building also increased substantially. The Commissioner, therefore, was of the opinion that though the interest on borrowed funds utilised for expansion of running business deserves to be allowed, the Assessing Officer should examine the utilization of the borrowed funds for renovation of the building for capitalization. On these two grounds, the Commissioner was of the opinion that the powers under section 263 of the Act are required to be exercised. He accordingly, restored the proceedings to the Assessing Officer for re-framing the assessment after hearing the assessee. To do so, he came to the following conclusions : The assessee has adduced evidence that the interest bearing borrowing funds were not utilized for setting up of the business but the same were utilized for expansion of the business in as much as that fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ji Hasan v. CIT 247 ITR 290 (Guj) was distinguished on facts. On behalf of the Revenue, counsel submitted that the Tribunal committed grave error. The Commissioner exercised powers under section 263 of the Act giving cogent reasons and remanded the proceedings before the Assessing Officer for fresh consideration. Such order ought not to have been disturbed. Counsel further submitted that undisclosed income of Rs. 19,91,000/- cannot be treated as the business income of the assessee and must be treated to be an income from other source. No deduction from this income can be made for incurring business expenditure. Counsel drew our attention to the decision of this Court in the case of Deputy CIT v. Radhe Developers India Ltd. (Guj) 329 ITR 1. On the other hand, counsel for the assessee submitted that the Assessing Officer committed no error in the assessment order. The Commissioner could not have revised such order even without holding that the order passed by the Assessing Officer is erroneous and is prejudicial to the interest of the Revenue. He submitted that deduction towards interest on borrowed funds would be allowable deduction irrespective of whether the borrowed funds have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Apex Court commencing from case of United Commercial Bank Ltd. Vs. CIT (1957) 32 ITR 688 (SC) have been 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. In any case, we are convinced that the Tribunal was correct in holding that even if two views are possible, powers under section 263 of the Act could not and ought not to have been exercised. The Apex Court in the case of Malabar Industrial Co. Ltd. observed as under: The phrase 'prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relates to deletion of addition of certain expenses amounting to Rs. 1,58,061/-. The Revenue has challenged the disallowance of Rs. 1,58,061/- @ 1/10th of various business expenses such as depreciation on motor car, interest on car loan, motor car expenses, motor car repairing, mobile phone expenses, telephone expenses and travelling expenses. In the assessment order, the AO noted that the personal and non-business use of the above expenses cannot be ruled out. The ld. Counsel contended that books of account are maintained on day to day basis and all business expenses are duly accounted in the books of accounts. The partners had made adequate withdrawal to cover their personal expenses. The AO had not pointed out any single entry of personal expenses during the scrutiny therefore, ld. CIT(A) deleted the ad hoc addition made by assessing officer. We note that AO could have ventured into estimation only after rejecting the books of accounts of the assessee u/s. 145(3) and thereafter by best judgment assessment u/s. 144 of the Act. Here in this case, the AO has not passed any order u/s. 144 of the Act. The AO thus without rejecting the books of account of the assessee has gone for es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A of the Income Tax Act. During the assessment proceedings, the assessing officer observed that there must be some expenses are to be incurred. The assessing officer also noted that in assessee's case, various expenses are debited to Profit and Loss account. Thus, the provision of section 14A clearly attracted in the case of the assessee. Accordingly, the assessing officer made addition of Rs. 57,867/-. We have heard both the parties and note that no direct expenses was incurred by assessee to earn the dividend income from Reliance Liquid Mutual Fund. There is no fresh investment made by the assessee during the current year rather it is an old investment made by the assessee out of its own interest free funds. The ld. Counsel has referred to several court decision including the decision of Hon'ble Gujarat High Court in the case of CIT v/s. Suzlon Energy Ltd. (HA No. 223 of 2013) wherein the Hon'ble High Court had deleted the disallowance u/s. 14A of the Act on the ground that the investment was made out of interest free fund, had no direct nexus between the interest borrowed funds. Respectfully following the binding precedent of Hon'ble Gujarat High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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