2015 (3) TMI 457 - PUNJAB & HARYANA HIGH COURT
Other Citation: [2014] 360 ITR 453 (P&H)
M/s Tudor Knitting Works Pvt. Limited Versus CIT, Aayakar Bhawan, Ludhiana
Entitlement to the deduction under Section 80IB - surrendered amount though utilized for the business of the appellant - Held that:- Adverting to the judgments relied upon by the counsel for the assessee, it may be noticed that in those cases, either the Tribunal had recorded the finding that the surrendered income was derived from the industrial undertaking or they were based on individual fact situation involved therein. Thus, the assessee cannot derive any benefit from those judgments.
Though the income surrendered is assessed by the Assessing Officer as business income, however, its nexus with the industrial undertaking is left to be established. There is nothing on record relied upon by the assessee to show that in the course of survey, any evidence of unaccounted turnover, inflation of expenses etc., was discovered, so as to say that the surrenderfed income was directly linked to the business of the industrial undertaking. There is no positive evidence led by the assessee to establish direct nexus with the industrial undertaking and therefore in our considered opinion, the burden cast on the assessee has not been discharged. The findings recorded by the Tribunal that appellant was not entitled to the deduction under Section 80IB on the surrendered amount though utilized for the business of the appellant have not been shown to be illegal or perverse in any manner. - Decided against the assessee.
Though the income surrendered is assessed by the Assessing Officer as business income, however, its nexus with the industrial undertaking is left to be established. There is nothing on record relied upon by the assessee to show that in the course of survey, any evidence of unaccounted turnover, inflation of expenses etc., was discovered, so as to say that the surrenderfed income was directly linked to the business of the industrial undertaking. There is no positive evidence led by the assessee to establish direct nexus with the industrial undertaking and therefore in our considered opinion, the burden cast on the assessee has not been discharged. The findings recorded by the Tribunal that appellant was not entitled to the deduction under Section 80IB on the surrendered amount though utilized for the business of the appellant have not been shown to be illegal or perverse in any manner. - Decided against the assessee.
No.- ITA No.440 of 2010 (O&M)
Dated.- August 8, 2013
MR. AJAY KUMAR MITTAL AND MR. JASPAL SINGH, JJ.
For the Appellant : Mr. H.O. Arora, Advocate
For the Respondent : Mr. Rajesh Katoch, Advocate
JUDGEMENT
Ajay Kumar Mittal, J.
1. The assessee has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short, "the Act") against the order dated 16.9.2009 Annexure A.3 passed by the Income Tax Appellate Tribunal, 'A' Bench Chandigarh in ITA No.653(CHANDI) 2005 for the assessment year 2002-03, claiming following substantial questions of law:-
"I. Whether, on the facts and circumstances of the case, the ITAT was justified in law in holding that appellant was not entitled to the deduction under Section 80IB on the surrendered amount though utilized for the business of the appellant without placing any evidence against the assessee on record and without rebutting the evidence presented by the assessee on record and thereby reversing a well versed and reasoned orders by the CIT(A)?
(II)Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in denying the claims of the appellant under Section 80IB of the Income Tax Act, 1961 by blindly relying upon the judgment of this Hon'ble Court in the case of National Legguard Works v. CIT and another, 288 ITR 18 (P&H) which is distinguishable on facts itself and rather favours the present appellants case?
III. Whether, on the facts and circumstances of the case, the findings of ITAT are perverse and against the evidences on record thus unsustainable in law?
IV. Whether the ITAT has misdirected itself in being influenced by irrelevant factors and applying erroneous criteria while deciding the issue for claiming deduction under Section 80IB of the Income Tax Act, 1961?"
2. Briefly, the facts necessary for adjudication of the controversy involved, as narrated in the appeal may be noticed. The assessee is a company engaged in the manufacture of hosiery goods at Ludhiana. It is a regular Income tax assessee. On 6.11.2001, a survey operation under Section 133A of the Act was conducted at the business premises of the assessee. During this operation, the assessee surrendered an amount of ` 1.20 crores stating that this amount was part and parcel of the business activities and was in addition to normal business income and that there was direct and proximate connection of this income with the business of the industrial undertaking. The assessee filed its income tax return for the assessment year 2002-03 on 28.10.2002 declaring Income of `86,31,329/-. The case of the assessee was selected for scrutiny. The assessee attended the proceedings and filed the requisite information/documents. Its books of accounts were called for. The assessee was asked to explain as to why the deduction in respect of income of ` 1.20 crores under section 80IA/IB of the Act be not disallowed. Deduction was also claimed on the amount of ` 59,852/- representing income from bank interest as the same was also earned during normal course of business activities and was out of the surplus funds lying with it. The Assessing Officer vide order dated 27.10.2004, Annexure A.3 disallowed the deduction under Section 80IB of the Act by relying upon the judgment of the Apex Court in CIT v. Sterling Foods, (1999) 237 ITR 579 holding that according to Section 80IB, deduction is available on profits and gains derived from the business of an industrial undertaking. Aggrieved by the order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 28.1.2005, Annexure A.2, the CIT(A) allowed the appeal. Not satisfied with the order, the revenue filed appeal before the Tribunal relying upon the judgment of this Court in National Legguard Works v. CIT and another, (2007) 288 ITR 18 wherein it was held that in case of amount surrendered, the burden was on the assessee to prove that the amount represented profits on which deduction was permissible under Chapter VI-A. The Tribunal vide order dated 16.9.2009, Annexure A.3 allowed the appeal and set aside the order passed by the CIT(A). Hence the present appeal by the assessee.
3. Learned counsel for the appellant-assessee submitted that the surrendered amount of ` 1.20 crores was part and parcel of business activities and was in addition to normal business income and there was direct and proximate connection of this income with the business of the industrial undertaking. According to the learned counsel, the finding recorded by the Tribunal that it was not derived from the industrial undertaking was erroneous. It was infact as a result of business income and, therefore, deduction under Section 80IB of the Act was admissible. It was also argued that the income was assessed by the Assessing Officer under the head "business or profession" and, therefore, the assessee was entitled for deduction under Section 80IB of the Act. Reliance was placed upon judgments in Broach District Cooperative Cotton Sales, Ginning and Pressing Society Limited v. CIT, (1989) 177 ITR 418 (SC), CIT v. Gwalior Rayon Silk Manufacturing Co. Limited, (1992) 196 ITR 149 (SC), Bajaj Tempo Limited v. CIT, (1992) 196 ITR 188 (SC), CIT v. Margaret's Hope Tea Co. Limited, (1993) 201 ITR 747 (Cal.), Gopal Stores v. CIT, (1995) 215 ITR 265 (Gau), Mysore Minerals Limited v. CIT, (1999) 239 ITR 775 (SC), CIT v. Rathore Brothers, (2002) 254 ITR 656 (Mad.), Padmasundara Rao (deceased) and others v. State of Tamil Nadu and others, (2002) 255 ITR 147 (SC), CIT v. Simplex (Indore) (P) Limited, (2005) 282 ITR 542 (MP) and CIT v. Allied Industries, (2010) 229 CTR (HP) 462, in support of the submissions.
4. Controverting the aforesaid submissions, learned counsel for the revenue relied upon judgments in Sterling Foods and National Legguard Works's cases (supra). He submitted that there could be trading activity as well and the assessee had not produced anything to prove that it was on account of industrial undertaking and the onus upon the assessee was not discharged.
5. After hearing learned counsel for the parties and perusing the record, we do not find any merit in the appeal.
6. The Tribunal while declining the claim of the assessee had specifically recorded as under:-
"5. We have considered the rival submissions carefully. The first and the foremost point which is required to be kept in mind is that for the purposes of computing deduction under Section 80IB, only the profits and gains which have a direct nexus with the industrial undertaking are alone liable to be considered. Section 80IB envisages deduction in respect of profits and gains derived from any business of industrial undertaking only as the expression 'derived from' finds a place in the Section. In order to appreciate the import of the expression 'derived from', a reference may be made to the judgment of the Hon'ble Supreme Court in the case of Cambay Electric Supply Industrial Co. Limited v. CIT, 113 ITR 84 (SC) wherein the difference in the expressions 'attributable to' and 'derived from' was considered. The Hon'ble Supreme Court observed that the expression 'derived from' wherever used, intends to cover only the receipt from the actual conduct of the business of specified nature, whereas the expression 'attributable to' has a wider import and would cover receipts from sources other than the actual conduct of the business of the specified nature. Similar proposition has been upheld by the Hon'ble Supreme Court again in the case of Sterling Foods, 237 ITR 579 (SC).
To the similar effect is the judgment of the Hon'ble Jurisdictional High Court in the case of M/s Liberty India, 293 ITR 520 (P&H). From the aforesaid, it is safe to deduce that in order to entitle an assessee to deduction under section 80IB, there must be a direct nexus between the income in question and the industrial undertaking. In other words, even if a particular income is liable to be assessed as business income, but the nexus is indirect or incidental, such income, though assessable as business income, would not qualify for deduction under Section 80IB of the Act because it cannot be said to be derived from an industrial undertaking on account of it being devoid of any direct nexus.
6. With this discussion, we may now examine the facts of the present case. In this case, the assessee surrendcered an amount of ₹ 1,20,00,000/- during the course of a survey operation under Section 133A of the Act on account of difference in stock, debtors receivable and on account of differnece in the amount invested in construction of building. The assessee claimed deduction under Section 80IB on such income declared in the return. Ostensibly, in order to hold such income eligible for deduction under Section 80IB, the nexus with the industrial undertaking is required to be established. The moot question is whether the same stands established in this case or not? Before we proceed on this aspect, it would also be of relevance to notice the judgment of the Hon'ble jurisdictional High Court in the case of National Legguard Works, 288 ITR 18 (P&H) wherein the following discussion is worthy of notice: 'We are unable to accept this submission. Deduction under section 80HHC of the Act is available only on showing fulfilment of the conditions specified therein and there could be no presumption that surrender made on account of unexplained stocks represented export income. The assessee was unable to give any explanation. There could be no presumption that the additional amount surrendered represented income from exports. Deduction under section 80HHC of the Act can be claimed only on showing facts which make the assessee eligible for the deduction. The burden to prove these facts was on the assessee and not on the Revenue.'
7. In our view, the aforesaid observations, though made by the Hon'ble High Court in respect of Section 80HHC of the Act, is equally applicable to the computation of deduction under Section 80IB of the Act. In other words, there can be no presumption that the amount surrendered represented income eligible for Section 80IB benefits and that the onus was on the assessee to prove that the surrendered income was derived from the Industrial undertaking. In this case, the learned counsel for the assessee reiterated the submission made before the CIT(Appeals) that at the time of surrender, the assessee has clearly indicated that the amount surrendered is a part and parcel of the business activities and is in addition to the normal business income. In our view, the said stand of the assessee does not demonstrate that the burden cast on the assessee stands discharged. The learned counsel has further submitted that the assessee's industrial undertaking was the only source of income and there is no other manufacturing activity and therefore, there was nothing to establish that the income in question was not derived from the industrial undertaking.
8. We have considered the said plea of the assessee and find that the same only entails a presumption that the additional amount surrendered represented income derived from the industrial undertaking. As observed earlier, in terms of the decision of the Hon'ble Jurisdictional High Court, there cannot be a presumption that surrendered income is eligible for Section 80IB benefits. On the contrary, the assessee has to demonstrate that the income in question is eligible for 80IB benefits. In this case, though the income surrendered is assessed by the Assessing Officer as business income, however, its nexus with the industrial undertaking is left to be established. There is nothing on record relied upon by the assessee to show that in the course of survey, any evidence of unaccounted turnover, inflation of expenses etc., was discovered, so as to say that the surrenderfed income was directly linked to the business of the industrial undertaking. There is no positive evidence led by the assessee to establish direct nexus with the industrial undertaking and therefore in our considered opinion, the burden cast on the assessee has not been discharged.
9. In this background, in our view, the CIT(Appeals) was wrong both on facts and in law to allow the claim of the assessee for deduction under section 80IB with respect to the surrendered amount. Firstly, the CIT(Appeals) is wrong in transferring the burden on the revenue to establish that the surrendered income was not entitled to section 80IB benefits. Secondly, even factually, there is no positive material or evidence to establish nexus between the surrendered amount and the industrial undertaking. Further, the CIT(Appeals) has also not considered the reliance placed by the Assessing Officer on the decision of the Amrtisar Bench of the Tribunal in the case of Shri Deepak Mittal, P/O M/s Sonalika Agriculture Industrial Corporation, Hoshiarpur dated 2.7.2004 for assessment year 1989-90, wherein similar issue has been dealt with in favour of the revenue. Moreover, the reliance placed by the CIT(Appeals) on the decision of the Amritsar Bench of the Tribunal in the case of Kashmir Steel Rolling Mills v. DCIT, 55 Taxman 424 (Amritsar) is also not appropriate. The learned DR quite fairly contended that the decision of the Amritsar Bench in the case of Kashmir Steel Rolling Mills has been further explained by the Amritsar Bench in the case of Sadhu Singh Kirpal Singh v. ACIT, 97 TTJ 1 (Asr). Moreover, the decision of the Amritsar Bench of the Tribunal in the case of Kashmir Steel Rolling Mills (supra) is dated 16.5.1990 and judgment of the Hon'ble Supreme Court in the case of Sterling Foods (supra) is dated 15.4.1999 wherein it has been held that the nexus between the profit and the industrial undertaking has to be direct and not indirect or incidental or based on any circumstantial evidence. Moreover, in view of the authoritative pronouncement of the Hon'ble Jurisdictional High Court in the case of National Legguard Works (supra), the issue in question is required to be held against the assessee."
7. The contention of the learned counsel for the appellant that the income was assessed under the head "business", is not born out from the record. A perusal of the assessment order shows that it nowhere suggests that the Assessing Officer had taken surrendered Income under the head "business or profession". Moreover, nothing had been produced by the assessee to show that the surrendered income was derived from the industrial undertaking. Onus was upon the assessee to show that the income on which deduction had been claimed under Section 80IB under Chapter VI-A of the Act, was infact derived from the industrial undertaking.
8. From the perusal of the findings as noticed above, the Tribunal had come to the conclusion that onus upon the assessee was not discharged. In such a situation, it could not be said that the Tribunal had erred in holding that deduction under Section 80IB of the Act was not admissible to the assessee. This Court in Home Tex v. CIT, (2011) 59 DTR Judgments 165, considering similar issue had noticed as under:-
"12. It is quite evident from the above letter submitted by assessee that ₹ 40 lakhs income was surrendered only on account of excess stock found as per physical verification. It was also stated in the letter that no adjustment will be made against the surrendered income and such surrendered income is over and above the regular income as per books of account. Advance tax on the additional income was also proposed to be deposited vide post dated cheques. Since in the letter itself the assessee has accepted that this additional income was over and above the regular income as per books of account, the regular income which is arising out of industrial undertaking can only be subject to deduction u/s 80 IB and no other income surrendered on account of additional stock found during the course of survey can be considered for deduction u/s 80 IB. More particularly, in view of the decision of Hon'ble Supreme Court in the case of Liberty India (supra) wherein even the income from DEPB and duty drawback which are received by the industrial undertaking as an incentive in the course of their business were held to be not eligible for claim of deduction u/s 80 IB, nothing is left for granting deduction in respect of such income surrendered during the course of survey which is attributable to the excess stock found during the survey. Nothing was brought on record by the learned Authorised Representative to show that amounts so invested in the excess stock was derived from industrial undertaking. It is not only the income of the business which can be claimed for deduction u/s 80 IB but it is only that income which is derived from industrial undertaking and comes within the first degree of nexus between profit and industrial undertaking as found by the Hon'ble Supreme Court in the case of Liberty India (supra), that can be made available for allowing the deduction u/s 80 IB of the IT Act. We, therefore, do not find any infirmity in the orders of lower authorities for declining claim of deduction u/s 80 IB in respect of extra income surrendered during survey on account of excess stock physically found as compared to the stocks indicated in the regular books of account."
7. The Tribunal had specifically recorded that the assessee had failed to show that the amount which was invested in the excess stock and was surrendered at the time of survey was derived from industrial undertaking. In the absence of any such finding or nexus established by the assessee, the Tribunal had rightly declined the claim of deduction under Section 80 IB of the Act in respect of excess income surrendered during survey on account of excess stock which was not reflected in the regular books of accounts. Learned counsel for the assessee was unable to show any perversity or illegality in the findings which may warrant interference by this Court."
Similar view was recorded in National Legguard Works's case (supra) :-
"7. We are unable to accept this submission. Deduction under Section 80HHC of the Act is available only on showing fulfilment of conditions specified therein and there could be no presumption that surrender made on account of unexplained stocks represented export income. The assessee was unable to give any explanation. There could be no presumption that additional amount surrendered represented income from exports. Deduction under Section 80HHC of the Act can be claimed only on showing facts which made the assessee eligible for the deduction. The burden to prove these facts was on the assessee and not on the Revenue.
8. The judgment relied upon is on its own facts and not in respect of claim for deduction under Section 80HHC of the Act. In any case, from the facts of the present case, the assessee cannot be held to be entitled to claim income surrendered as a result of unexplained stocks as Income from exports."
9. Adverting to the judgments relied upon by the counsel for the assessee, it may be noticed that in those cases, either the Tribunal had recorded the finding that the surrendered income was derived from the industrial undertaking or they were based on individual fact situation involved therein. Thus, the assessee cannot derive any benefit from those judgments.
10. The findings recorded by the Tribunal have not been shown to be illegal or perverse in any manner. Consequently, the substantial questions of law are answered against the assessee and in favour of the revenue. The appeal is dismissed.
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2014 (7) TMI 1058 - ITAT AHMEDABAD
Dy. Commissioner of Income-tax Versus New Umiya Vijay Saw Mill
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.
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.
No.- ITA No. 2447/Ahd/2012
Dated.- June 30, 2014
Sri D. K. Tyagi And Shri N. S. Saini,JJ.
For the Petitioner : Sri J. P. Jhangid, Sr. D. R.
For the Respondent : Sri Tushar Hemani, A.R.
ORDER
Per : D. K. Tyagi, Judicial Member:-
This is the revenue's appeal against the order of Ld. CIT(A)-II, Surat dated 16-08-2012.
2. The revenue has taken following grounds of appeal:-
"1. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of remuneration paid to partners without appreciating the fact that the disclosure has been made in respect of firm and not in the hands of partners and the disclosure should be taxed in the hands of the firm only.
2. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in treating the amount of ₹ 36,03,000/- as income from business, against the A.O. treatment of this amount as 'Income from other sources', without appreciating the fact that the assessee failed to explain the source of job work as it could not produce details regarding the unaccounted job work receipts.
3. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 18,01,5007- made on account of unexplained expenditure u/s 69 C, as the fact that the assessee has not claimed any expenditure for earning such job work receipt has been ignored.
4. On the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 3,93,537/- made on account of Business & Profession without appreciating the fact that the net income returned by the assessee is less than the disclosure amount and the addition was made totally in consistent with the disclosures made during the course of survey."
3. Ground No. 1 & 2 relates to disallowance of the claim of partner's salary amounting to ₹ 13 lacs u/s. 40(b) against the income disclosed during the survey.
4. Brief facts of the case are that assessee is a partnership-firm engaged in trading and sawing of woods. A survey action u/s. 133A was carried out on 24-03-2000 and on consequent to the survey assessee made a disclosure of ₹ 39,96,537/- on account of excess cash and unaccounted stock and also unaccounted net jot work income, the details of which are as under:
Excess Cash : | ₹ 1,48,063/- |
Unaccounted Stock : | ₹ 2,45,474/- |
Unaccounted receipt of job work : | ₹ 36,03,000/- |
Total : | ₹ 39,96,537/- |
This disclosure was reflected in the computation of income filed along with the return, against which assessee claimed remuneration of partners at ₹ 13 lacs and net profit of ₹ 24,52,906/- was offered for taxation. AO however disallowed this remuneration of ₹ 13 lacs to partners after treating sum of ₹ 3,93,537/- (i.e. cash ₹ 1,48,063/- + Stock ₹ 2,45,474) as "income from business and profession" and ₹ 36,03,000/- as "income from other sources" on the ground that source of income dislscosed during survey remains undisclosed and hence it would be treated under the head "income from other sources" and not under the head "income form business and profession". While doing so, AO relied on the decision of Hon'ble ITAT Ahmedabad Bench in the case of M/s. Whiteline Chemical and on the decision of Hon'ble Gujarat High Court in the case of Fakir Mohammed vs. CIT and concluded that the disclosure made by assessee being deemed income, it will be covered under the head "income from other sources" and corresponding deductions which were applicable to the income "from business and profession" will not be allowed. He therefore disallowed the claim of partners salary amounting to ₹ 13 lacs u/s. 40(b) against the income disclosed during the survey.
5. Aggrieved by this order of AO assessee went in appeal before the Ld. CIT(A).
6. The submission of the assessee before CIT(A) was that AO himself has noted in the assessment order that disclosure at the time of survey was from business activities of trading and sawing of woods and the same was additional business income over and above regular business income hence the same was duly eligible for allowances like interest and remuneration paid to the partners. It was further submitted that the disclosed income had also been included in the profit and loss account and computation of income as business income for the year under appeal as it pertained to the income from business which was the only source of income of the asessee and the same has to be duly considered while working the remuneration allowable u/s. 40(b) of the Act. The reliance was placed by the assessee on several judicial pronouncements including decisions of jurisdictional ITAT. Ld. CIT(A) after taking into consideration this submission of the assessee allowed the appeal of the assessee by observing as under:-
"3.3 I have considered the facts of the case, basis of addition made by AO and arguments of the appellant. The basis given by AO for making addition is that the source of income disclosed by appellant during survey proceedings remains undisclosed hence it would not be classified under head income 'business and profession', rather to be taxed as 'income from other sources'. The conclusion drawn by AO does not get support from the statements given by partner during the survey proceedings, which is the only basis of making addition. During the survey, partner of the firm categorically stated as under:
"Q.8 I show you this Red Maruti Book No,2 (diary) marked as Ann. B1/1 and ask you to explain who wrote this diary and what is written in this diary?
A.8 Red diary seized as Ann.B1/1, has been written by myself and amount of ₹ 36,03,000/- (Rupees Thirty Six lacs Three Thousands Only) mentioned in this diary is receivable from various parties towards unaccounted sale and / or job work. We have not included it in our books of accounts of current financial year 2008-09 and it is our current year's unaccounted income. It is an income over and above regular income. I declare it as current year's business income and will discharge tax thereon. I disclose entire sundry receivable found in the diary as income and will discharge tax thereon accordingly."
3.3.1 The specific disclosure made by partner that in the course of business of sale of wood and job work the appellant has earned undisclosed income, clearly explains the source and method of earning undisclosed income by the appellant during the year under consideration. This income has been admitted by the appellant and shown in the return of income and paid the taxes on that. This fact is not controverted by AO also. The AO has failed to identify any source of income other than this business activity which remains unexplained. Moreover, the deeming provisions under Chapter-VI, to consider any income as other sources income, is attracted only when any sum credited in the books of account or any investment remain unexplained. Here in the case of appellant, it has explained the source of undisclosed income i.e. the business activity of trading of woods and job work, which clearly falls under the head 'income from business and profession'. The Hon'bie jurisdictional Ahmedabad bench of the Tribunal in the case of Choksi Hiralal Maganlal v. DCIT (2011) 141 TTJ (Ahd) (UO) 1; has held as follows:
"Since in the present case excess stock found during the survey is not separately and clearly identification but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by survey officers, the provisions of s. 69B cannot be made applicable as primary condition for invoking the provisions of ss. 69A and 69B is that the asset should be separately identifiable and it should nave independent physical existence of its own. Since excess stock is a result of suppression of profit from business over 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. Once excess stock is treated as business income then assessee is entitled for higher remuneration to the partners as per s. 40(b). As a result, this ground of assessee is allowed."
3.3.2 Further, in the case of Fashion World v Asstt CIT, Cir-2, Ahedabad (ITA No.1634 Bench-B dated 12.02.2010), it has been held by Hon'ble ITAT that if the assets disclosed during the survey are identified with business of assessee then the same have to be treated as part of business income while computing total income, and the consequential deduction under section 40(b) has to be allowed. Similar views have been taken by different Courts/lTATs as mentioned by appellant in its submissions.
3.3.3. In view of the above facts and decisions by different authorities, I do not find any merit in the AO's case that undisclosed income declared during survey proceedings has to be taxed as income from other sources. The very facts of the case clearly establish that the undisclosed income was earned from the business activity of trading of wood and job work hence it will fall under the head of 'income from business and profession'.
3.3.4 As far as remuneration to partner is concerned, once the income is assessed under the head business and profession, deduction becomes consequential in nature. The book profit of the firm has to be computed and remuneration to partners as per provisions of section 40(b) has to be allowed. The words 'book profit' have been defined in section 40(b) which means net profit as shown in profit and loss account computed in manner laid down in Chapter IV-D. Thus, the undisclosed business income forms part of book profit. The appellant has not carried out any other business and has no other source of income. Therefore, whatever income arising to the appellant, is business income and all eligible deductions, including remuneration to partners, are to be allowed. In the case of appellant, it is fulfilling all the conditions prescribed under section 40(b) of I.T. Act for claiming the deduction. Therefore, the AO is not justified in disallowing the deduction of ₹ 13,00,000/- on account of remuneration to partners. Therefore, addition made AO is deleted."
7. Aggrieved by this order of Ld. CIT(A), the revenue is in appeal before us.
8. At the time of hearing Ld. DR vehemently supported the order passed by AO. It was also submitted that since income from job work was not shown by the assessee in the earlier years i.e. assessment year 2008- 09 and was only declared at the time of survey, the same has rightly been treated by the AO as income from other sources and claim of assessee for partner's remuneration u/s. 40(b) of the Act has rightly been denied by the AO. He therefore submitted that order passed by Ld. CIT(A) may kindly be set aside and that of AO be restored. Learned counsel of the assessee on the other hand vehemently supported the order passed by Ld. CIT(A). He further submitted that while making the addition, the AO has placed reliance only on the statement of the assessee given by him at the time of survey and therefore the statement cannot be relied in part, it should be relied in full. Since at the time of survey, the assessee has disclosed a sum of ₹ 39,96,537/- as business income, the same should be treated as business income only and therefore partner's remuneration of ₹ 13 lacs is allowable deduction. He further placed reliance on the decision of Culcutta High Court in the case of Md Serajuddin & Brothers vs. CIT wherein it was held that for the purpose of computation of allowable remuneration to partners u/s. 40(b) net profit includes not only income of business but also income from other sources. Concluding his argument learned counsel of the assessee submitted that Ld. CIT(A) has rightly treated income disclosed during the survey as business income and has rightly allowed remuneration to parents from the same and therefore order passed by Ld. CIT(A) may kindly be upheld.
9. After hearing both the parties and perusing the record, we find that there is no dispute about the fact that AO while making the addition of ₹ 13 lacs by disallowing claim of the assessee of this amount in respect of partner's remuneration u/s. 40(b) of the Act against the income disclosed at the time of survey has placed reliance only on the statement of the partner of the assessee's firm at the time of survey. While going through this statement, we find that disclosure was made of ₹ 39,96,537/- as income from business. The AO however treated the sum of ₹ 3,93,537/- as income from business and the disclosure of ₹ 36,03000/- on account of unaccounted net job work income was treated by him as income from other sources only on the ground that assessee has never shown income form job work in earlier years or till the date of survey during the year under appeal, therefore this disclosed income cannot be treated as income from business and profession. To verify this fact, assessee was directed to file details of job work income if any in earlier and subsequent years and it was found that assessee has shown income of ₹ 2,01,215/- and ₹ 48,551/- under the head "Veran Majoori income" during the assessment years 2008-09 and 2010-11 respectively. The finding of AO being on wrong facts is not sustainable. We also agree with the contention of the assessee 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. Since 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. In view of this, the order passed by Ld. CIT(A) treating the disclosed income of the assessee as business income and allowing the partner's remuneration amounting into ₹ 13 lacs u/s. 40(b) of the Act is hereby upheld. Ground No. 1 & 2 of revenue's appeal are dismissed.
10. Ground No. 3 relates to addition of ₹ 18,01,500/- made on account of unexplained expenditure u/s. 69C.
11. During the assessment proceedings, AO observed that amount of ₹ 36,03,000/- disclosed by assessee towards job work receivable was net job work receivable for the year under appeal and for earning this net job work receipt no expenditure was claimed to have been incurred. Since these were net receipt, the AO held that assessee had unexplained expenditure towards earning the job work receipt and accordingly ₹ 18,1,500/- being 50% of the 36,03000/- treated as unexplained expenditure u/s. 69C of the Act and added to the total income of the assessee. Ld. CIT(A) however deleted this addition by holding that AO should have made the disallowance on the basis of same evidence or material on record. He further found that 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. We find no infirmity in such finding of the Ld. CIT(A) and therefore we feel no need to interfere with the order passed by him and the same is hereby upheld. Third ground of revenue's appeal is also dismissed.
12. Fourth ground relates to addition of ₹ 3,93,537/-.
13. The AO has bifurcated the total amount of disclosure i.e. ₹ 39,96,537/- under two heads (i) income from other sources at ₹ 36,03000/- and (ii) income from business and profession at ₹ 3,93,537/-. The first head was treated by the AO as income from other sources as has been discussed by us while deciding 1st & 2nd grounds of this appeal. We have upheld the view of Ld. CIT(A) treating the amount of ₹ 36,03000/- as income from business and profession. Since assesseee has already shown the total of both the amounts i.e. 39,93,537/- 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 of ₹ 3,93,537/- while computing the income of the assessee and the same has rightly been deleted by Ld. CIT(A), therefore the order passed by him is hereby upheld. This ground of revenue's appeal is also dismissed.
14. In the result, revenue's appeal is dismissed.
Order pronounced in open court on the date mentioned hereinabove at caption page.
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PFA
Transfer Pricing- Foreign entity can be taken as a tested party for comparison
General Motors India Pvt. Ltd vs. DCIT (ITAT Ahmedabad), I.T.A. Nos. 3096/Ahd/2010 and 3308/Ahd/2011, Date of pronouncement: 02-08-2013
We are in disagreement with the revenue's argument that GMDAT should not be selected as a 'tested party' as the comparable as the comparable companies selected by the assessee doesn't fall within the ambit of TPO's jurisdiction and, thus, he can neither call for any additional information nor scrutinize their books of accounts. The Revenue can get all the relevant particulars around the globe by using the latest technology under its thumb or direct the assessee to furnish the same.
As rightly highlighted by the assessee, we find inconsistency in the approach of the TPO with regard to the issue of 'tested party'. On the one hand, the TPO averred that there was no reliable data available for both GMDAT and comparables; however, on the other hand, he had conveniently taken GMDAT as the 'tested party' while making adjustment to transaction relating to payment of royalty by the assessee to GMDAT. This exposes the inconsistency approach of the TPO.
The financial statements of comparable companies have since been audited by the independent auditors and, thus, there can be no reservation in placing a reliance on the same. However, the learned Sr. Counsel submitted that segment financial data for benchmarking – a part of GMDAT's business – was made available to the TPO and also on his request, the financial statements of GMDAT (at company level) was furnished to the TPO and the same is not disputed. Therefore, there should be no grievance on the part of the Revenue to say that no sufficient data was made available.
Taking all the above facts and circumstances of the issue as discussed in the foregoing paragraphs, in consonance with the case laws quoted (supra) and also the United Nation's Practical Manual on transfer pricing, we direct the TPO to adopt GMDAT as the 'tested party' for analyzing the inter-company transactions of the assessee for both the AYs under consideration. To facilitate the TPO to analyze the inter-company transactions in the case of the assessee by selecting GMDAT as 'tested party' as directed above, this issue is restored on the files of the TPO. It is ordered accordingly.
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