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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) – VI, Chennai, dated 30.11.2012 and pertains to assessment year 2009-10.
Dr. B. Nischal, the Ld. Departmental Representative, submitted that there was a survey in the premises of the assessee on 25.09.2008. During the course of survey operation, physical inventory of stock was taken. The value of stock during the course of survey operation was found to be `1,61,05,613/-. The assessee was not maintaining any stock register and the details of closing stock as on 01.04.2008 were also not available. When the Assessing Officer examined, one of the partners of the assessee- firm clarified that the value of trading goods was taken on MRP mentioned on each item. In the case of non-branded items where there are MRP rates, those rates are taken and in case of other items, the gross sale value written on the item is taken as value of the stock. He could not clarify the closing stock as on 31.03.2008.
During the assessment proceeding, the assessee filed the Profit & Loss account for the year ending 31.03.2008 and also the balance sheet as on 31.03.2008 disclosing the closing stock of `65,44,570.38. According to the Ld. D.R., when the assessee was called upon to reconcile the value of inventory found during the course of survey operation , the assessee offered a sum of `30 lakhs as additional income for the discrepancies in the stock. The additional income offered by the assessee was assessed under Section 69 of the Income-tax Act, 1961 (in short "the Act") as unexplained investment in the stocks. The assessee has claimed remuneration for the partners in the book profit under Section 40(b) of the Act.
3. Referring to Explanation 3 to Section 40(b) of the Act, the Ld. D.R. submitted that book profit shall be the net profit shown in the Profit & Loss account for the relevant previous year as computed under Chapter IV-D and as increased by the aggregate amount of remuneration paid or payable to all the partners of the firm provided the amount was deducted while computing the net profit. Referring to Section 69 of the Act, the Ld. D.R. pointed out that unexplained investment in the stocks under Section 69 of the Act does not form part of income referred to in Section 28 of the Act. It also does not form part of Chapter IV-D of the Act. According to the Ld. D.R., Section 69 forms part of Chapter VI of the Act, therefore, inclusion of additional income offered on the discrepancies of the stock cannot form part of book profit for the purpose of computing partners’ remuneration.
Dr. B. Nischal, the Ld. D.R. further submitted that the income offered by the assessee consequent to survey, is from unexplained source. Although the assessee claims the source of the additional income offered for taxation is the business of the assessee, no material evidence was produced to indicate that the additional income offered was generated in the course of business transactions. Therefore, the additional income offered by the assessee cannot be treated as business income for the purpose of computing book profit. Consequently, the same cannot be considered for allowing the partners’ remuneration. However, on appeal by the assessee, the CIT(Appeals) found what was offered by the assessee is as income and not as stock. Therefore, the additional income offered by the assessee during the course of survey operation, which was taken as unexplained investment under Section 69 of the Act, has to be taken as business income and the partners’ remuneration has to be allowed under Section 40(b) of the Act. According to the Ld. D.R., what was offered by the assessee is money. However, the source for generating money is not explained either before the Assessing Officer or before the CIT(Appeals). Therefore, according to the Ld. D.R., treating the additional income of `30 lakhs as business income for the purpose of computing partners’ remuneration is not justified.
On the contrary, Shri K. Ravi, the Ld. counsel for the assessee, submitted that the assessee is a partnership firm. During the course of survey operation, the inventory of stock was taken and value of stock was determined by the Revenue authorities at `1,61,05,613/-. The assessee has offered a sum of `30 lakhs as additional income in order to avoid litigation with the Department to purchase peace. This amount of `30 lakhs offered by the assessee was considered as unexplained investment in the stocks. According to the Ld. counsel, the assessee has no other source of income other than the business of the firm. The business of the firm has generated income which was invested in the stocks. Therefore, the assessee offered a sum of `30 lakhs for taxation just to avoid prolonged litigation.
We have considered the rival submissions on either side and perused the relevant material available on record. During the course of survey operation, the assessee offered a sum of `30 lakhs as additional income. This amount of `30 lakhs offered by the assessee was taken as unexplained investment under Section 69 of the Act and the Assessing Officer disallowed the partners’ remuneration on the amount offered by the assessee on the ground that Section 69 does not form part of Chapter IV-D of the Act, therefore, the additional income of `30 lakhs offered by the assessee cannot be taken as income under Section 28 of the Act.
It is nobody’s case that the partners have introduced any unaccounted money in the accounts of the partnership firm. The partnership firm could generate income only from its business.
Therefore, the income of the partnership firm may be either from the transactions accounted in the books of account or in respect of the transactions which were not recorded in the books of account.
Whatever may be the nature of transaction, whether it is recorded in the books of account or not recorded in the books of account, the source of generating additional income for investing in the stocks of the assessee is only the business transactions. Other than the business transactions, the assessee has no other source of income. Since the assessee has offered additional income of `30 lakhs when the discrepancies found in the stocks, the same was classified as unexplained income under Section 69 of the Act. This does not mean that the income was not generated from the business. This Tribunal is of the considered opinion that the income was generated in the business of the assessee-firm, therefore, it has to be necessarily considered for computing the remuneration of the partners under Section 40(b) of the Act. In view of the above, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced on 7th April, 2016 at Chennai.