UMA COTTON & OIL INDUSTRIES,,RAJKOT-GUJARAT vs. THE DEPUTY COMMISSIONER OF INCOME TAX (OSD), RANGE-2,, RAJKOT-GUJARAT

The effective issue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by rejecting the books of accounts of the assessee under section 145(3) of the Act.

The facts in brief are that the assessee in the present case is a partnership firm engaged in the business of Kala Kapas and ginning and pressing. There was the survey operation under section 133A of the Act at the business premises of the assessee dated 22 January 2008. The assessee during the survey made the disclosure of ₹ 72,40,900.00 on account of the following: i. Excess stock found during the survey which was not recorded in the books of accounts amounting to ₹ 34,92,517.00 ii. Cash payments were made without recording the same in the books of accounts amounting to ₹ 37,07,765.00 3.1 The assessee in its statement of income has declared the income admitted during the survey proceedings under the head income from other sources.

Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO.

The learned AR before us agreed for the disallowance made by the authorities below. However, the learned AR before us submitted that the assessee is entitled for the deduction on account of the remuneration /interest paid to the partners/retiring partners and unabsorbed depreciation brought forward from the assessment year 2007-08. The learned AR in support of his contention relied on the order of this tribunal in the case of Sarawati Salt & Chemicals Vs. Pr. CIT in ITA No. 146/RJT/2017 for the AY 2012-13 dated 28-07-2017.

On the other hand the learned DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates whether the assessee is entitled for the deduction on account of the interest and remuneration paid to the partners as well as the brought forward unabsorbed depreciation against the income declared under the head other sources under section 69 of the Act. In this regard we note that this tribunal in the case of Sarawati Salt & Chemicals (supra) after having reliance on the judgment of Hon’ble High Court has directed to allow the relief to the assessee on account of remuneration/interest to the partners and brought forward unabsorbed depreciation. The relevant extract of the order is reproduced as under: 4. We have given our thoughtful consideration to rival submissions. Learned CIT’s only reason in exercising his Section 263 jurisdiction is that assessee's additional income is not liable for any corresponding expenditure pertaining to partner's remuneration and interest hereinabove. He therefore directs the Assessing Officer to frame consequential, assessment afresh thereby revising earlier assessment order accepting the above two expenditure heads. We notice that hon'ble jurisdictional high court had earlier held in Fakir Mohamed Haji Hasan vs. CIT (2001) 247 ITR 290 (Guj) that any addition made u/s. 69 to 69c of the Act would not be available for a corresponding deduction under any other provision. It reiterated the same view in Krishna Textiles vs. CIT (2009) 310 ITR 227 (Guj). Their lordships thereafter distinguished the said case law in DCIT VS. Radhe Developers India Ltd. (2010) 329 ITR l(Guj) after holding that the same were contrary to scheme envisaged in the Act for taxation of any income under any head except those stated u/s. 14 of the Act. Hon'ble jurisdictional high court's yet another decision in Shilpa Dyeing & Printing Mills Pvt. Ltd. 219 Taxman 279 observed that its earlier two decisions hereinabove considered scheme of the Act regarding specific heads of income. Their lordhsips thereafter held that the provisions regarding set off of loss u/s.71 of the Act would apply against an additional income disclosed during survey as the same has to fall under any of the head of income u/s.14 of the Act. We take into consideration all these legal devleopements vis-à-vis relevant facts of the instant case to observe that once the assessee has declared its additional income disclosed during survey as business income in absence of any other source of income, the same is liable for all corresponding business expenses as per law including partner’s remuneration and interest. We thus hold that the Assessing Officer had rightly not disallowed the above expenses against assessee’s additional income hereinabove disclosed during the survey. The said assessment order therefore can neither be called erroneous nor prejudicial to the interest of the Revenue. We accordingly reverse learned CIT’s order passed u/s.263 of the Act.

In the result, the appeal of the assessee is partly allowed.