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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 83/JP/2017
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; ikWy jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 83/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2013-14 cuke M/s Paliwar Jewellers, Assistant Vs. B-360, Himmat Nagar, Commissioner of Tonk Road, Jaipur Income Tax, Circle-6, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AANFP2974M vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Shrawan Kr. Gupta (Adv.) jktLo dh vksj ls@ Revenue by : Shri Prithviraj Meena (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 23/05/2018 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 15/06/2018 vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the assessee against the order of ld. CIT(A), Jaipur dated 13.12.2016 pertaining to assessment year 2013-14 wherein the assessee has taken the following grounds of appeal:- “1. That on facts and law the ld. CIT(A) has grossly erred in confirming the order of ld. AO that surrendered value of stock was Rs. 2,12,79,185/- while as per appellant the value of surrendered stock was Rs. 1,61,94,434/-. The value of surrendered stock was valued by the ld. AO by ignoring the departmental valuer report, facts on record and wrongly enhanced the value by Rs. 50,48,751/-. The addition in value of surrendered stock is against the facts on record and addition deserves to be quashed.
ITA No. 83/JP/2017 M/s Paliwal Jewellers, Jaipur Vs ACIT, Jaipur 2. That on facts and law the ld. CIT(A) has grossly erred in confirming the order of the ld. AO that surrendered stock valued Rs. 1,61,94,434/- has not been recorded in regular books of accounts hence the same is the income from other sources and not the income from business. Hence remuneration to partners Rs. 64,10,000/- is not allowable. The surrendered value of stock is the income from business and remuneration to partners Rs. 64,10,000/- is allowable and was disallowed wrong and illegal. 3. That on facts and law the ld. CIT(A) has grossly erred in holding that the surrendered stock was not in the nature of business income. The surrendered stock has direct nexus with appellant business; as such the said surrendered stock is the business income of the appellant. Further on such surrendered stock remuneration to partners u/s 40b is an allowable expenses. 4. That the order of the ld. AO is bad-in-law and deserves to be quashed.”
The matter was earlier heard and decided by the Co-ordinate Bench vide its order dated 27.11.2017 wherein the findings are contained at para 10.2 of its order which is reproduced as under:-
“We have heard rival contentions, perused the material on record and gone through the orders of the authorities below. At the time of hearing, the ld. Counsel for the assessee drew our attention to page 53 of the paper book annexure wherein various details of gold and diamonds ornaments and valuation thereof are mentioned. After considering these details, we find that the details mentioned in the annexure require verification whether the stock surrendered was restricted to gold or diamond as claimed by the assessee. We, therefore, set aside the order of the ld. CIT(A) and restore the file to the
ITA No. 83/JP/2017 M/s Paliwal Jewellers, Jaipur Vs ACIT, Jaipur AO for decision afresh after making verification of the stocks surrendered. The grounds of the assessee are allowed for statistical purposes.”
Thereafter, the assessee moved a misc. application wherein it was submitted that there are certain mistake apparent from the record and the same was disposed off by the Coordinate Bench with the following directions contained at para 4 and 5 of its order dated 09.04.2018 reproduced as under:
“4. Regarding the ground no. 1, we find that the Coordinate Bench has considered the various contentions and pleadings of the ld. AR and thereafter, vide Para 10.2 of its order, has restored the matter to the file of the AO for the purposes of verification of stock surrendered whether the same was restricted to gold and doesn’t include diamond and stones. Therefore, we do not find any mistake which is rectifiable under section 254(2). At the same time, we deem it appropriate to clarify the findings of the Coordinate Bench and the same is to be read as “We, therefore, set aside the order of the ld. CIT(A) and restore the file to the AO for decision afresh after making verification of stock surrendered as to whether the said surrender was restricted to gold only and doesn’t include diamond and stones” instead of “We, therefore, set aside the order of the ld. CIT(A) and restore the file to the AO for decision afresh after making verification of stocks surrendered.”
Regarding ground no. 2 and 3 taken by the assessee, on perusal of the order passed by the Coordinate Bench, we find that these grounds have skipped the attention and thus not been disposed off while pronouncing the order by the Coordinate Bench. Accordingly, for the limited purposes of adjudicating the grounds of appeal no. 2 and 3 of the assessee’s appeal, the order passed by the Coordinate Bench in ITA No. 83/JP/17 dated 27.11.2017 is hereby recalled and the Registry is directed to fix the matter in due course. The misc. application is disposed off with above directions.” 3
ITA No. 83/JP/2017 M/s Paliwal Jewellers, Jaipur Vs ACIT, Jaipur 4. Hence, the matter has come up before us for the limited purposes of adjudicating ground Nos. 2 and 3 of the assessee’s appeal which were not adjudicated by the Co-ordinate Bench earlier.
In ground Nos. 2 and 3, the assessee has effectively challenged the order of the ld. CIT(A) wherein she has confirmed the surrender of stock as income from other sources and not in the nature of business income. Further, the assessee has challenged the disallowance of remuneration to partners u/s 40b which has been calculated taking into account the surrender value of the stock as its business income.
Briefly, the facts of the case are that the assessee firm is engaged in the business of manufacturing and trading of Gold/Diamond jewellery. A survey u/s 133A of the I.T. Act, 1961 was conducted at the assessee’s premises on 06.11.2012 and the statement of the partner of the assessee’s firm, Shri Kulbhushan Paliwal was recorded wherein he offered the value of excess stock of Rs. 2,12,79,185/- for taxation. Thereafter, the assessee in its return of income had offered an amount of Rs. 1,61,94,434/- on account of excess stock under the head “business income”. The AO however brought to tax Rs. 2,12,79,185/- as original surrendered amount during the course of survey as income under the head “income from other sources”. As per the Assessing Officer, the excess stock was not recorded in the regular books of accounts and the assessee through its partner, Shri Kulbhushan Paliwal has offered the value of such excess stock for taxation by treating it as investment from undisclosed income which establishes that the excess stock represented the investment of the assessee firm out of undisclosed income which cannot be treated as “income from business or profession” and has to be treated as “income from other sources”. In support, reliance was placed on the decision of the Hon’ble Gujarat High Court in case of Shri Fakir Mohd Haji Hasan vs. CIT 247 ITR 290 (Guj). Further, the Assessing Officer worked out the book 4
ITA No. 83/JP/2017 M/s Paliwal Jewellers, Jaipur Vs ACIT, Jaipur profits for the purposes of calculation of remuneration to partners at Rs. 83,572/- and the allowable remuneration was computed at Rs. 1,50,000/- as against claimed remuneration of Rs. 65,60,000/- resulting in addition of Rs. 64,10,000/- in the hands of the assessee firm.
Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and she has since confirmed the treatment of the income so surrender by the assessee as “income from other sources” and the disallowance of partner’s remuneration was also confirmed.
During the course of hearing, ld. AR submitted that assessee is in the business of manufacturing and trading of Gold/Diamond jewellery and the excess stock so found during the course of survey is clearly the assessee’s business stock and it has no independent identity and is integral and inseparable part of the existing stock. Therefore, such excess stock found during the course of survey has to be assessed under the head “business income” and not as “income from other sources”. It was further submitted that the matter is squarely covered by the decision of the Hon’ble Rajasthan High Court in case of Pr. CIT, Alwar vs. Bajargan Traders (D.B Appeal No. 258/2017 dated 12.09.2017) wherein the Hon’ble High Court has confirmed the view of the Tribunal which is reproduced as under:-
“2.11 Having said that, the next issue that arises for consideration is whether the amount surrendered by way of investment in the unrecorded stock of rice has to be brought to tax under the head “business income” or “income from other sources”. In the present case, the assessee is dealing in sale of foodgrains rice and oil seeds, and the excess stock which has been found during the course of survey is stock of rice. Therefore, the investment in procurement of such stock of rice is clearly identifiable and related to the regular business stock of the assessee. The decision of the Co-ordinate Bench 5
ITA No. 83/JP/2017 M/s Paliwal Jewellers, Jaipur Vs ACIT, Jaipur in case of Shri Ramnarayan Birla (supra) supports the case of the assessee in this regard. Therefore, the investment in the excess stock has to be brought to tax under the head “business income” and not under the head income from other sources”. In the result, ground No. 1 of the assessee is allowed.” 8. It was further submitted that even if the excess stock is assessed as “income from other sources”, this amount is part of book profits and the remuneration to partner calculated based on such book profit is allowable. In support, reliance was placed on the Coordinate Bench decision in case of SP Equipment & Services vs. ACIT 128 TTJ 68 (JP) wherein it was held as under (head notes): “for the purpose of computing allowable deduction under s. 40(b), book profit has been defined under Expln. 3 thereto to mean the net profit as shown in the P&L a/c of the relevant previous year computed in the manner laid down in Chapter IV-D subject to specified adjustments-selection of any head of income, more particularly “Profits and gains of business or profession” is nowhere required or envisaged by the legislature - There is no substance in the contention of the Revenue that the receipts credited to P&L a/c should be assessed under different heads of income as classified under s. 14- Legislature has not authorized exclusion of some receipts from P & L a/c even though they are non-business receipts – Explanation 3 nowhere empowers the AO to go behind the net profit shown in the P&L a/c except to the extent of adjustments provided therein-Since the book profit has been defined to be the net profit shown in the P &L a/c of the firm, it is the profit which the partners have agreed to share and, therefore such net profit has to be considered as business income at least for the purpose of s. 40(b)- Provisions of s. 28(v) also support this view-if the nature of the income has been deemed by the legislature to be the business income by the recipient, the source also should bear the some character i.e. business income – Therefore, interest income is not to be excluded from the net profit declared by the
ITA No. 83/JP/2017 M/s Paliwal Jewellers, Jaipur Vs ACIT, Jaipur assessee firm for computing book profit for the purpose of determining the allowable deduction of remuneration payable to the partners under s. 40(b).”
In the present case, the assessee is in the business of manufacturing and trading of Gold/Diamond jewellery and the excess stock so found during the course of survey is of gold and diamond jewellery. Therefore, the investment in procurement of such stock of gold and diamond jewellery is clearly identifiable and related to the regular business stock of the assessee. The investment in the excess stock has therefore to be brought to tax under the head “business income” and not under the head “income from other sources” following the decision of the Hon’ble Rajasthan High Court in case of Bajargan Traders(supra). Further, the decision of the Coordinate Bench in case of SP Equipment & Services (supra) supports the case of the assessee where there is no distinction in book profits regarding the head of income for the purposes of computation of partner’s remuneration. At the same time, the provisions of section 115BBE need to be examined in the instant case. Given that the ground no.1 of the assessee’s appeal regarding the quantum of the excess stock is set-aside to the file of the AO, these two grounds are also set- aside to the file of the AO for the limited purposes of determining the quantum of remuneration allowable u/s 40(b) of the Act taking into consideration the provisions of section 115BBE of the Act.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 15/06/2018.
Sd/- Sd/- ¼fot; ikWy jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
ITA No. 83/JP/2017 M/s Paliwal Jewellers, Jaipur Vs ACIT, Jaipur
Jaipur Dated:- 15/06/2018 *Ganesh Kr आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- M/s Paliwal Jewellers, Jaipur 1. izR;FkhZ@The Respondent- ACIT, Jaipur 2. vk;dj vk;qDr@CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@Guard File (ITA No. 83/JP/2017) 6.
vkns'kkuqlkj@ By order, सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत.