M/s. Fashion World,, Ahmedabad v. The ACIT., Circle-12,, Ahmedabad

ITA 1634/AHD/2006 | 2002-2003
Pronouncement Date: 12-02-2010 | Result: Allowed

Appeal Details

RSA Number 163420514 RSA 2006
Assessee PAN AAAFF7047G
Bench Ahmedabad
Appeal Number ITA 1634/AHD/2006
Duration Of Justice 3 year(s) 7 month(s) 16 day(s)
Appellant M/s. Fashion World,, Ahmedabad
Respondent The ACIT., Circle-12,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 12-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 12-02-2010
Date Of Final Hearing 13-01-2010
Next Hearing Date 13-01-2010
Assessment Year 2002-2003
Appeal Filed On 26-06-2006
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI JM AND D.C.AGRAWAL A M M/S FASHION WORLD 45 KRISHNA PALACE OPP. GOPAL TOWER MANINAGAR AHMEDABAD. V/S . ASSTT. CIT CIR.12 AHMEDABAD. PAN NO.AAAFF 7047 G (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI SANJAY R. SHAH AR RESPONDENT BY:- SMT. NEETA SHAH SR.DR O R D E R PER D.C.AGRAWAL ACCOUNTANT MEMBER . THIS IS AN APPEAL BY THE ASSESSEE RAISING FOLLOWIN G GROUNDS :- 1. THE LEARNED C R I.T(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF LEARNED IN INCLUDING THE INCOME DISCLOSE D DURING THE COURSE OF SURVEY ON THE BASIS OF STATEMENT OF THE P ARTNER OF THE APPELLANT IN ITS TOTAL INCOME. IT IS SUBMITTED THA T ENTIRE EXERCISE OF ELICITING THE STATEMENT FROM THE APPELLAN T BEING CONTRARY TO THE LETTER AND SPIRIT OF CBDT INSTRUCTIONS IN THIS REGARD THE ADDITION MADE TO THE INCOME ON THIS COUNT BE DELETE D. 2. THE LEARNED A.O. ERRED IN TAKING STATEMENT ON OATH U/S. 133A OF THE ACT OF THE APPELLANT AND ADDING THE INCOME DISCLOSED BY THE APPELLANT PURSUANT TO SUCH STATEMENT. IT IS SUBMITTED THAT THE STATEMENT RECORDED U/S. 133A DO NOT HAVE EVIDENTIAL VALUE END ITA NO. 1634/AHD/2006 ASST. YEAR :2002-03 2 HENCE THE INCOME DISCLOSED PURSUANT TO SUCH DECLARATION BE NOT CONSIDERED AS UNDISCLOSED INCOME OF THE APPELLANT . THE LEARNED CIT(A) ERRED IN REJECTING THE ABOVE GROUND OF THE APPELLAN T. IT IS SUBMITTED THAT IT BE SO HELD NOW. 3. WITHOUT PREJUDICE TO ABOVE THE LEARNED A.O . AS WELL AS LEARNED CIT(A) ERRED IN TREATING THE AMOUNT OF RS10 06 250/- DISCLOSED BY THE APPELLANT IN ITS STATEMENT RECORDED U/S. L33A AND WHICH WAS CREDITED IN ITS BUSINESS BOOKS OF ACCOUNTS AS UNEXPLAINED INVESTMENT/INCOME AND CONSEQUENTLY ERRED IN TAXING THEM U/S 69 OF THE ACT. IT IS SUBMITTED THAT INCOME/INVESTMENTS REPRESENTING THIS AMOUNT OF RS.10 06 250/- HAVING ALREADY BEEN E NTERED IN THE BOOKS OF ACCOUNTS OF THE APPELLANT AND ARISING FROM THE ONLY SOURCE BEING BUSINESS OF THE APPELLANT CANNOT BE CONSIDERE D AND TAXED AS DEEMED INCOME REPRESENTING UNEXPLAINED INVESTMENT U/S. 69 AND HAVE TO BE CONSIDERED AS BUSINESS INCOME TO BE TAXE D AS BUSINESS INCOME OF THE APPELLANT. IT IS SUBMITTED THAT IT BE SO HELD NOW AND THE INCOME/INVESTMENT REPRESENTING RS.10 06 250/- BE TAXED AS BUSINESS INCOME OF THE APPELLANT. 4. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE INCOME REPRESENTING UNEXPLAINED STOCK WHICH WAS DECLARED BY THE APPELLANT DURING SURVEY PROCEEDINGS WAS EARNED M EARLIER YEAR. IT IS SUBMITTED THAT SUCH FINDING HAS NO BASIS. 5. THE LEARNED CLT(A) ERRED M CONFIRMING THE ACTION OF LEARNED A.O . IN SEGREGATING THE INCOME OF THE APPELLANT IN TWO P ORTS NAMELY INCOME DISCLOSED DURING SURVEY U/S. 133A AND OTHER REGULAR INCOME AND ALSO ERRED IN TAXING THE ENTIRE DECLARED INCOME OF RS. 10 06 250/- WITHOUT SETTING IT OFF AGAINST THE LOSS INCURRED OR REDUCING FT BY THE JOSS SUFFERED IN ITS REGULAR BUS INESS UNDER THE HEAD BUSINESS INCOME AT RS. 4 47 580/- SUBJECT TO T HE APPEAL EFFECT ORDER. IT IS SUBMITTED THAT IT BE SO HELD NOW AND T HE LOSS INCURRED UNDER THE HEAD BUSINESS INCOME WITHOUT CONSIDERING THE DECLARED INCOME BE ALLOWED TO BE SET OFF AGAINST OR DEDUCTED FROM SUCH DECLARED INCOME OF RS. 10 06 250/- 6. THE LEARNED CIT(A) GROSSLY ERRED IN CONFIRMING THE ACTION OF LEARNED A.O . IN COMPUTING TOTAL INCOME OF THE APPELLANT AT RS. 10 06 250/- AND ALLOWING CARRY FORWARD OF NORMAL BUSINESS LOSS TO THE SUCCEEDING ASSESSMENT YEAR WITHOUT SETTING OFF OR GRANTING DEDUCTION OF SUCH BUSINESS LOSS AGAINST THE DECLARE D INCOME OF RS. 3 10 06 250/-. IT I5 SUBMITTED THAT SUCH TREATMENT IS IN CLEAR VIOLATION OF THE PROVISIONS OF SECTIONS 70 TO 72 OF THE ACT. IT IS SUBMITTED THAT IT BE SO HELD NOW AND SET OFF/DEDUCTION AS CLAIMED BE ALLOWED TO THE APPELLANT 7. THE LEARNED CIT(A) GROSSLY ERRED IN FACTS AND I N LOW IN APPLYING THE RATIO OF JURISDICTIONAL GUJARAT HIGH COURT IN F AKIR MOHMED HAJI HASAN 247 ITR 290 AND OF ITAT RAJKOT BENCH IN CASE OF SHRI ABHAYSING NATHUBHAI CHAUHAN AND DENYING BENEFIT OF SET OFF OR DEDUCTION OF BUSINESS LOSS AGAINST THE DECLARED INC OME OF RS. 10 06 250/- TAXED U/S. 69 OF THE ACT. YOUR APPELLAN T SUBMITS THAT IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT THE SA ID DECISIONS ARE NOT APPLICABLE TO THE APPELLANT AND HENCE THE SAME BE NOT APPLIED TO THE FACTS OF THE APPELLANT AND BENEFIT OF SET OFF O R DEDUCTION OF NORMAL BUSINESS .LOSS INCURRED BY THE APPELLANT BE GRANTED TO IT AGAINST THE DECLARED INCOME OF RS. 10 06 250/-. 8. WITHOUT PREJUDICE TO ANY OF THE FORE-GOINGS T HE LEARNED A.O. AND CIT(A) ERRED IN NOT CONSIDERING THE ALTERNATIVE CLA IM OF THE APPELLANT TO GRANT HIGHER REMUNERATION TO THE PARTN ERS SUBJECT TO CEILING U/S. 40(B) IN RESPECT OF SUCH DEEMED INCOME TAXED BY THEM. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS D EALING IN READY MADE GARMENTS. A SURVEY UNDER SECTION 133A WAS CARRIED O UT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 15.2.2002. DURING THE C OURSE OF SURVEY CERTAIN DISCREPANCIES IN THE STOCK AND DOCUMENTS WE RE FOUND. STATEMENT OF THE PARTNER SHRI SUNIL P. AGRAWAL WAS RECORDED O N THAT DATE. THE AUTHORISED OFFICER REQUIRED SHRI SUNIL P. AGRAWAL T O FURNISH STOCK POSITION AS ON 31.1.2002. THIS WAS WORKED OUT BY HIM BY CONS IDERING GP RATE OF 20% AND SALES AND PURCHASES UPTO 15.2.2002. ACCORDI NGLY STOCK AS PER BOOKS WAS DETERMINED AT RS.9 87 718/-. ON PHYSICAL VERIFICATION THE STOCK WAS VALUED AT RS.25 14 306/-. HOWEVER STOCK AS PER BOOKS WAS REWORKED AFTER APPLYING GP MARGIN OF 28.5%. THE DIFFERENCE B ETWEEN STOCK AS PER BOOKS AND THAT PHYSICALLY FOUND WAS FINALLY DETERMI NED AT RS.8 10 011 IN ADDITION TO THIS THE AO FOUND UNACCOUNTED INVESTMEN T IN FURNITURE AND FIXTURES AT RS.91 000/-. IT WAS ALSO FOUND THAT FOU R AIR CONDITIONERS WERE 4 FITTED IN THE PREMISES IN WHICH UNEXPLAINED INVESTM ENT OF RS.1 06 250/- (1 20 000 13 750/- WAS WORKED OUT. THUS TOTAL UND ISCLOSED INVESTMENT OF RS.10 06 250/- (RS.8 10 011 + 91 000 + 1 12 250) WAS DETERMINED. THE ASSESSEE SUBSEQUENTLY WHILE FILING RETURN FOR T HE ASST. YEAR 2002-03 DECLARED TOTAL INCOME OF RS.5 58 670/-. THERE WAS N O INDEPENDENT DECLARATION OF ANY UNDISCLOSED INVESTMENT FOUND DUR ING COURSE OF SURVEY. ON BEING ASKED TO EXPLAIN IT WAS STATED BY THE ASS ESSEE THAT SALES IN THE LAST TWO MONTHS I.E. FEBRUARY & MARCH WERE MADE AT VERY LOW RATES AS IT IS DECIDED TO CLOSE THE BUSINESS DUE TO RECESSION I N THE MARKET. THE AO DID NOT AGREE WITH THIS EXPLANATION AND MADE ADDITI ON OF RS.10 06 250/- SEPARATELY UNDER SECTION 69 TO THE INCOME COMPUTED AS PER PROFIT AND LOSS ACCOUNT. IN FACT WHAT THE AO DID WAS THAT HE WORKED OUT INCOME FROM BUSINESS SEPARATELY AND MADE ADDITION UNDER SECTION 69 SEPARATELY. HIS WORKING FOR THE SAKE OF CONVENIENCE IS GIVEN BELOW :- INCOME AS PER STATEMENT OF INCOME RS.5 58 670/- I.E. RETURNED INCOME LESS: THE ADDITIONAL INCOME AS DISCLOSED BY THE (-) RS.10 06 250/- ASSESSEE U/S 133A TO BE TAXED SEPARATELY BALANCE REGULAR TOTAL INCOME SUBJECT TO ADJUSTMENT AS DISCUSSED IN THE PRECEDING PARAS (- ) RS.4 47 580/- ========== 16. SUBJECT TO THE ABOVE REMARKS THE TOTAL INCOME O F THE ASSESSEE IS COMPUTED AS UNDER : III. INCOME FROM BUSINESS INCOME AS PER STATEMENT OF INCOME I.E. RETURNED INCOME AFTER REDUCING THE INCOME INVESTMENT DISCLOSED DURING THE SURVEY U/S 133A AS DISCUSSED IN PARA 14 ABOVE (-) RS.4 47 58-/- 5 ADD: (I) DISALLOWANCE OUT OF SALES PROMOTION EXP. ETC. AS DISCUSSED IN PARA 11 ABOVE RS.22830/- (II) DISALLOWANCE OUT OF TELEPHONE EXP. ETC. AS DISCUSSED IN PARA 12 ABOVE RS. 3000/- (III) ADDITION U/S 68 FOR UNEXPLAINED CASH CREDIT AS DISCUSSED IN PARA 13 ABOVE RS.97000/- (IV) ADDITION U/S 68 FOR UNEXPLAINED CREDIT IN PARTNERS ACCOUNT AS DISCUSSED RS.200000/- (+) RS.3 22 830 /- INCOME (-) RS.1 24 750/- THIS LOSS WILL BE CARRIED FORWARD TO THE NEXT YEAR AND WILL BE ADJUSTED AGAINST FUTURE PROFIT IF ANY AND THE INCOME INVESTM ENT DISCLOSED DURING THE SURVEY U/S 133A AMOUNTING TO RS.10 06 250/- IS TAXED U/S 69 OF THE INCOME-TAX ACT AS UNDER : TOTAL INCOME U/S 69C AS DISCUSSED IN PARA 7 ABOVE RS.10 06 250/- 3. LD. CIT(A) PASSED VERY DETAILED AND REASONED ORD ER. HE REFERRED TO THE DECISION OF HON. GUJARAT HIGH COURT IN FAKIR MO HMED HAJI HASAN VS. CIT (2002) 120 TAXMAN 11 17 (247 ITR 290) AND HELD THAT ADDITION UNDER SECTION 69 HAS TO BE SEPARATELY MADE AS DEEME D INCOME. THERE IS ONE MORE ISSUE. THE ASSESSEE CLAIMED PARTNERS REMU NERATION U/S 40(B) CONSIDERING THAT AN ADDITION OF RS.10 07 261/- IS M ADE BY THE AO. THE LD. CIT(A) DISMISSED THE RELATED GROUND OF THE ASSESSEE ON THE GROUND THAT INCOME DETERMINED FROM BUSINESS IS LOSS. 4. WHILE UPHOLDING THE ADDITION OF RS.10 06 250/- A S MADE BY THE AO LD. CIT(A) OBSERVED THAT DEEMED INCOME UNDER SE CTION 69 DOES NOT NEED ANY HEAD OF INCOME AND THEREFORE CANNOT BE S ET OFF AGAINST BUSINESS LOSS. LD. CIT(A) ALSO DECLINED TO GIVE TELESCOPING EFFECT OF EITHER RS.2 6 LACS BEING UNEXPLAINED CREDIT IN THE ACCOUNT OF PAR TNER OR OF RS.97 000/- BEING INVESTMENT IN FURNITURE AND FIXTURES OUT OF R S.10 06 250/- ON THE GROUND THAT THIS SUM IS ALREADY FOUND INVESTED IN S TOCK AND THEREFORE IT WILL NOT BE AVAILABLE FOR INVESTING ELSEWHERE. 5. BEFORE US ASSESSEE HAS RAISED SEVERAL GROUNDS A S ABOVE. THE LD. AR DID NOT PRESS GROUND NOS.1 & 2 AND THEREFORE T HEY ARE REJECTED AS NOT PRESSED. 6. REGARDING ADDITION OF RS.10 06 250/- UNDER SECTI ON 69 LD. AR SUBMITTED THAT THIS HAS TO BE CONSIDERED AS BUSINE SS INCOME AS WHAT IS FOUND IS BUSINESS STOCK. IT CANNOT HAVE A DIFFERE NT CHARACTER THAN THE BUSINESS INCOME. HE SUBMITTED THAT IN ANY CASE TAX HAS TO BE LEVIED ON TOTAL INCOME AFTER CLUBBING INCOME UNDER DIFFERENT HEADS INCLUDING INCOME UNDER SECTION 69. THEREFORE THERE IS NO SEP ARATE IDENTITY OF ADDITION UNDER SECTION 69 EVEN IF ONE FOLLOWS THE D ECISION OF HON. GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN VS. CIT (SUPRA). HE THEN CLAIMED THAT ONCE INVESTMENT IN ST OCK IS CONSIDERED AS BUSINESS OUTGOING THEN PARTNERS OF THE FIRM ARE ENT ITLED FOR HIGHER REMUNERATION AS PER SECTION 40(B). LD. AR REFERRED TO THE DECISION OF HON. SUPREME COURT IN LAKHMICHAND BAIJNATH VS. CIT 35 ITR 416(SC) FOR THE PROPOSITION THAT IF CREDITS ARE FOUND IN TH E BUSINESS ACCOUNT OF THE ASSESSEE THEN THE INCOME-TAX AUTHORITIES ARE ENTITL ED TO TREAT THE RECEIPTS AS BUSINESS RECEIPTS CHARGEABLE TO TAX AND FURTHER THAT WHEN AMOUNT IS FOUND CREDITED IN BOOKS MAINTAINED FOR BUSINESS THE N IT IS NOT UNREASONABLE INFERENCE TO DRAW THAT IT IS A RECEIPT FROM BUSINESS. HE THEN REFERRED TO THE DECISIONS OF HON. CALCUTTA HIGH COU RT IN THE CASE OF DAULATRAM RAWATMULL VS. CIT 64 ITR 593 (CAL) AND C IT VS. MARGARETS HOPE TEA CO. LTD. 201 ITR 747 (CAL) FOR THE SAME PR OPOSITION. 7 7. THE LD. AR FURTHER SUBMITTED THAT IF THERE IS A POSITIVE FIGURE UNDER THE HEAD BUSINESS THEN IT HAS TO BE NECESSARILY A GGREGATED WITH THE DEEMED INCOME UNDER SECTION 69A 69B & 69C FOR WORK ING OUT GROSS TOTAL INCOME FROM WHICH ALLOWABLE DEDUCTIONS UNDER CHAPTER-VIA ARE REDUCED AND THEREAFTER TOTAL INCOME IS WORKED OUT F OR LEVY OF TAX. IF POSITIVE INCOME UNDER THE HEAD BUSINESS IS AGGREG ATED WITH DEEMED INCOME THEN THERE IS NO REASON WHY NEGATIVE INCOME I.E. LOSS BE NOT AGGREGATED WITH SUCH DEEMED INCOME. THERE IS NO PRO VISION UNDER THE INCOME-TAX ACT THAT LOSS UNDER THE HEAD BUSINESS WOULD BE CARRIED FORWARD AND TAX HAS TO BE LEVIED ONLY ON DEEMED INC OME. IN FACT SECTION 68 69A 69B & 69C FALL UNDER CHAPTER VI. 8. ON THE OTHER HAND LD. DR SUBMITTED THAT ADDITIO N UNDER SECTION 69 HAS TO BE SEPARATELY MADE FOLLOWING THE DECISION OF HON. GUJARAT HIGH COURT IN FAKIR MOHMED HAJI HASAN VS. CIT (SUPRA) AN D NO SET OFF AGAINST BUSINESS LOSS HAS TO BE ALLOWED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS SOME MIS UNDERSTANDING ABOUT THE INTERPRETATION OF DECISION OF HON. GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN VS. CIT (SUPRA). FOR THE SA KE OF CONVENIENCE WE REPRODUCE THE HEAD NOTES FROM THAT DECISION AS U NDER :- THE SCHEME OF SECTIONS 69 69A 69B AND 69C OF THE INCOME-TAX ACT 1961 WOULD SHOW THAT IN CASES WHERE THE NATURE AND SOURCE OF INVESTMENTS MADE BY THE ASSESSEE OR THE NATURE AND SOURCE OF ACQUISITION OF MONEY BULLION ETC. OWNED BY THE ASSESSEE OR T HE SOURCE OF EXPENDITURE INCURRED BY THE ASSESSEE ARE NOT EXPLAI NED AT ALL OR NOT SATISFACTORILY EXPLAINED THEN THE VALUE OF SUCH I NVESTMENTS AND MONEY OR VALUE OF ARTICLES NOT RECORDED IN THE BOOKS OF ACCO UNT OR THE UNEXPLAINED EXPENDITURE MAY BE DEEMED TO BE THE INCOME OF SUCH ASSESSEE. IT FOLLOWS 8 THAT THE MOMENT A SATISFACTORY EXPLANATION IS GIVEN ABOUT SUCH NATURE AND SOURCE BY THE ASSESSEE THEN THE SOURCE WOULD STAND DISCLOSED AND WILL THEREFORE BE KNOWN AND THE INCOME WOULD BE TREATED UNDER THE APPROPRIATE HEAD OF INCOME FOR ASSESSMENT AS PER TH E PROVISIONS OF THE ACT. WHEN THE INCOME CANNOT BE SO CLASSIFIED UNDER ANY ONE OF THE HEADS OF INCOME UNDER SECTION 14 IT FOLLOWS THAT THE QUE STION OF GIVING ANY DEDUCTIONS UNDER THE PROVISIONS WHICH CORRESPOND TO SUCH HEADS OF INCOME WILL NOT ARISE. THE PROVISIONS OF SECTIONS 6 9 69A 69B AND 69C TREAT UNEXPLAINED INVESTMENTS UNEXPLAINED MONEY B ULLION ETC. AND UNEXPLAINED EXPENDITURE AS DEEMED INCOME WHERE THE NATURE AND SOURCE OF INVESTMENT ACQUISITION OR EXPENDITURE AS THE C ASE MAY BE HAVE NOT BEEN EXPLAINED OR SATISFACTORILY EXPLAINED. THEREFO RE IN THESE CASES THE SOURCE NOT BEING KNOWN SUCH DEEMED INCOME WILL NOT FALL EVEN UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THEREFORE THE CO RRESPONDING DEDUCTIONS WHICH ARE APPLICABLE TO THE INCOMES UNDE R ANY OF THESE VARIOUS HEADS WILL NOT BE ATTRACTED IN THE CASE OF DEEMED INCOMES WHICH ARE COVERED UNDER THE PROVISIONS OF SECTIONS 69 69 A 69B AND 69C OF THE ACT IN VIEW OF THE SCHEME OF THOSE PROVISIONS : HELD _ ON THE FACTS THAT IT WAS CLEAR THAT WHEN THE INV ESTMENT IN OR ACQUISITION OF GOLD WHICH WAS RECOVERED FROM THE A SSESSEE WAS NOT RECORDED IN THE BOOKS OF ACCOUNT AND THE ASSESSEE O FFERED NO EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH INVESTMENT OR A CQUISITION AND THE VALUE OF SUCH GOLD WAS NOT RECORDED IN THE BOOKS OF ACCOUNT NOR THE NATURE AND SOURCE OF ITS ACQUISITION EXPLAINED THE RE COULD ARISE NO QUESTION OF TREATING THE VALUE OF SUCH GOLD WHICH WAS DEEMED TO BE THE INCOME OF THE ASSESSEE AS A DEDUCTIBLE TRADING LOS S ON ITS CONFISCATION BECAUSE SUCH DEEMED INCOME DID NOT FALL UNDER THE H EAD OF INCOME PROFITS AND GAINS OF BUSINESS OR PROFESSION. THER EFORE THE TRIBUNAL WAS PERFECTLY RIGHT IN HOLDING THAT THE VALUE OF TH E GOLD WAS LIABLE TO BE INCLUDED IN THE INCOME OF THE ASSESSEE AS THE SOURC E OF INVESTMENT IN THE GOLD OR OF ITS ACQUISITION WAS NOT EXPLAINED AND TH AT THE ASSESSEE WAS NOT ENTITLED TO CLAIM THAT THE VALUE OF THE GOLD SHOULD BE ALLOWED AS A DEDUCTION FROM HIS INCOME. IF WE CLOSELY EXAMINE ABOVE JUDGMENT WE FIND THAT F OR INVOKING PROVISIONS OF SECTIONS 69 69A 69B & 69C TWO CONDI TIONS ARE REQUIRED TO BE SATISFIED. THEY ARE (I) INVESTMENT/EXPENDITURE A RE NOT RECORDED IN THE BOOKS OF ACCOUNT OF ASSESSEE & (II) THE NATURE AND SOURCE OF ACQUISITION 9 OF ASSETS OR EXPENDITURE ARE NOT EXPLAINED OR NOT E XPLAINED SATISFACTORILY THE EXPRESSION NATURE AND SOURCE USED IN THIS SEC TION SHOULD BE UNDERSTOOD TO MEAN REQUIREMENT OF IDENTIFICATION OF SOURCE AND ITS GENUINENESS. TO EXPLAIN NATURE IT WOULD REQUIRE T HE ASSESSEE TO EXPLAIN WHAT IS DESCRIPTION OF INVESTMENT OR EXPENDITURE P ERIOD AND THE MANNER IN WHICH IT WAS DONE. TO EXPLAIN THE SOURCE IT WOU LD REQUIRE THE ASSESSEE TO EXPLAIN THE CORPUS OR FUND FROM WHERE INVESTMENT OR EXPENDITURE HAS BEEN MET AND ALSO THE HEAD UNDER WHICH THE INVESTME NT OR EXPENDITURE WOULD FALL SUCH AS WHETHER INVESTMENT/EXPENDITURE P ERTAINS TO BUSINESS OR RELATES TO ACQUISITION OF CAPITAL ASSET OR TO OTHER SOURCE OR TO AGRICULTURE. WHERE THE ASSESSEE IS ABLE TO EXPLAIN NATURE AND SO URCE OF INVESTMENT/EXPENDITURE AND ALSO IF THEY ARE RECORDE D IN THE BOOKS OF ACCOUNT THEN SUCH INVESTMENT/EXPENDITURE WILL NOT B E TREATED AS DEEMED INCOME BUT WHERE INVESTMENT /EXPENDITURE IS NOT REC ORDED IN THE BOOKS OF ACCOUNT AND/OR THEIR NATURE AND SOURCE IS NOT EXPLA INED OR NOT SATISFACTORY EXPLAINED DEEMING PROVISION UNDER THESE FOUR SECTI ONS CAN BE INVOKED BY THE AO AND INVESTMENT/EXPENDITURE WOULD BE TREATED AS DEEMED INCOME OF THE ASSESSEE. THUS FOR INVOKING THESE DEEMING SE CTIONS FIRST CONDITION HAS TO BE NECESSARILY SATISFIED THAT THEY ARE NOT R ECORDED IN THE BOOKS OF ACCOUNT REGULARLY MAINTAINED BY THE ASSESSEE. BUT F OR ESTABLISHING NEXUS OF SUCH INVESTMENT/EXPENDITURE WITH A HEAD OF INCOM E AND TO TAKE THE BENEFIT OF SET OFF ASSESSEE HAS TO NECESSARILY EXP LAIN THE NATURE AND SOURCE OF SUCH INVESTMENT/EXPENDITURE AND ESTABLISH ITS NEXUS WITH ANY HEAD OF INCOME. HON. GUJARAT HIGH COURT FURTHER HEL D THAT FOR CLAIMING TRADING LOSS IN RESPECT OF AN ASSET WHOSE INVESTMEN T WAS FOUND UNEXPLAINED IT WAS NECESSARY FOR THE ASSESSEE TO E XPLAIN THE NATURE AND SOURCE OF ITS ACQUISITION AND ON ITS FAILURE TO DO SO THE TRADING LOSS ON THE CONFISCATION OF THE ASSET COULD NOT BE SET OFF. 10 10. WE NOTICE THAT THE SET OFF OF ANY TRADING LOSS AGAINST DEEMED INCOME ASSESSED UNDER SECTIONS 69 69A 69B & 69C I S NOT DIRECTLY DISCERNIBLE FROM SECTIONS 72 TO 79 FALLING IN CHAPT ER-VI. TO SUMMARILY REFER TO THESE PROVISIONS WE NOTE THAT IN CHAPTER V I SECTION 70 PROVIDES SET OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME. IN OTHER WORDS IF UNDER T HE HEAD BUSINESS THERE ARE TWO BUSINESSES ONE IS RESULTING IN INCOM E AND THE OTHER IS RESULTING IN LOSS THEY ARE TO BE SET OFF AGAINST E ACH OTHER. SIMILARLY IF THERE IS A LOSS UNDER THE HEAD CAPITAL GAINS IN RES PECT OF SHORT-TERM CAPITAL GAINS AND THERE IS INCOME IN RESPECT OF OTHER CAPIT AL ASSETS THEN THAT CAN BE SET OFF AS PER SECTION 70. SECTION 71 PROVIDES S ET OFF OF LOSS FROM ONE HEAD AGAINST INCOME FROM ANOTHER HEAD. THUS WHERE T HERE IS A LOSS UNDER ONE HEAD BEING LOSS OTHER THAN LOSS UNDER THE HEAD CAPITAL GAINS THEN IT CAN BE SET OFF AGAINST ANY INCOME ASSESSABLE UNDER ANOTHER HEAD. SECTION 71A AND SECTION 71B PROVIDE FOR CARRY FORWARD OF SE T OFF OF LOSS FROM HOUSE PROPERTY. SECTION 72 PROVIDES FOR CARRY FORWA RD OF BUSINESS LOSS. ACCORDING TO THIS SECTION IF LOSS UNDER THE HEAD BU SINESS OTHER THAN SPECULATION LOSS CANNOT BE SET OFF AGAINST INCOME UNDER ANY OTHER HEAD IN ACCORDANCE WITH SECTION 71 THEN IT HAS TO BE CARRI ED FORWARD TO THE FOLLOWING ASST. YEARS. SECTION 72A PROVIDES PROVISI ONS OF CARRY FORWARD AND ACCUMULATED LOSS AND UNABSORBED DEPRECIATION AL LOWANCE IN AMALGAMATION OR DEMERGER. SIMILARLY SECTION 72AA PR OVIDES SUCH SET OFF AND CARRY FORWARD IN THE CASE OF BANKING COMPANY AN D SEC.72AB PROVIDES SET OFF IN THE CASE OF CO-OP. BANKS. SECTION 73 PRO VIDES FOR TREATMENT OF LOSS IN SPECULATION BUSINESS. SECTION 74 PROVIDES F OR TREATMENT OF LOSS UNDER THE HEAD CAPITAL GAINS AND SECTION 74A PROVID ES FOR TREATMENT TO LOSS ARISING FROM SOURCES UNDER THE HEAD INCOME FR OM OTHER SOURCES. SECTION 75 PROVIDES FOR LOSSES IN CASE OF FIRM AND SECTION 78 IN RESPECT OF CARRY FORWARD AND SET OFF OF LOSS IN CASE OF CHANGE IN CONSTITUTION OF THE 11 FIRM AND SECTION 79 PROVIDES FOR CARRY FORWARD AND SET OFF OF LOSS IN THE CASES OF CERTAIN COMPANIES. THUS TREATMENT OF LOSS ARISING UNDER THE HEAD BUSINESS IS PROVIDED ONLY UNDER SECTION 72 WHICH DI RECTS TO CARRY FORWARD THE UNABSORBED LOSS TO THE NEXT YEAR UNLESS IT IS O THERWISE PROVIDED IN ANY OTHER SECTION OF CHAPTER VI. WE HAVE GONE THROUGH ALL THE SECTIONS UNDER CHAPTER VI AND WE DO NOT FIND ANY PROVISION FOR SETTING OFF OF BUSINESS LOSS AGAINST DEEMED INCOME UNDER SECTIONS 69 69A 69B & 69C. 11. BUT THIS DOES NOT MEAN THAT LOSS COMPUTED UNDER ANY OF THE FIVE HEADS MENTIONED IN SECTION 14 (I) SALARY (II) INCOME FROM HOUSE PROPERTY (III) PROFITS AND GAINS FROM BUSINESS O R PROFESSION (IV) CAPITAL GAINS AND (V) INCOME FROM OTHER SOURCES CANNOT AT ALL BE ADJUSTED AGAINST UNEXPLAINED INVESTMENT OR EXPENDIT URE. WHAT IS NECESSARY AS PER HON. GUJARAT HIGH COURT IS THAT SO URCE OF ACQUISITION OF ASSET OR EXPENDITURE SHOULD BE CLEARLY IDENTIFIABLE . IN THE CASE BEFORE HON. GUJARAT HIGH COURT THE SOURCE OF GOLD CONFISCA TED WAS NOT IDENTIFIABLE AND HENCE ADJUSTMENT WAS NOT PERMITTED . 12. THUS THE IMPORTANT ASPECT THAT EMERGES FROM THE ENTIRE DISCUSSION IS THAT FOR INVOKING DEEMING PROVISIONS UNDER SECTI ONS 69 69A 69B & 69C THERE SHOULD BE CLEARLY IDENTIFIABLE ASSET OR E XPENDITURE. IN THE PRESENT CASE WE FIND THAT ENTIRE PHYSICAL STOCK OF RS.25 14 306/- WAS PART OF THE SAME BUSINESS. BOTH KIND OF STOCK I.E. WHAT IS RECORDED IN THE BOOKS AND WHAT WAS FOUND OVER AND ABOVE THE STOCK RECORDE D IN THE BOOKS WERE HELD AND DEALT UNIFORMLY BY THE ASSESSEE. THERE WAS NO PHYSICAL DISTINCTION BETWEEN THE ACCOUNTED STOCK OR UNACCOUN TED STOCK. NO SUCH PHYSICAL DISTINCTION WAS FOUND BY THE REVENUE EITHE R. THE ASSESSEE HAS REPEATEDLY CLAIMED THAT UNACCOUNTED BUSINESS INCOME IS INVESTED IN STOCK AND THERE IS NO AMOUNT SEPARATELY TAXABLE UNDER SEC TION 69. THE 12 DEPARTMENT HAS IGNORED THIS CLAIM OF THE ASSESSEE A ND SOUGHT TO TAX THE DIFFERENCE BETWEEN BOOK-STOCK AND PHYSICAL-STOCK AS UNACCOUNTED INVESTMENT UNDER SECTION 69 WITHOUT CONSIDERING THE CLAIM OF THE ASSESSEE THAT FIRST THE BUSINESS RECEIPT HAS TO BE CONSIDERE D AND THEN INVESTMENT SHOULD BE TREATED AS COMING OUT OF SUCH UNACCOUNTED INCOME. THE DIFFERENCE IN STOCK SO WORKED OUT BY THE AUTHORITIE S BELOW HAD NO INDEPENDENT IDENTITY OF ITS OWN AND IT IS PART AND PARCEL OF ENTIRE LOT OF STOCK. THE DIFFERENCE BETWEEN DECLARED STOCK IN THE BOOKS AND WHAT IS PHYSICALLY FOUND WOULD ONLY BE A MATHEMATICAL EXPRE SSION IN TERMS OF VALUE AND NOT A SEPARATE INDEPENDENT IDENTIFIABLE A SSET. THEREFORE IT CANNOT BE SAID THAT THERE IS AN UNDISCLOSED ASSET E XISTED INDEPENDENTLY. ONCE THIS IS SO THEN WHAT IS NOT DECLARED TO THE DE PARTMENT IS RECEIPT FROM BUSINESS AND NOT ANY INVESTMENT AS IT CANNOT BE CO- RELATED WITH ANY SPECIFIC ASSET. 13. THUS IN A CASE WHERE SOURCE OF INVESTMENT/EXPEN DITURE IS CLEARLY IDENTIFIABLE AND ALLEGED UNDISCLOSED ASSET HAS NO I NDEPENDENT EXISTENCE OF ITS OWN OR THERE IS NO SEPARATE PHYSICAL IDENTITY O F SUCH INVESTMENT/EXPENDITURE THEN FIRST WHAT IS TO BE TAX ED IS THE UNDISCLOSED BUSINESS RECEIPT INVESTED IN UNIDENTIFIABLE UNACCOU NTED ASSET AND ONLY ON FAILURE IT SHOULD BE CONSIDERED TO BE TAXED UNDER S ECTION 69 ON THE PREMISES THAT SUCH EXCESS INVESTMENT IS NOT RECORDE D IN THE BOOKS OF ACCOUNT AND ITS NATURE AND SOURCE IS NOT IDENTIFIAB LE. ONCE SUCH EXCESS INVESTMENT IS TAXED AS UNDECLARED BUSINESS RECEIPT THEN TAXING IT FURTHER AS DEEMED INCOME UNDER SECTION 69 WOULD NOT BE NECESSA RY. THEREFORE THE FIRST ATTEMPT OF THE ASSESSING AUTHORITY SHOULD BE TO FIND OUT LINK OF UNDECLARED INVESTMENT/EXPENDITURE WITH THE KNOWN HE AD GIVE OPPORTUNITY TO THE ASSESSEE TO ESTABLISH NEXUS AND IF IT IS SATISFACTORILY ESTABLISHED THEN FIRST SUCH INVESTMENT SHOULD BE CO NSIDERED AS UNDECLARED 13 RECEIPT UNDER THAT PARTICULAR HEAD. IT IS ONLY WHER E NO NEXUS IS ESTABLISHED WITH ANY HEAD THEN IT SHOULD BE CONSIDERED AS DEEME D INCOME UNDER SECTION 69 69A 69B & 69C AS THE CASE MAY BE. IT I S BECAUSE WHEN ASSESSEE FAILS TO EXPLAIN SATISFACTORILY THE SOURCE OF SUCH INVESTMENT THEN IT SHOULD BE TAXED UNDER SECTION 69 69A 69B & 69C AS THE CASE MAY BE. IT SHOULD NOT BE DONE AT THE FIRST INSTANCE WITHOUT GIVING OPPORTUNITY TO THE ASSESSEE TO ESTABLISH NEXUS. THEREFORE THERE I S NO CONFLICT WITH THE DECISION OF HON. GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN (SUPRA) WHERE INVESTMENT IN AN ASSET OR EXPEN DITURE IS NOT IDENTIFIABLE AND NO NEXUS WAS ESTABLISHED THEN WITH ANY HEAD OF INCOME AND THUS WAS NOT AVAILABLE FOR SET OFF AGAINST ANY LOSS UNDER ANY OTHER HEAD. THEREFORE WE HOLD THAT WHERE ASSET IN WHICH UNDECLARED INVESTMENT IS SOUGHT TO BE TAXED IS NOT CLEARLY IDENTIFIABLE O R DOES NOT HAVE INDEPENDENT IDENTITY BUT IS INTEGRAL AND INSEPARABL E (MIXED) PART OF DECLARED ASSET FALLING UNDER A PARTICULAR HEAD TH EN THE DIFFERENCE SHOULD BE TREATED AS UNDECLARED BUSINESS INCOME EXPLAINING THE INVESTMENT. 14. TO CONCLUDE SUM OF RS.8 10 011/- BEING DIFFEREN CE IN STOCK IS REPRESENTED BY UNDECLARED BUSINESS INCOME. IT DOES NOT HAVE A SEPARATE PHYSICAL IDENTITY. IT IS TO BE ONLY TAXED UNDER THE HEAD BUSINESS. OTHER ASSETS HAVE SEPARATE PHYSICAL IDENTITY BEING FURNIT URE AND FIXTURES AIR CONDITIONERS ETC. THEY CANNOT HAVE A DIRECT NEXUS W ITH BUSINESS AND THEREFORE INVESTMENT THEREIN HAS TO BE CONSIDERED U NDER SECTION 69 ONLY. 15. IN VIEW OF THE ABOVE AO IS DIRECTED TO CONSIDE R THE SUM OF RS.8 10 011/- AS UNDISCLOSED BUSINESS INCOME ASSESS ABLE UNDER THE HEAD BUSINESS AND OTHER TWO SUMS UNDER SECTION 69. THE BUSINESS INCOME INCLUDING APPLICATION OF SECTION 40(B) HAS TO BE CO NSIDERED ACCORDINGLY. 14 FOR CALCULATION OF INCOME IN VIEW OF OUR ABOVE OBSE RVATIONS WE RESTORE THE MATTER TO THE FILE OF AO. 16. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED : 12/2/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD ORDER PRONOUNCED IN OPEN COURT ON 12/2/2010