Income Tax Appellate Tribunal - Rajkot
Income Tax Officer vs Jamanadas Muljibhai on 27 January, 2005
Equivalent citations: (2006)99TTJ(RAJKOT)197
ORDER
R.C. Sharma, A.M.
1. This is an appeal filed by the Revenue against the order of CIT(A), dt. 21st Aug., 1998 for the asst. yr. 1994-95.
2. The only grievance of the Revenue relates to the CIT(A)'s action for directing the AO to treat an amount of Rs. 5,95,388 surrendered by the assessee during the course of survey, as business income.
3. Rival contentions have been heard and record perused. There was a survey at the assessee's premises on 14th Dec., 1993. In the statement recorded, the assessee admitted excess stock of Rs. 5,95,388 and offered to include the same in business income for the year under consideration. In reply to question Nos. 13 and 14, the partner of the assessee-firm stated that excess stock found was purchased out of business income of the current year, i.e., the year in which survey took place. In pursuance of the income declared, the assessee credited the same in its P&L a/c and the book profit was increased accordingly. As the assessee was a partnership firm, claim for payment of remuneration to the partner was made by taking book profit which was inclusive of the profit declared by the assessee during the course of survey. However, during the course of assessment under Section 143(3), the AO computed the deduction under Section 40(b), in respect of remuneration to the partners after deducting income disclosed at the time of survey from the profit of the business. The AO was of the view that income disclosed by the assessee was assessable under Section 69 and was not business income on which remuneration to the partners was to be allowed as per provisions of Section 40(b) of the IT Act.
4. By the impugned order, CIT(A) observed that during the course of survey, the assessee had claimed excess stock out of business income of current year and, therefore, the assessee has duly explained the source of investment in the stock out of the business profits. As per the findings recorded by the CIT(A), the assessee was carrying on the business of gold and silver ornaments and the excess stock of gold and silver found during the course of search was out of business income earned by the assessee during the relevant year of survey. He, therefore, directed the AO to compute remuneration payable to the partner on the profit declared in the P&L a/c which was inclusive of the income surrendered by the assessee on account of excess stock.
5. Aggrieved by the above order of the CIT(A), the Revenue was in appeal.
6. It was argued by the learned Departmental Representative that addition was made under Section 69 and, therefore, such income was to be treated as income from unexplained sources, the CIT(A) was not justified in directing the AO to compute the remuneration payable under Section 40(b) of such income.
7. On the other hand, learned Authorised Representative vehemently argued that excess stock found during the course of survey was purchased out of business income of the current year and a statement to this effect was also recorded by the survey party. He invited our attention to the reply of question Nos. 13 and 14, recorded during the course of survey in which the partners had explicitly stated that the excess stock found was purchased out of the business income of the current year, i.e., the year under which survey took place. He further submitted that assessee has also passed proper entry in the books of account by crediting the income earned in the business which were invested in the stock as found during the course of survey. As per learned Authorised Representative, under the provisions of Section 40(b), remuneration has to be computed on the book profit and the book profit was inclusive of the profits which were recorded in the books of account and disclosed to the Department in the P&L a/c filed along with the return of income. As per learned Authorised Representative, the assessee was not found to have earned the income from any source other than the business of gold and silver ornaments alleged to be carried out during the year and the excess stock was also pertaining to the same business. Therefore, as per learned Authorised Representative, the CIT(A) was perfectly justified in computing the deduction under Section 40(b) on the book profit which was inclusive of profit found to be invested in the stock and declared by the assessee out of business income during the course of survey.
8. We have considered the rival contentions, carefully gone through the orders of the authorities below. We have also gone through the various questions asked to the assessee and their respective replies which were placed on record. The survey took place at the assessee's premises on 14th Dec., 1993, i.e., after 9 months from the first day of the financial year relevant to the assessment year under consideration. In the statement recorded and its reply to question No. 13, the partner of the assessee-firm stated that the excess stock of gold and silver found during the course of survey was out of income of the current year which was not recorded uptil the date of survey. There is also no dispute to the fact that assessee had made proper entry in the books of account showing the alleged income as income from business and the book profit was increased accordingly. Thus, the partner of the assessee-firm not only explained the source of investment in the excess stock, but also credited the source of such investment being income from current year's business in its P&L a/c. The AO has not disbelieved the assessee's claim that investment was out of business income. If the Department was of the view that explanation furnished by the assessee regarding source of investment, which was out of current year's business income, was found to be not acceptable, the AO should have given reason to dispute the assessee's version as to the source being business income. No material has been brought on record by the Department to disprove the assessee's contention regarding source of business income which was out of business of gold and silver ornaments. It is also not the case of the Department that assessee was doing some other activities in which such income was earned and alleged to be invested in the gold and silver ornaments in which the assessee was dealing. As per provisions of Section 40(b), Expln. 3, for the purpose of this clause 'book profit' means the net profit, as shown in the P&L a/c for the relevant previous year, computed in the manner laid down in Chapter IV-D, as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm, if such amount has been deducted while computing the net profit. In the instant case, there is no dispute to the fact that net profit of the assessee-firm was inclusive of the profit earned in the course of business, found to be invested in the stock. We, therefore, find ourselves inclined to agree with the learned Authorised Representative that source of stock was out of business income and which was not controverted by the Department by bringing any material on record, on which the assessee was eligible to claim deduction of remuneration under Section 40(b) of the IT Act.
9. We do not find any infirmity in the order of the CIT(A).
10. In the result, the appeal of the Revenue" is dismissed.