IN 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 .. Income Tax Officer Ward 1 (6), Ayakar Bhavan, Seminary Hills, Civil Lines, Nagpur. ... RESPONDENT Mr.N.S.Bhattad, Advocate for Appellant. Mr.B.N.Mohta, Advocate for Respondent. CORAM : M.S.SANKLECHA & MANISH PITALE, JJ. DATED : June 12, 2017. P.C. 1. This appeal under Section 260 of Income Tax Act, 1961 (Act) challenges order dated 16th July, 2003 of Income Tax Appellate Tribunal, Nagpur. 2. This Court on 26th October, 2007 admitted appeal on following substantial question of law : '(a) Whether claim under section 40(b) of I.T. 2 Itl79.03.odt Act is allowable on amount surrendered in course of survey U/s. 133 of I.T. Act, particularly when surrender amount was shown as business income and assessed as business income?' 3. On 3rd October, 1997 survey under Section 133 of Act was conducted at appellant's premises. During course of survey, excess stock of Rs.1,10,582/ was found. Further, it was noticed that appellant/ assessee has received 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 books of account. 4. On 28th August, 1998, appellant filed its return of income declaring total net income of Rs.1,08,750/ Along with return of income, profit and loss account was filed indicating that amount of Rs.1,55,289/ was taken into account by crediting it to profit and loss account under head 'other income'. However, to work out salary paid to partner in terms of section 40(b) of Act, appellant had taken into account same in computing book profits. Assessing Officer held that other income shown by appellant could not be considered to be business income of firm, this other income of Rs.1,55,289/ was added in profit and loss account to gross profit and included for purposes of Section 40(b) of Act while determining book profit. However, otherwise amount of Rs.1,55,289/ was included as part of business income to compute tax payable in assessment order dated 29th December, 2000. 3 Itl79.03.odt 5. Being aggrieved, appellant carried issue in appeal to Commissioner of Income Tax (Appeals) (CIT(A)). By order dt.10th August, 2001, CIT (A) held that merely because amount has been credited to profit and loss account, it would not necessarily become part of profit of business. Accordingly, appeal of appellant was dismissed. 6. Being aggrieved, appellant carried issue to Tribunal. By impugned order dt. 16th July 2003, Tribunal rejected appeal, inter alia holding that book profits have been defined to mean as 'net profit' as shown in profit and loss account and computed in manner provided in Chapter IV D of Act i.e. sections 28 to 44 D of Act. amount of Rs.1,55,289/ not being shown to having any nexus with business activities carried by appellant was held to be not includible while computing its income to determine book profits. 7. primary submission of Mr. Bhattad, learned counsel for appellant is that from record itself it is very clear that Assessing Officer has accepted Rs.1,55,289/ which was disclosed as 'other income' as being part of its business income. If aforesaid amount of Rs.1,55,289/ was not taken as business income, then for subject assessing year appellant/assessee would not have net profit of Rs.1,08,000/ , but would have loss of about Rs.47,000/ approximately. While computing tax payable, Assessing Officer ought to have classified 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 4 Itl79.03.odt Tribunal in its impugned order. Therefore, it is submitted that character of income does not undergo change depending upon section of Act applied. 8. Mr. Bhushan Mohta, learned counsel for Revenue, states that error in not separately classifying other income as income from other sources, would not be fatal to case of Revenue. This is particularly so when reasoning given in order of Assessing Officer as confirmed by CIT(A) as well as of Tribunal is considered. 9. It is undisputed that Assessing Officer has brought to tax amount of Rs.1,55,289/ shown as other income in profit and loss account as income from business under Section 28 of Act. assessment order does not classify same as income from other sources or under any other head. Once aforesaid position is accepted, then for purpose of computing book profit as defined in section 40(b) of Act, other income of Rs.1,55,289/ has also to be considered to be part of income from business arrived at in accordance with Chapter IV D of Act. It is not open to Revenue to contend that amount of Rs.1,55,289/ is part of business income while computing tax payable but not so for purposes of Section 40(b) of Act. character of income does not change dependent upon section to be applied. This issue has not been examined at all by authorities under Act. It goes to root of dispute. 10. Therefore, in peculiar facts and circumstances of case, substantial question of law is answered in 5 Itl79.03.odt affirmative and in favour of appellant/assessee and against Revenue. 11. Accordingly, appeal is allowed. JUDGE JUDGE waghmare NationalSalesCorporation v. TheIncome-taxOfficer, Ward-1(6), Nagpur