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Income Tax Appellate Tribunal, ‘’ D’’ BENCH, AHMEDABAD
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income (Appeals)-5, Vadodara, dated 11/07/2019 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2014-15.
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The assessee has raised following grounds of appeal: 1. The Ld. CIT(A)-5, Vadodara has erred in law and in facts in holding that the income disclosed on account of On-Money receipts as disclosed in the course of survey proceedings was to be taxed u/s. 115BBE and consequentially remuneration to partners from such income is not admissible / allowable. 2. The Ld. CIT(A)-5, Vadodara has erred in law and in facts in disallowing remuneration paid to the partners amounting to Rs. 3,47,097/-. The disallowance of Rs. 3,47,097/- being bad in law and in facts is prayed to be allowed. 3. Your appellant craves liberty to add, alter, delete or substitute any of the grounds of appeal herein above contained.
The only issue raised by the assessee is that the learned CIT-A erred in confirming the disallowance of partner remuneration of Rs. 3,47,097/- only.
The fact in brief is that the assessee is a partnership firm and engaged in the business of real estate development. There was a survey operation under section 133A of the Act, carried out at the assessee premises dated 20-12-2013 where undisclosed income on account of on money for Rs. 1,25,15,000/- was admitted. The assessee in return of income disclosed total income of Rs. 1,29,86,506/- after adjusting partner remuneration of Rs. 18 lakh. The income declared by the assessee includes undisclosed income of Rs. 1,25,15,000/- as admitted during the survey proceeding.
The AO found that total income of the assessee excluding the undisclosed income declared in survey and before adjusting partner remuneration is of Rs. 22,71,506/-. The AO was of the view that partner remuneration will be allowable on the regular business income whereas the income admitted in survey proceeding are deemed income under section 69/69B. Therefore any adjustment or deduction against such deemed income is not allowable. The AO in this regard referred the judgment of Hon’ble Gujarat High Court in case of Fakir Mohammad Haji Hasan Vs. CIT reported in 274 ITR 290. Accordingly the AO held that profit available for adjustment of partner remuneration was of Rs. 22,71,506/- on which allowable remuneration under 40(b) of the Act comes at Rs. 14,52,903/-. Hence the AO disallowed the excess remuneration of Rs. 3,47,097/- (18 Lakh – 14,52,903) and added to the total income of the assessee.
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Aggrieved assessee preferred appeal before learned CIT-A and submitted that it has declared income under the head business for Rs. 1,29,86,510/- which also accepted by the AO as business income. Therefore amount of remuneration to the partner should be calculated on this amount. The assessee in support relied on various case laws which are recorded in order of the learned CIT-A.
However the learned CIT-A held that the income of Rs. 1,25,15,000/- was offered over and above regular business income as evident from the statement of the partner where disclosure was made. Further as per the provision of section 115BBE inserted by Finance Act 2012 effective from 1st April 2013, no expenses including partner remuneration allowable from deemed income under section 68, 69, 69A, 69B, 69C and 69D of the Act. The learned CIT-A also held that all the case law relied by the assessee pertain to period before 2013- 14 therefore distinguishable on fact. Thus the learned CIT-A confirmed the disallowances made by the AO.
Being aggrieved by the order of the leaned CIT-A, the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 58 and contended that the revenue has accepted the income of Rs. 1,25,15,000/- as admitted in the course of survey proceedings as the income under the head business and profession. As such, the same was not treated as income under the deeming provisions specified under chapter VI of the Act being -Aggregation of Income. Thus, according to the learned AR the assessee is very much eligible to consider the impugned income of Rs. 1,25,15,000/- while calculating the eligible remuneration to the partners under the provisions of section 40(b) of the Act.
On the contrary the learned DR vehemently supported the order of the authorities below.
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We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that the assessee has admitted the income of Rs. 1,25,15,000/- in the statement furnished in the course of survey proceedings under section 133A of the Act conducted at the premises dated 20-12-2013. The income admitted by the assessee was duly disclosed in the income tax return by incorporating the same in the profit and loss account which is placed on page 32 of the paper book.
11.1 In this regard, we find to refer the relevant extract of the statement of the assessee recorded at the time of survey which is reproduced as under: Page No. 1: This paper contains On-money taken by the firm against Sthapatya - 2 in the month of June July, August, September, October and November of which the total comes to Rs. 1,16,10,000/-. This amount is not taken by the firm in its books of accounts and this is unaccounted income for the firm. As mentioned against Page No. 79 of Annexure A-1, the details were written for each month and after making the total and specifying it in diary, the details were tore off. Page No. 2: This paper contains On-money taken by the firm against Sthapatya - 2 in the month of May, June July. August, September, October and November of which the total comes to Rs. 23,50,000/-. This amount is not taken by the firm in its books of accounts and this is unaccounted income for the firm. As mentioned against Page No. 80 of Annexure A-l, the details were written for each month and after making the total and specifying it in diary, the details were tore off.
11.2 From the above statement of the assessee, we note that the income admitted during the course of survey was representing the on money received by it. The business activity of the assessee relates to the real estate development which not in dispute. It is a prevailing practice in the real estate industries to accept the on money without recording the same in the books of accounts. The question arises to determine about the nature of such on money in the given facts and circumstances. As, no doubt raised by the revenue about the fact that such on money admitted by the assessee in the course of survey proceedings that it does not relate to the business activities, accordingly we are of the view that the impugned income has direct nexus with the business of the assessee. Therefore, the same has to be taxed under the head business and profession and not under the deeming provisions provided under chapter VI of the Act being -Aggregation of Income.
11.3 At the time of hearing, the learned DR has not brought any iota of evidence suggesting that the income admitted by the assessee was made subject to tax under the
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deeming provisions under the relevant chapter of the Act. Thus, we are of the view that the income admitted by the assessee is taxable under the head business and profession and therefore the same is eligible to be considered for working out the remuneration in the manner provided under section 40(b) of the Act. Thus we set aside the finding of the learned CIT-A, and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the Court on 27/05/2022 at Ahmedabad.
Sd/- Sd/- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 27/05/2022 Manish