M/S. HIRA ENTERPRISES,SATARA vs. DEPUTY COMMISSIONER OF INCOME-TAX,

आदेश / ORDER

PER VIKAS AWASTHY, JM

These two appeals by two different assessees are directed against the

order of Commissioner of Income Tax (Appeals)-III, Pune of even date i.e. 09.10.2014 in their respective cases for the assessment year 2009-10.

Since, the issues involved in both these appeals are similar and are

arising from same set of facts, these appeals are taken up together for

adjudication and are disposed of vide this common order.

assessees belong to the same group. The assessee in ITA No.102/PUN/2015

is a company and the assessee in ITA No.103/PUN/2015 is a partnership firm. A survey action u/s.133A of the Income Tax Act, 1961 (hereinafter

referred to as ‘the Act’) was carried out on the business premises of the

assessees on 18.02.2009. During the course of survey, physical verification of

cash and stock was undertaken. Excess cash and stock vis-a-vis cash/stock recorded in books of account was found in the case of both the assessees.

Statement of Shri Aslam H. Tamboli, Director/Partner of assessees was

recorded. He offered the difference in cash and stock as additional income in

the hands of assessee company/firm. The Assessing Officer made addition of

the excess cash and stock as deemed income u/s.69 of the Act. Apart from above, disallowance u/s.40(a)(ia) of the Act was made by the Assessing Officer

in respect of both the assessees.

3 ITA Nos. 102 & 103/PUN/2015 A.Y.2009-10

the assessees filed appeal before the Commissioner of Income Tax (Appeals) in

their respective cases. The Commissioner of Income Tax(Appeals) rejected the

contention of the assessee and confirmed the assessment order in toto. Now,

both the assessees are in second appeal before the Tribunal assailing the

findings of Commissioner of Income Tax(Appeals).

ITA No. 102/PUN/2015 A.Y. 2009-10

“1.On the facts and in the circumstances of the case and in law the Learned Assessing Officer erred in treating the additional income of Rs.60,01,286/- declared during the survey action u/s.133A. as income from other sources by considering it as deemed income u/s.69 of the Income Tax Act, 1961 by disregarding the fact that on the basis of tentative trading and Profit & Loss account as well as partner's statement recorded on oath that the declaration belongs to same business, therefore appellants claim of treating this income as business income shall be accepted. 2. On the facts and in the circumstances of the case and in the law the Lower authorities have erred in not allowing set off of current year losses against declaration made u/s.133(A) of the Income Tax Act, 1961 a sum of Rs.60,01,266/-being declaration on account of excess stock/cash. 3. On the facts and in the circumstances of the case and in the law the Lower authorities have erred in making a disallowance of sum of Rs.6,87,882/- by invoking provisions of section 40(a)(ia) of the Income Tax Act, 1961 by disregarding appellants contention in this regards. 4. On the facts and in the circumstances of the case and in the law the Lower Authorities have erred in making an addition of Rs.21,624/- on account of interest received from MSEDCL. The appellant craves for to leave, add, alter, modify, delete above ground of appeal before or at the time hearing, in the interest of natural justice.”

the assessee is engaged in trading activity of wheat products like Atta, Maida,

Rawa, Soozi, Bran etc. The assessee filed its return of income on 30.09.2009

declaring loss of Rs.54,73,477/-. In survey action u/s.133A of the Act

conducted on 18.02.2009, excess cash of Rs.8,99,389/- and stock to the tune

of Rs.51,01,877/- was found. Shri Aslam H. Tamboli, Director of assessee-

4 ITA Nos. 102 & 103/PUN/2015 A.Y.2009-10

company offered excess cash and stock aggregating to Rs.60,01,266/- as

additional income for the Financial Year 2008-09. The Director admitted that

additional income is over and above the regular business income of the

assessee company. However, the Authorities below have erred in holding that

the excess cash and stock found during survey are not part of the business

activities of the assessee and denied the set off of the additional income

declared against loss in the statement of total income.

5.1 The ld. AR further submitted that during the course of scrutiny

assessment proceedings, the Assessing Officer made disallowance of

Rs.6,87,882/- u/s.40(a)(ia) of the Act in respect of payment of

brokerage/contract labour charges without deduction of tax at source. The ld.

AR submitted that the issue can be remitted to the file of Assessing Officer in

view of the second proviso inserted by the Finance Act, 2012 for verification.

The ld. AR further submitted that the assessee would furnish necessary

details/ documents before the Assessing Officer to show that the recipients of

the amount have offered to tax the brokerage in their respective return of

income. As regards retrospective applicability of newly inserted proviso to

section 40(a)(ia) of the Act, the ld. AR placed reliance on the decision of

Hon'ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township

(P) Ltd reported as 337 ITR 635.

5.2 In respect of ground No. 4, the ld. AR submitted that he is not pressing

the same on account of smallness of the amount involved.

vehemently defended the order of Commissioner of Income Tax(Appeals) in

confirming the additions made by the Assessing Officer. The ld. DR submitted

that the assessee has not furnished any evidence to substantiate that the

5 ITA Nos. 102 & 103/PUN/2015 A.Y.2009-10

excess cash and stock found during survey was part of regular business. The

ld. DR prayed for dismissing the appeal of assessee and confirming the

findings of Commissioner of Income Tax(Appeals).

and have perused the orders of Authorities below. The assessee in appeal has

primarily assailed the findings of Commissioner of Income Tax (Appeals) on

two counts viz.

(i) Treating the additional income Rs.60,01,286/- declared during survey as deemed income u/s. 69 of the Act. (ii) Disallowance of Rs.6,87,882/-u/s.40(a)(ia) of the Act in respect of payment of brokerage and labour contract charges.

u/s.133A of the Act cash inventory to the tune of Rs.51,01,877/- and stock of

Rs.8,99,389/- was found excess as against cash/stock recorded in regular

books of account of the assessee. The case of the assessee is that excess cash

and stock is generated in the regular course of business activities carried out

by the assessee. However, before the Authorities below, the assessee has not

furnished any cogent evidence in support of his submissions. In the absence

of any document indicating generation of excess cash and stock during

regular business activity, the Assessing Officer made addition of the same

u/s.69 of the Act as unexplained investment.

assessee, the assessee would substantiate that excess cash and stock found

during survey was part of business income of the assessee. Taking into

consideration entire facts of the case and in view of the prayer made by the

ld. A.R., without commenting on merits of addition, the issue is restored back

to the file of Assessing Officer for re-adjudication after considering fresh

6 ITA Nos. 102 & 103/PUN/2015 A.Y.2009-10

evidence, if any, filed by the assessee to substantiate generation of excess

cash and stock in regular business activities of assessee. The Assessing

Officer shall grant reasonable opportunity of hearing to the assessee before

adjudicating the issue afresh, in accordance with law. Thus, the ground No.1

raised in appeal by the assessee is allowed for statistical purpose.

year losses against declaration made u/s.133A of the Act. The relief sought in

ground No. 2 of the appeal is corollary to ground No.1. Since, we have

remitted the issue raised in ground No.1 of appeal for examination of the

additional income declared during survey, we deem it appropriate to remit the

ground No.2 as well. If the assessee is successful in establishing that excess

cash and stock is part of regular business income, the Assessing Officer is

directed to allow the benefit of set off of current year losses to the assessee.

The ground No. 2 raised in appeal by the assessee is allowed for

statistical purpose in the terms aforesaid.

disallowance of Rs.6,87,882/- u/s. 40(a)(ia) of the Act. The assessee has

made following payments without deduction of tax at source.

Sr. Name of the party Nature of Amount payment 1. Dalal Adinath Canvassing Brokerage 4,904/-

Total Rs. 6,87,882/-

7 ITA Nos. 102 & 103/PUN/2015 A.Y.2009-10

The ld. AR has prayed that in view of second proviso to section 40(a)(ia)

of the Act, the issue may be restored to the file of Assessing Officer for

verification.

The Finance Act, 2012 has inserted following proviso to section 40(a)(ia)

of the Act.

“Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub section (1) of the section 201, then, for the purpose of this sub clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.”

Though the proviso was inserted by the Finance Act, 2012 w.e.f.

01.04.2013, the Hon'ble Delhi High Court in the case of CIT Vs. Ansal Land

Mark Township (P) Ltd (supra) has held the proviso to be declaratory and

curative in nature. The proviso is held to be applicable retrospectively w.e.f.

1st April, 2005. In the facts of the present case, we deem it appropriate to

remit this issue back to the file of Assessing Officer to consider documentary

evidences furnished by assessee indicating that the recipients of the

brokerage/ labour contract charges have offered the amount received from

assessee to tax and has paid tax thereon. The Assessing Officer after

examining relevant documents shall decide this issue, in accordance with

law. Thus, ground No.3 raised in appeal by the assessee is allowed for

statistical purpose.

ground No. 4 on account of smallness of the amount involved. Accordingly,

ground No. 4 raised in appeal by assessee is dismissed as not pressed.

8 ITA Nos. 102 & 103/PUN/2015 A.Y.2009-10

allowed for statistical purpose.

ITA No.103/PUN/2015 A.Y. 2009-10

“1. On the facts and in the circumstances of the case and in law the Learned Assessing Officer erred in treating the additional income of Rs.6,91,664/- declared during the survey action u/s.133A. as income from other sources by considering it as deemed income u/s.69 of the Income Tax Act, 1961 by disregarding the fact that on the basis of tentative trading and Profit & Loss account as well as partner's statement recorded on oath that the declaration belongs to same business, therefore appellants claim of treating this income as business income shall be accepted. 2. On the facts and in the circumstances of the case and in the law the Lower authorities have erred in disallowing remuneration to partners a sum of Rs.1,30,262/- claimed on account of disclosure made during the course of survey of excess stock/cash. 3. On the facts and in the circumstances of the case and in the law the Lower authorities have erred in disallowing a sum of Rs.9,95,840/- being interest of debit balance of partners' capital account by disregarding appellants contention in this regards. 4. On the facts and in the circumstances of the case and in law the Lower authorities have erred in disallowing a sum of Rs.8,88,554/- by invoking the provisions of section 40(a)(ia) of the Income Tax Act, 1961 by disregarding appellant’s contention in this regards. 5. On the facts and in the circumstances of the case and in law the Lower authorities have erred in making an addition of Rs.97,844/- being difference in balance of sundry creditors account by disregarding appellant’s contention in this regards. The appellant craves for to leave, add, alter, modify, delete above ground of appeal before or at the time hearing, in the interest of natural justice.”

appeal is similar to the issue raised in ground No. 1 and 2 in ITA No.

102/PUN/2015. During survey action, excess cash of Rs.2,02,317/- and

excess stock of Rs.4,89,357/- were found. Shri Aslam H. Tamboli, partner of

assessee firm in his statement recorded during the course of survey action

offered the amount Rs.6,91,674/- as additional income in the hands of firm.

9 ITA Nos. 102 & 103/PUN/2015 A.Y.2009-10

The contention of assessee is that the additional income declared is part of

undisclosed business income of assessee; whereas, the Assessing Officer and

Commissioner of Income Tax (Appeals) have treated the same as unexplained

investment u/s. 69 of the Act.

Authorities below have erred in disallowing Rs.9,95,840/- being interest of

debit balance of partner’s capital account. The Authorities below have failed

to take note of the fact that there are debit balances, as well as credit balance

in the partner’s capital account. The assessee is not charging any interest in

respect of credit balances in the partner’s capital account. To support his

submissions, the ld. AR referred to the capital account balances reproduced

by the Assessing Officer in Para 7 at page-5 of the assessment order.

Act, the ld. AR submitted that assessee has made payment of Rs.3,21,210/-

on account of advertisement expenses and payment of Rs.5,67,344/- on

account of interest on vehicle loan to M/s. Tata Capitals. The ld. AR prayed

that in view of second proviso to section 40(a)(ia) of the Act inserted by

Finance Act, 2012, the issue may be remitted back to the file of Assessing

Officer for verification.

Commissioner of Income Tax (Appeals) and prayed for dismissing the appeal

of assessee.

appeal is identical to ground No. 1 raised in ITA No.102/PUN/2015. We have

restored the issue back to the file of Assessing Officer for fresh adjudication.

10 ITA Nos. 102 & 103/PUN/2015 A.Y.2009-10

Our findings while deciding ground No.1 raised in ITA No.102/PUN/2015

would mutatis-mutandis apply to ground No.1 raised in the present appeal.

Thus, ground No. 1 raised in the present appeal is allowed for statistical

purpose.

No.1. Since the ground No.1 is restored to the Assessing Officer for fresh

adjudication, the issue raised in ground No. 2 of the present appeal is also

remitted back to the file of Assessing Officer for re-adjudication along with

ground No. 1 of the appeal. Hence, ground No.2 raised in appeal by

assessee is allowed for statistical purpose.

Rs.9,95,840/- on account of interest on debit balance of partner’s capital

account. The ld. AR has pointed that there are credit balances as well and the

assessee is not charging interest on the credit balances of the partners. We

are of considered view that this issue requires verification. The issue is

restored to Assessing Officer for verification. The Assessing Officer shall

decide the issue afresh after re-verification. Thus, the ground No. 3 of the

appeal is allowed for statistical purpose.

of the Act in respect of following payments without deducting TDS.

“1. M/s. Concept Creator – Advertisement expenses Rs.3,21,210/- 2. Interest on vehicle loan- M/s. Tata Capitals Rs.5,67,344/- Total Rs.8,88,554/-”

We have adjudicated similar issue in ground No.3 of ITA No.

102/PUN/2015 above. Our findings on the issue above would mutatis-

11 ITA Nos. 102 & 103/PUN/2015 A.Y.2009-10

mutandis apply to ground No.4 of the present appeal. Accordingly, we direct

the Assessing Officer to decide the issue afresh after considering relevant

evidences furnished by assessee, in accordance with law. Thus, ground No.4

raised in appeal by the assessee is allowed for statistical purpose.

Rs.97,844/- on account of difference in balance of sundry creditors. The ld.

AR has failed to substantiate as to how the findings of the Commissioner of

Income Tax (Appeals) are perverse. Since no material contrary to the findings

of Commissioner of Income Tax (Appeals) has been brought before us, we

uphold the addition. Accordingly, ground No. 5 raised in appeal by the

assessee is dismissed.

allowed for statistical purpose.

statistical purpose.

Order pronounced on Friday, the 29th day of June, 2018.

Sd/- Sd/- (डी. क�णाकरा राव/D. KARUNAKARA RAO) (�वकास अव�थी /VIKAS AWASTHY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 29th June, 2018 SB

12 ITA Nos. 102 & 103/PUN/2015 A.Y.2009-10

आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-III, Pune. 4. The CIT-III, Pune. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.