D.N. Diamond, Surat vs Department Of Income Tax

आयकर अपील सं./I.T.A. No.718/Ahd/2011 ( नधा रण वष / Assessment Year : 2007-08) Dy.CIT बनाम/ M/s.D.N.Diamond Circle-6 Surat Vs. 411,412,413, WDC Building Hat Falia Mahidharpura Surat थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AABFD 7804 N (अपीलाथ /Appellant) .. ( यथ / Respondent)

अपीलाथ ओर से / Appellant by : Shri P.L. Kureel, Sr.DR यथ क ओर से/Respondent by : Shri Mehul Shah, A.R.

ु वाई क तार ख / सन Date of Hearing 24/04/2015 घोषणा क तार ख /Date of Pronounce ment 09/06/2015

आदे श / O R D E R

PER S.S. GODARA, JUDICIAL MEMBER :

This Revenue's appeal for Assessment Year 2007-08 is directed against order of the CIT(A)-IV, Surat dated 29/11/2010 in Case No.CAS- IV/184/09-10, in proceedings u/s.143(3) of the Income Tax Act, 1961 (in short "the Act").

2. The Revenue's grounds read as under:-

ITA No.718 /Ahd/2011 DCIT vs.M/s.D.N.Diamond Asst.Year - 2007-08 -2-

[1] On the facts and circumstances of the case, the Hon'ble CIT(A) has erred in deleting the entire addition made by A.O. on account of disallowance of payment to partners remuneration.

[2] On the facts and circumstances of the case, the Hon'ble CIT(A) has erred in treating the deemed income as income from business transactions;

[3] On the facts and circumstances of the case, the Hon'ble CIT(A) erred in making erroneous interpretation of relevant facts and improperly rejecting proper Law.

[4] On the facts and in the circumstances of the case, and in Law, the Ld.CIT(A), Surat ought to have upheld the order of the Assessing Officer.

[5] It is, therefore, prayed that the order of the Ld.CIT(A)-IV/SURAT may be set-aside and that of the Assessing Officer restored.

3. The assessee-firm manufactures/trades, imports and exports diamonds. It has got two partners; S/Shri Dinesh Rajakaranlal Mehta and Naresh Dhirajlal Mehta having 50% stakes each. The Department conducted a survey on 16/03/2007 in assessee's case. It inventorised assessee's books and other documents. The same revealed physical stock of diamonds of Rs.2,27,24,683/- as against assessee's books demonstrating it to be that of Rs.1,82,44,489/-. The assessee's latter partner got recorded his statement disclosing additional income of Rs.51,65,132/- on account of unrecorded cash amounting to Rs.6,84,938/- and physical stock of rough/rejected/polished diamonds of a sum of Rs.44,80,144/-.

ITA No.718 /Ahd/2011 DCIT vs.M/s.D.N.Diamond Asst.Year - 2007-08 -3-

4. The assessee filed its return on 31/07/2007 admitting income of Rs.28,27,741/- after considering interest and salary paid to its partners. The Assessing Officer took up scrutiny. He sought to disallow the assessee's claim of salary abovesaid by treating its additional income to have been derived from "Other" sources than business income. The assessee pleaded its additional income to be out of unaccounted business activities was entitled to be treated as business income and its partner's remuneration was allowable. The Assessing Officer framed assessment on 31/12/2009 recounting the chain of events during survey leading to disclosure of assessee's additional income and held it to have arisen from assets found in excess leading to a conclusion that the same have been acquired from undisclosed sources. He treated the assessee's additional income as from "other sources" and also disallowed the partner's remuneration claim.

5. The assessee preferred an appeal. The CIT(A) has accepted its contentions as under:-

"3. I have gone through, the facts of the case, the assessment order and submissions of the appellant before me. The declaration of additional income during the course of survey was on account of assets unearthed at the business premises of the appellant firm. The appellant is a trader/exporter of diamonds. Nothing has been brought on record by the A.O to show that these assets were not earned on account of undisclosed business activities. The partner of the appellant firm had categorically mentioned in the statement recorded that the assets had been generated out of business transactions. Deemed income u/s 69/69A etc. have not been assigned any head of income. It has been mentioned ITA No.718 /Ahd/2011 DCIT vs.M/s.D.N.Diamond Asst.Year - 2007-08 -4-

in Chapter-Vl which is separate from Chapter-VI (computation of income). Therefore depending upon the facts of each case, the deemed income has to be brought to tax under the relevant head. Since the deemed income was on account of excess stock/ cash recovered at the business premises and the appellant was a trader in similar goods, it would be fair to assume that the income arose out of the business activities of the appellant. The deemed income then partakes the character of business income. Since the additional income is held to be in the nature of business income, remuneration to partners was admissible subject to provisions of section 40(b) of the Act. It is therefore held that the appellant was entitled to consider the deemed income (additional income disclosed during survey on account of excess cash/stock) for purpose of computing the amount of remuneration admissible to the partners. Ground No.1 is therefore allowed to the appellant. Since ground No.l is allowed to the appellant, the alternate ground taken (Ground No.2) becomes academic and not being adjudicated."

This leaves the Revenue aggrieved.

6. We have heard both the parties and gone through the case file. Facts relevant to the issue already stand narrated. The Revenue seeks to treat the assessee's additional income of Rs.51,65,132/- (supra) under the head "other sources" instead of "business income" for disallowing its partner's remuneration. The assessee's case is that its additional income has arisen from its business activity only. We reiterate that the main component of the impugned additional income is excess physical stock of diamonds amounting to Rs.44,80,194/-. There is no dispute that the assessee is already in diamond business. Its partner has stated about some other business in stocks, etc. However, the fact also remains that the Revenue fails to point out any irregularity in the concerned books.

ITA No.718 /Ahd/2011 DCIT vs.M/s.D.N.Diamond Asst.Year - 2007-08 -5-

The assessee does not have any other source of income as well. In these circumstances, the only inference that can be drawn is that the assessee's additional income is its unaccounted business income. The Revenue at this stage submits that its cash amount in question of Rs.6,84,938/- is not liable to be treated under the head "business income". We find that a Coordinate Bench in case of DCIT vs. New Umiya Vijay Saw Mill reported as (2012) 40CCH 413 (Ahd.Trib.) holds that such a bifurcation is not permissible qua an undisclosed income unearthed in the course of survey. The Revenue fails to point out any distinction on facts or law. We hold in these peculiar facts that the CIT(A) has rightly held the assessee's additional income of Rs.51,65,132/-(supra) under the head "business income" so as to hold it entitled for claiming remuneration to its partners. The CIT(A)'s order is affirmed. The Revenue's ground fails.

7. The Revenue's appeal is dismissed.

Order pronounced in the Court on 9th June, 2015 at Ahmedabad.

Sd/- Sd/- ( PRAMOD KUMAR ) ( S.S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated 09/ 06 /2015 Order pronounced on 09/06/2015 ट .सी.नायर, व.(न.स./T.C. NAIR, Sr. PS Sd/- Sd/- (N.S. SAINI) (S.S. GODARA) A.M. J.M. ITA No.718 /Ahd/2011 DCIT vs.M/s.D.N.Diamond Asst.Year - 2007-08 -6-

आदे श क ! त#ल$प अ%े$षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. संबं*धत आयकर आयु,त / Concerned CIT

4. आयकर आयु,त(अपील) / The CIT(A)-IV, Surat

5. /वभागीय (त(न*ध, आयकर अपील य अ*धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड5 फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स या/पत (त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation .. 21.5.2015 (direct on computer)

2. Date on which the typed draft is placed before the Dictating Member ..21.5.2015

3. Other Member...

4. Date on which the approved draft comes to the Sr.P.S./P.S.................

5. Date on which the fair order is placed before the Dictating Member for pronouncement......

6. Date on which the fair order comes back to the Sr.P.S./P.S.......9.6.15

7. Date on which the file goes to the Bench Clerk.....................9.6.15

8. Date on which the file goes to the Head Clerk..........................................

9. The date on which the file goes to the Assistant Registrar for signature on the order..........................

10. Date of Despatch of the Order..................