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Income Tax Appellate Tribunal, RAIPUR BENCH: RAIPUR
Before: SHRI R. K. PANDA & MS SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order of the CIT(A) -1, Raipur (CG), dated 30.11.2015 for the A.Y. 2010-11.
The grounds of appeal are as under:
“1. In the facts and circumstances of the case, Commissioner of Income-tax (Appeals) erred in confirming addition of Rs. 76,617/- out of addition of Rs. 1,21,377/- made by the Assessing Officer for alleged undisclosed income out of entries in loose papers found on survey by ignoring explanation of the appellant and without considering the facts of the case properly and judicially.
In the facts and circumstances of the case, Commissioner of Income-tax (Appeals)’s action of confirming the addition to the extent of Rs. 76,617/- is
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totally unjustified and uncalled for. The CIT (Appeals) should have deleted the entire additions of Rs. 1,21,377/-.
In the facts and circumstances of the case, Commissioner of Income-tax (Appeals) erred in confirming disallowance of Rs. 3,53,966/- made by the Assessing Officer out of remuneration paid to the partners by ignoring explanation of the appellant and without considering the facts of the case properly and judicially.
The assessee is a partnership firm and is engaged in the business of trading in marbles under the name and style of M/s Venkatesh Marbles. The return of income was filed electronically on 04.10.2010 declaring total income of Rs. 37,28,840/-. During the course of assessment proceedings audit report as required u/s 44AB was also furnished. As per audited accounts the assessee disclosed a profit of Rs.44,41,356/- before distribution of remuneration and interest to the partners and after distribution of remuneration and interest to the partners the net profit was disclosed at Rs.37,28,836/-. In this case survey u/s 133A of the Income Tax Act, 1961 was conducted at the business premises of the assessee on 23.09.2009. As a result of survey excess cash amounting to Rs. 13,07,928/-, excess stock to the tune of Rs. 20,93,468/-, unexplained investment of Rs. 6,00,000/- on renovation of the office and unexplained entries of Rs. 5,00,000/- appearing in the loose papers were detected by the survey party. Shri Pravin Sarda, brother of one of the partners Shri Anil Sarda, who was available at the time of survey and looks after the business in absence of the partner could not explain the above findings detected by the survey team and surrendered the whole sum of Rs.45,01,396/- (Rs. 13,07,928 + 20,93,468 + 6,00,000 + 5,00,000) as undisclosed income in addition to its regular income. On verification of accounts the A.O. noted that as against the total sum of Rs. 45,01,396/- the assessee has included an amount of Rs. 40,01,396/- only in the accounts and retracted from surrender of Rs.5,00,000/- made on account of entries in the loose papers. The assessee’s contention was that the disclosure was made by brother of one of the partners who looks after the business in absence of the
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partner and that the disclosure in respect of excess cash, excess stock and investment on renovation of office was correctly made and he was not well aware of the business affairs. However, the Assessing Officer observed that the explanation filed by the Assessee in respect of the entries appearing in loose papers were not acceptable and added an amount of Rs. 1,21,377/- covered in transactions appearing in loose papers. Regarding the disallowance of remuneration paid to the partners, the Assessing Officer observed that an amount of Rs. 4,80,000/- was found debited towards payment of remuneration to partners which is much more than the permissible monetary limit as prescribed as laid down u/s 40(b)(v) of the Income Tax Act, 1961. The Assessing Officer held that before considering the amount of income of Rs.40,01,396/- surrendered during survey and credited to Profit and Loss account, the amount of net profit as per P/L account works out to Rs.4,39,960/- (44,41,356 – 40,01,396). The Assessing Officer held that since, the income of Rs. 40,01,396/- surrendered during survey and credited to P/L account is not within the ambit of book profit in terms of Sec. 40(b) of the Income Tax Act, 1961 and needs to be assessed u/s 69 of the Act, as such was not to be considered while computing the remuneration to partners. The Assessing Officer relied upon the Hon’ble Chhattisgarh High Court decision in case of Dhanush General Stores vs. CIT (2011) 339 ITR 651. Thus, as per Section 40(b)(v) of the Income Tax Act, 1961 the amount of remuneration to partner of Rs.1,26,034/- was allowed by the Assessing Officer and excess claim of Rs.3,53,966/- was disallowed. Thus, the Assessing Officer completed assessment u/s 143(3) by making following addition/disallowance:-
Particulars Amount (Rs.) Addition for alleged undisclosed income out of entries in 1,21,377.00 loose papers found on survey Disallowance out of remuneration paid to partners by 3,53,966.00 following decision of Hon’ble CG High Court reported in 339 ITR 651
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TOTAL 4,75,343.00
Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
As regards to Ground No. 1 and 2, the Ld. AR submitted that in the business premises of the assessee, survey proceedings u/s 133A was conducted on 23.09.2009. During the course of survey proceedings both the partners were out of station and survey proceedings were represented by Pravin Sarda (brother of one of the partner Anil Sarda) in their absence and his statement was recorded by the Department to know sources of various discrepancies found on survey. In answer to question no. 1, Pravin Sarda had confirmed that only in absence of his brother Anil Sarda he was looking after business dealing of assessee firm and not on regular basis and accordingly, in addition to surrendered excess cash of Rs. 13,07,928/- and excess stock of Rs 70.93,468 - found on survey on physical verification, he had surrendered investment on renovation of office at Rs. 6,00,000/- and Rs. 5,00,000/- for undisclosed income with reference to entries recorded in loose papers found and impounded on survey as per his own estimation.
As regards to Ground No. 3, the Ld. AR submitted that the Assessing Officer has disallowed Rs.3,53,966/- out of remuneration paid to partners as per terms of deed and with prescribed limit u/s 40(b) by treating income surrendered on survey and incorporated in the books of account of Rs.40,01,396/- as not come within the ambit of book profit in terms of Section 40(b), being assessable as deemed income u/s 69 by following decision of jurisdiction Hon’ble CG High Court decision in case of “Danush General Stores Vs. CIT 339 ITR 651 by ignoring detailed submission of the assessee firm in
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this regard and without considering facts and circumstances of the case properly and judicially.
The Ld. DR relied upon the order of the CIT(A) as well as Assessing Officer.
We have heard both the parties and perused the material available on record. As regards to Ground Nos. 1 & 2, it is pertinent to note that the CIT(A) has made categorical finding that the Assessing Officer made disallowance of Rs. 1,21,377/- after going through the loose papers and discussing about each claim in the assessment order. But the CIT(A) ignored the fact that during the course of survey proceedings both the partners were out of station and survey proceedings were represented by Pravin Sarda (brother of one of the partner Anil Sarda) in their absence and his statement was recorded by the Department to know sources of various discrepancies found on survey. In answer to question no. 1, Pravin Sarda had confirmed that only in absence of his brother Anil Sarda he was looking after business dealing of assessee firm and not on regular basis and accordingly, in addition to surrendered excess cash of Rs. 13,07,928/- and excess stock of Rs 70.93,468 - found on survey on physical verification, he had surrendered investment on renovation of office at Rs. 6,00,000/- and Rs. 5,00,000/- for undisclosed income with reference to entries recorded in loose papers found and impounded on survey as per his own estimation. But from the records it can be seen that the assessee firm surrendered the income under the head “Loose papers found and impounded on survey” and included both in the trading and profit & loss account for the year ended on 31.03.2010 and computation of total income for the A.Y. 2010- 11 under the head “profits and gains of business”. The assessee also explained each of the loose papers before the Assessing Officer, but the Assessing Officer as well as the CIT(A) ignored the explanation offered by the assessee. Therefore, we are of the opinion that both the CIT(A) as well as Assessing Officer are not
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correct in making this addition. The order of the CIT(A) is set aside. Ground No. 1 and 2 are allowed.
As regards to Ground No. 3, the Assessing Officer disallowed Rs.3,53,966/- out of remuneration paid to partners as per terms of deed and with prescribed limit u/s 40(b) by treating income surrendered on survey and incorporated in the books of account of Rs.40,01,396/- as not come within the ambit of book profit in terms of Section 40(b) of the Act and held it as assessable as deemed income u/s 69 of the Act. The Assessing Officer has ignored the fact that the assessee firm had given the detailed submission as to why income surrendered on survey as business income. In fact in gross total income of Rs. 37,28,836/-, the assessee firm in computation of total income for A.Y. 2010-11 disclosed the surrendered amount of Rs. 40,01,396/-. As far as the decision cited from the side of the Revenue and relied by the CIT(A) in the order that of the decision of the Hon’ble CG High Court in case of “Danush General Stores Vs. CIT 339 ITR 651 is concerned, the issue before the Hon’ble High Court was not the claim of remuneration, but it was limited to the issue of taxability of excess stock found at the time of survey, which was held as unexplained investment. If the issue of allowance of remuneration was taken up by the Hon’ble High Court, then the matter could have been looked into in the perspective of computation of book profit for the purpose of admissibility of remuneration u/s 40(b)(v) of the Act. Thus, the decision of the Hon’ble High Court is altogether on different aspect and not on the issue contested before us. The Ld. AR relied upon the Tribunal decision in case of ACIT vs. M/s Ashok Chand Anil Kumar (ITA NO. 353/Nag/2007 A.Y. 2004-05 order dated 31.07.2014) wherein the issue of remuneration arose and the decision of the Hon’ble High Court has been considered. The Tribunal held therein as under:
7.3 As far as the decision cited from the side of the Revenue is concerned, in the case off Dhanush General Stores (supra) the issue was not the claim of remuneration, but it was limited to the issue of taxability of excess stock found at the time of survey, which was held as unexplained
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investment. Had it been the issue of allowance of remuneration, then the matter could have been looked into in the perspective of computation of ‘book profit’ for the purpose of admissibility of remuneration u/s 40(b)(v). The settled principle is that a precedent is to be applied in the context it was passed and not otherwise. …… 8. In the light of the above detailed discussion, we are of the considered opinion that this issue has been dealt by several courts and tribunals and examined all the legal angles and thereupon came to the conclusion that in a situation when the excess stock was detected during the course of survey and the value of the excess stock was declared by the assessee in the return of income by incorporating the same in the profit and loss account, then such income was to be treated as business income for the purpose of computation of “Book Profit” as prescribed under Section 40(b)(v) to compute the remuneration to partners. We, therefore, conclude that the learned CIT(Appeals) has rightly allowed the claim to the assessee. Findings of learned CIT(Appeals) are hereby confirmed and the ground of the Revenue is dismissed.”
The assessee firm had no other source of income except income from trading of marbles, granite, tiles etc. during the year under consideration as is appearing from the audited financial statement and audit report for the concerned year. Besides that on survey proceedings no documents were found by the Revenue Authorities which revealed that the assessee firm was involved in other business activities as well. Therefore, we are of the opinion that the CIT(A) as well as Assessing Officer both are not correct in restricting the remuneration of the partners. Ground No. 3 is allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 22nd October, 2018. Sd/- Sd/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 22/10/2018 *R.N Copy forwarded to:
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Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT
Private Secretary Raipur Bench, Raipur
Date of dictation 17.09.2018 Date on which the typed draft is placed before the 17.09.2018 dictating Member Date on which the typed draft is placed before the Other Member
Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. .09.2018 PS/PS Date on which the final order is uploaded on the .10.2018 website of ITAT
Date on which the file goes to the Bench Clerk .10.2018
Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order
Date of dispatch of the Order