Bombay High Court
M/S National Sales Corporation vs The Income Tax Officer Ward I(6) on 12 June, 2017
Bench: M.S. Sanklecha
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH : NAGPUR
INCOME TAX APPEAL NO.79 OF 2003
M/s. National Sales Corporation,
33, Central Avenue, Near Gitanjali
Talkies, Nagpur. ... APPELLANT
.. Versus ..
The Income Tax Officer Ward 1 (6),
Ayakar Bhavan, Seminary Hills,
Civil Lines, Nagpur. ... RESPONDENT
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Mr.N.S.Bhattad, Advocate for the Appellant.
Mr.B.N.Mohta, Advocate for the Respondent.
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CORAM : M.S.SANKLECHA &
MANISH PITALE, JJ.
DATED : June 12, 2017.
P.C.
1. This appeal under Section 260-A of the Income Tax
Act, 1961 (Act) challenges the order dated 16th July, 2003 of the
Income Tax Appellate Tribunal, Nagpur.
2. This Court on 26th October, 2007 admitted the
appeal on the following substantial question of law :
'(a) Whether the claim under section 40(b) of the I.T.
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Act is allowable on amount surrendered in the course of
survey U/s. 133-A of I.T. Act, particularly when the
surrender amount was shown as business income and
assessed as business income?'
3. On 3rd October, 1997 a survey under Section 133-A
of the Act was conducted at the appellant's premises. During the
course of survey, excess stock of Rs.1,10,582/- was found.
Further, it was noticed that the appellant/ assessee has received
an amount of Rs.1,55,289/- as cash loans/advances, sources of
which could not be explained. Moreover, this amount had not
been entered in the books of account.
4. On 28th August, 1998, the appellant filed its return
of income declaring total net income of Rs.1,08,750/- Along
with return of income, the profit and loss account was filed
indicating that the amount of Rs.1,55,289/- was taken into
account by crediting it to the profit and loss account under the
head 'other income'. However, to work out the salary paid to
the partner in terms of section 40(b) of the Act, the appellant
had taken into account the same in computing book profits.
The Assessing Officer held that the other income shown by the
appellant could not be considered to be business income of the
firm, this other income of Rs.1,55,289/- was added in the profit
and loss account to the gross profit and included for the
purposes of Section 40(b) of the Act while determining the book
profit. However, otherwise the amount of Rs.1,55,289/- was
included as a part of business income to compute the tax
payable in the assessment order dated 29th December, 2000.
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5. Being aggrieved, the appellant carried issue in appeal
to the Commissioner of Income Tax (Appeals) (CIT(A)). By
order dt.10th August, 2001, CIT (A) held that merely because
an amount has been credited to the profit and loss account, it
would not necessarily become part of the profit of the business.
Accordingly, appeal of the appellant was dismissed.
6. Being aggrieved, appellant carried the issue to the
Tribunal. By the impugned order dt. 16th July 2003, the
Tribunal rejected the appeal, inter alia holding that the book
profits have been defined to mean as 'net profit' as shown in the
profit and loss account and computed in the manner provided in
Chapter IV-D of the Act i.e. sections 28 to 44-D of the Act. The
amount of Rs.1,55,289/- not being shown to having any nexus
with the business activities carried by the appellant was held to
be not includible while computing its income to determine book
profits.
7. The primary submission of Mr. Bhattad, learned
counsel for the appellant is that from the record itself it is very
clear that the Assessing Officer has accepted Rs.1,55,289/-
which was disclosed as 'other income' as being part of its
business income. If the aforesaid amount of Rs.1,55,289/- was
not taken as business income, then for the subject assessing year
appellant/assessee would not have a net profit of Rs.1,08,000/-,
but would have loss of about Rs.47,000/- approximately. While
computing the tax payable, the Assessing Officer ought to have
classified the amount of Rs.1,55,289/- as income from other
sources and not accepted it as total income as returned business
income. This aspect has been completely overlooked by the
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Tribunal in its impugned order. Therefore, it is submitted that
the character of the income does not undergo change depending
upon the section of the Act applied.
8. Mr. Bhushan Mohta, learned counsel for the Revenue,
states that the error in not separately classifying the other
income as income from other sources, would not be fatal to the
case of the Revenue. This is particularly so when reasoning
given in the order of Assessing Officer as confirmed by the
CIT(A) as well as of the Tribunal is considered.
9. It is undisputed that the Assessing Officer has brought
to tax the amount of Rs.1,55,289/- shown as other income in
profit and loss account as income from business under Section
28 of the Act. The assessment order does not classify the same
as income from other sources or under any other head. Once
the aforesaid position is accepted, then for the purpose of
computing book profit as defined in section 40(b) of the Act, the
other income of Rs.1,55,289/- has also to be considered to be
part of income from business arrived at in accordance with the
Chapter IV-D of the Act. It is not open to the Revenue to
contend that the amount of Rs.1,55,289/- is part of business
income while computing the tax payable but not so for the
purposes of Section 40(b) of the Act. The character of the
income does not change dependent upon the section to be
applied. This issue has not been examined at all by the
authorities under the Act. It goes to the root of the dispute.
10. Therefore, in the peculiar facts and circumstances of
the case, the substantial question of law is answered in the
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affirmative and in favour of appellant/assessee and against the
Revenue.
11. Accordingly, the appeal is allowed.
JUDGE JUDGE
waghmare
