Gujarat High Court
J.K. Chokshi vs A.C.I.T.....Opponent(S) on 22 December, 2014
Author: Ks Jhaveri
Bench: Ks Jhaveri, K.J.Thaker
O/TAXAP/149/2003 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 149 of 2003
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE K.J.THAKER
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India, 1950 or any
order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
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J.K. CHOKSHI....Appellant(s)
Versus
A.C.I.T.....Opponent(s)
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Appearance:
MR RK PATEL, ADVOCATE for the Appellant(s) No. 1
MR KM PARIKH, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE K.J.THAKER
Page 1 of 7
O/TAXAP/149/2003 JUDGMENT
Date : 22/12/2014
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE KS JHAVERI)
1. This appeal u/s.260A of the Income Tax Act, 1961 is preferred against the judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'B' in ITA No.4175/AHD/1995 dated 29.11.2002 whereby, the appeal filed by the Revenue was partly allowed.
2. Briefly stated, the facts are that the appellantassessee is a registered firm dealing in gold and silver ornaments. The firm comprises of four working Partners having equal share in remuneration. On 14.12.1994 the assessee furnsihed the Return of Income for the A.Y. 199495 declaring total income at Rs.9,89,947/. Assessment scrutiny was undertaken and ultimately, the Assessing Officer passed the order u/s.143(3) of the Act on 27.03.1995. Aggrieved by the order of Assessing Officer, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee, vide order dated 30.06.1995. Against the order of CIT(A), the Revenue filed appeal before the Tribunal. After hearing both the sides, the Tribunal partly allowed the appeal of the Revenue, vide impugned judgment and order dated 29.11.2002. Hence, this appeal by the assessee.
3. Mr. RK Patel learned counsel appearing for the assessee submitted that the entire disallowance of Rs.4.50 Lacs made by the A.O u/s.40(b) of the Act and confirmed by the Tribunal is on the Page 2 of 7 O/TAXAP/149/2003 JUDGMENT basis that the assessee had offerred Rs.15,12,264/ during the course of survey as "disclosure" of unexplained / unaccounted income of business, which has not been accepted by the A.O as income from business during survey at the business premises of the appellant. It was submitted that the entire disallowance u/s.40(b) is based on the addition of "excess stock" and hence, the natural presumption is that whatever additional income is assessible, should be assessed under the head "income from business / profession" specially when no other capital asset is sold by the appellant and no other source of income is located by the Revenue.
3.1 Mr. Patel further submitted that since no other activity except the business activity as specified in the partnership deed is carried on by the assessee, under no circumstances, provision of Section 40(b) could be invoked by delinking the "source" of undisclosed income from the head "income from business / profession".
3.2 In support of his submissions, learned counsel Mr. Patel has placed reliance upon the decision of Calcutta High Court in the case of Md. Serajuddin & Bros. v. Commissioner of Incometax reported in [2012] 24 taxmann.com 46 (Cal.) wherein, in Paras
- 24 & 27, it has been observed as under;
"24. The said chapter nowhere provides that method of accounting for the purpose 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 Page 3 of 7 O/TAXAP/149/2003 JUDGMENT 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 bookprofit. 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.
27. Thus it emerges as follows:
Even if the income from other sources is included in the profit and loss accounts to ascertain the net profit qua bookprofit for computation of the remuneration of the partners the same cannot be discarded."
3.3 Learned counsel Mr. Patel submitted that the principle rendered in the aforesaid decision shall squarely govern the issue on hand and therefore, the impugned judgment and order of the Tribunal deserves to be quashed and set aside and the order passed by the CIT(A) deserves to be restored.
4. Mr. KM Parikh learned Standing Counsel appearing for the Revenue submitted that the assessee had credited an amount of Rs.15,12,264/ to the P & L Account and thereby, had enhanced his income by this amount, for which he had agreed to refer it as "disclosure" during the course of survey. During the assessment proceedings, the assessee was given an opportunity to show cause as to why the said "disclosure" should not be treated as unexplained cash credit, unexplained investment and unexplained expenses.
Page 4 of 7O/TAXAP/149/2003 JUDGMENT 4.1 However, the fact remains that the sum of Rs.17,63,611/ on
different accounts was not entered in the books of accounts as on 09.11.1993. It was during the survey that the discrepancies were noticed and the assessee was confronted with the said discrepancies. When the assessee failed to explain the sources of income, it had no other alternative but, to offer the amount to taxation. Learned counsel Mr. Parikh, therefore, submitted that the present appeal deserves to be dismissed.
5. The appeal was admitted on 16.06.2003 in respect of the following two questions of law;
"1. Whether on the facts and in the circumstances of the case, the Tribunal is right in confirming disallowance of Rs.4,50,000/ made by the Assessing Officer under Section 40(b) of the Incometax Act, 1961?
2. Whether on the facts and in the circumstances of the case, the Tribunal is justified in treating undisclosed income offered during survey u/s.133A as "income from other sources" and not an income from "profits and gains of business or profession" especially when the assessee is not having any other source of income?"
6. We have heard learned counsel for both the sides. It appears from the Assessment Order that there is nothing to conclusively establish that the amount offered for taxation in the return of income and credited in the books of account is not the business income of the assessee. The A.O who recorded the statement of the assessee u/s.131 did not question the source of income of assessee in respect of the disclosed income. Therefore, the stock, cash, etc. Page 5 of 7 O/TAXAP/149/2003 JUDGMENT found during the course of survey indicate that the income disclosed is in respect of the business carried on by the assessee. No evidence has been brought on record by the A.O to establish that the assessee was doing any other activity other than the business in gold ornaments, etc. for which the amount was disclosed. It is, therefore, clear that the amount disclosed is nothing but, the business income of the assessee.
7. Once it is established that the assessee had no other source of income at the relevant time or in the past, it can be safely concluded that the assessee had no other income other than income from business. Now, when the business activity of the assessee has been accepted and no other source of income is found, then there was no justification for disallowing the salary paid to Partners at Rs.4.50 Lacs. Therefore, the disallowance of Rs.4.50 Lacs granted by the A.O and confirmed by the Tribunal is erroneous and deserves to be quashed and set aside. Our view is buttressed by the principle rendered by the Calcutta High Court in the case of Md. Serajuddin & Bros. v. Commissioner of Incometax (supra). In view of the above, the question no.1 as to whether the Tribunal is right in confirming disallowance of Rs.4,50,000/ made by the Assessing Officer under Section 40(b) of the Incometax Act, 1961 is answered in the negative in favour of the assessee and against the Revenue.
8. Insofar as question no.2 is concerned, it is a matter of fact that the assessee has no other source of income except income from business, as discussed in the foregoing paragraphs. Learned Page 6 of 7 O/TAXAP/149/2003 JUDGMENT Standing Counsel appearing for the Revenue was not in a position to justify as to why the addition was made to the GP. Hence, the question no.2 as to whether the Tribunal is justified in treating undisclosed income offered during survey u/s.133A as "income from other sources" and not an income from "profits and gains of business or profession" especially when the assessee is not having any other source of income is answered in the negative in favour of the assessee and against the Revenue.
9. Consequently, the appeal is allowed and the impugned judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'B' in ITA No.4175/AHD/1995 dated 29.11.2002 is quashed and set aside. The order of CIT(A) dated 30.06.1995 passed in Appeal No. CAB/II175/9596 is restored. The appeal stands disposed of accordingly.
(K.S.JHAVERI, J.) (K.J.THAKER, J) Pravin/* Page 7 of 7