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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Shri Mahavir Prasad & Shri Amarjit Singh
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee’s appeal for A.Y. 2015-16, arises from order of the CIT(A), Ahmedabad-5 dated 07-09-2018, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
The assessee has raised following grounds of appeal:-
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“1.1 The order passed u/s.250 on 07.09.2018 for A.Y.2015-16 by CIT(A)-5, Abad upholding the addition of Rs.50 lakh as headless deemed income is wholly illegal, unlawful and against the principles of natural justice.
2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced by the appellant with regard to the impugned addition.
1 The Ld. CITCA) has grievously erred in law and on facts in confirming addition of Rs. 50 lakh as headless deemed income, though the appellant had disclosed the same as undisclosed stock as evident from profit & loss account, stock record etc.
2 That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) ought not to have upheld the addition of Rs. 50 lakh as headless deemed income, though the appellant had disclosed the same as undisclosed stock as evident from profit & loss account, stock record etc.
1 The Ld.CIT(A) has erred in upholding that the income declared of Rs. 50 lakhs was not business income but headless income. The observations made by CIT(A) in this regard are not admitted and contrary to the facts of the case as well as law. It is, therefore, prayed [hat the addition of Rs. 50 lakh upheld by the CIT(A) may kindly be deleted.”
All the grounds of appeal of the assessee are inter-connected to the issue of confirming the addition of Rs. 50 lacs as head less deemed income, therefore, for the sake of convenience, all these grounds of appeal are adjudicated together as follows:-
The fact in brief is that return of income declaring income of Rs. 29,530/- was filed on 14th Jan, 2018. The assessee is engaged in the business of wholesale trading of gold and diamond jewellery as a partnership firm. The survey was conduced at assessee premises on 18th December, 2014. During the course of survey, physical stock was taken and following discrepancies were noticed as per physical stock found during the course of survey and as per books. Stock as per books Rs. Physical stocks found during survey Rs. Difference Rs. Cash 3,64,306/- 39,950/- 3,24,354 Stock 1,78,92,962/- 18,26,797/- 1,60,66,165/- Total 1,75,28,656/- 17,86,847/- 1,57,41,811/-
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During the course of survey, assessee has also disclosed income of Rs. 50 lacs. During the course of assessment on verification of the return of income for the year under consideration, the Assessing Officer observed that assessee has not shown the income declared during the course of survey action. Therefore, show cause notice was issued to the assessee to explain why the undisclosed income of Rs. 50 lacs not be added to the total income. The assessee explained that the survey action was conducted on 18th December, 2014 which was not the last day of financial year and entry for stock laying with marketing team was not made in the books. The reply of the assessee discussed by the Assessing Officer in the assessment order is reproduced as under:- “2. Regarding discrepancy in stock position, it is submitted that the partner of the assessee firm had told the survey team that the stock worth about Rs. 1,60,00,000/- was with the marketing team of the assessee who were on tour for selling out-side Ahmedabad. When they come back from tour they submit the status of the transactions that have taken place and accordingly entries for Sales are passed in the books of accounts. Sir, the assesses firm has got their books of accounts audited u/s 44AB of I.T. Act after survey & after finalisation of books of accounts for A.Y. 2015-16 and no adverse reporting has been made by the Auditors in their report on Purchase, Sales or Stock. Now regarding undisclosed income of Rs.50,00,000/- admitted by the partner and the assessee firm, it is submitted firm has shown Rs. 50,00,000/- in their Profit & Loss Account as " Other income(income Tax Declaration) under the head INCOMES. The partner of the firm had admitted and declared Rs. 50,00,000/- as taxable income but due to bank interest/charges of Rs.74,63,173/- , the firm could not show Rs.50,00,000/- as taxable income for A.Y.2015-16. The firm had G.P. of 1.28 % during A.Y. 2015-10 against accepted G.P. of 1.78% during AY 2014-15. In view of above, it is respectfully submitted that there were no excess cash or stock were found by survey team physically than books records and therefore in our opinion question of making addition to total income of the firm does not arise as not justifiable. The discrepancies of lower amount of cash and stock at the time of survey cannot be considered as unaccounted income and cannot be added to the income of the firm. Also Rs. 50,00,000/- undisclosed income admitted by the partner of the firm has been disclosed in Profit & Loss Account and hence again it cannot be added to the income of the firm." However, the Assessing Officer has not agreed with the submission of the assessee stating that during the course of survey u/s. 133A, the assessee had admitted income of Rs. 50 lacs, hence the same was added to the total income of the assessee.
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Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee holding that assessee has failed to furnish documentary evidences to prove that the stock worth Rs. 1.60 crores was with the marketing team of the assessee for selling outside Ahmedabad. The ld. CIT(A) held that the value of excess stock found during survey was not to be assessed as business income u/s. 28 of the Act. The ld. CIT(A) has further stated that when the assessee offered no explanation or the explanation offered by him is not found satisfactory by the Assessing Officer then the value of such investment under section 69, asset, (section 69A), value of excess investment or asset section (69B) or expenditure (section 69C) may be deemed to be income of the assessee for the relevant financial year and any deduction relevant to business income is not available on such deemed income.
During the course of appellate proceedings before us, the ld. counsel submitted paper book comprising detail and submission made before the lower authorities during the course of assessment and appellate proceedings. The ld. counsel submitted that ld. CIT(A) has incorrectly sustained the addition after placing reliance on the decision of Hon’ble Gujarat High Court in the case of Fakir Mohammad Hazi Hasan (2047 ITR 290) as in the case of the assessee declaration was made on account of discrepancies in stock which was incorrectly taken as deemed income. The ld. counsel has referred page no. 43 of the paper book explaining that income disclosed during survey of Rs. 50 lacs was duly shown in the Profit and Loss Account for the period ending on 31st March, 2015 under the head other income (income tax declaration). The ld. counsel has also submitted that during the I.T.A No. 2341/Ahd/2018 A.Y. 2015-16 Page No 5 M/s. Arihant Jewels vs. ITO
year profit to be taxed arrived at Rs. 29,530/- because of financial charges to the amount of Rs. 74,63,173/- debited to the P & L A/c and break up given in schedule 7 of the P & L A/c. In this regard, the ld. counsel has referred page no. 46 of the paper book showing that during the year assessee has incurred bank intserst on cash credit to the amount of Rs. 71,82,273/- and processing charges to the amount of Rs. 2,80,900/-. On the other hand, ld. Departmental Representative has placed reliance on the decision of ld. CIT(A).
Heard both the sides and perused the material on record. During the year under consideration survey u/s. 133A of the Act was carried out on 8th December, 2014 at the business premises of the assessee. On physical verification of the stock, survey team has found stock of jewelery to the amount of Rs. 18,26,797/- as against stock shown in the books to the amount of Rs. 1,78,92,962/-, there was shortage of stock in trade to the amount of Rs. 1,60,66,165/-. The assessee has declared income of Rs. 50 lacs. During the course of assessment, assessing officer observed that assessee has not fully paid the advance tax on the income of Rs. 50 lacs declared during the survey as the cheques submitted during the course of survey were partly paid. Consequently, the Assessing Officer has added the amount of Rs. 50 lacs declared during the survey to the total income of the assessee. Subsequently, at the appellate stage, the ld. CIT(A) has sustained the addition reiterating the facts reported by the Assessing Officer and also placed reliance on the decision of Hon’ble Gujarat High Court in the case of Fakir Mhd. Hazi Hasan supra stating that assessee has not given satisfactory explanation regarding the source of undisclosed amount and the same was I.T.A No. 2341/Ahd/2018 A.Y. 2015-16 Page No 6 M/s. Arihant Jewels vs. ITO
treated as headless income. On perusal of the material on record, it is noticed that assessee has categorically brought to the notice of the Assessing Officer that the assessee firm has shown Rs. 50 lacs in the P & L A/c as other income (income tax declaration). It was explained that the taxable income was less than Rs. 50 lacs due to deduction of bank interest/bank charges to the amount of Rs. 74,63,173/-. In support, the assessee has also furnished the audited copies of annual account of the assessee firm during the course of assessment and at the appellate stage. On perusal of the material on record, it is noticed that the lower authorities has not disproved the genuineness of the claim of incurring bank interest/bank charges expenditure during the year by the assessee firm to the amount of Rs. 74,63,173/-. During the course of appellate proceedings, the assessee has also placed reliance on the decision of following judicial pronouncements M/s. Fashion World Vs. ACIT Vide ITA 1634/Ahd/2016 dated 12.02.2010 , DCIT vs. M/s. Shah Khodi Das vide ITA No. 531/Ahd/2008 dated 25.03.2011 and CIT-II vs. Shilpa Dyeing & Printing Mills P. Ltd. vide Tax Appeal No. 290 of 2013 dated 4th April, 2013 (Gujarat High Court). We have gone through the judicial pronouncements referred by the ld. counsel and noticed that the Co-ordinate Benches of the ITAT has held that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable part of declared asset falling under a particular head then the difference should be treated as undeclared business income explaining the investment. In the other judicial pronouncement referred by the ld. counsel pertaining CIT-II vs. Shilpa Dyeing & Printing Mills P. Ltd. supra, the Hon’ble High Court of Gujarat held that the decision in case of Fakir Mhd.
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Hazi Hasan supra came up for consideration in case of Radhe Developers India Ltd. (2010) 329 ITR and in their opinion the statutory provision contained in section 71 was applicable and by applying the decision in case of Fakir Mohammed Haji Hasan (supra) as explained in case of Radhe developers India Ltd. the same cannot be declined. The ld. counsel has also brought to the notice of the ld. CIT(A) that the Finance Act, 2016 has brought amendment in section 115BBE and the amendment has been made applicable w.e.f. 01.04.2017. It is noticed that ld. CIT(A) has not considered this specific submission of the assessee. We have gone through the provision of section 115BBE of the Act specifically pertaining to tax of income referred to in section 68 or 69 or section 69A or section 69B or Section 69C or Section 69D. The relevant provisions are produced as under:- “Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D 115BBEE [Where the total income of an assessee- (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C,or section 69D and reflected in the return of income furnished under section 139 or (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a) the income-tax payable shall be the aggregate of (i) The amount of income-tax calculated on the income referred to an clause (a) and clause(b), at the rate of sixty percent; and (ii) The amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i) (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance [or set off of any loss] shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1)]”
After perusal of the above stated provisions of section 115BBE, it is noticed provision of section 115BBE(2) has been inserted by the Finance Act 2016 w.e.f. 01.04.2017 which specifically say that no deduction in respect of any expenditure or allowance or set off any loss shall be allowed to the assessee
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under any provision of the act in computing his income referred to in clause (a) of sub-section (1). In sub-section (2) of section 115BBE as introduced by Finance Act, 2012 only disallowance of expenditure or other allowance was considered against unaccounted income u/s. 68 to section 69D but business loss was not covered. It is only by Finance Act, 2016 w.e.f. 01.04.2017 it is inserted in the provision to deny benefit of set off of any loss. Therefore, in the case of the assessee, if we reduce the business income by Rs. 50,00,000/- (Income Tax Declaration During Survey) then we shall arrive at loss of Rs. 49,70,470/-. In that case the amount of Rs. 50,00,000/- will become taxable under the head “income from other sources”. But a set off of business loss of Rs. 49,70,470/- shall become allowable since the provision to deny set off of loss is introduced w.e.f. 01.04.2017 in section 115BBE of the Act. Even under these circumstances also, the assessee will derive the gross total income of Rs. 29,530/- . Since the case of the assessee is pertained to assessment year 2015-16, therefore, in the light of the above facts and findings, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 15-02-2021 (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 15/02/2021
I.T.A No. 2341/Ahd/2018 A.Y. 2015-16 Page No 9 M/s. Arihant Jewels vs. ITO
आदेश क" ""त"ल"प अ"े"षत / Copy of Order Forwarded to:-
Assessee
Revenue
Concerned CIT
CIT (A)
DR, ITAT, Ahmedabad
Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील"य अ"धकरण, अहमदाबाद