2010 (4) TMI 1138 - AT - Income Tax

2012 (9) TMI 223 - AT

Issues Involved:

1. Erroneous order by CIT(A) on facts and in law.
2. Addition of amounts invested by partners.
3. Onus of proving genuineness of investments.
4. Applicability of Supreme Court decision in CIT Vs. Bharat Engineering and Construction Company.
5. Credit for additional income offered in revised return.
6. Merits of additions sustained by CIT(A) for each partner's capital introduction.

Summary:

1. Erroneous order by CIT(A) on facts and in law:
The assessee contended that the CIT(A)'s order was erroneous both on facts and in law.

2. Addition of amounts invested by partners:
The CIT(A) confirmed the addition of amounts invested by partners: Rs. 1,05,000 (K. Sri Hari), Rs. 1,20,000 (B. Srinivasa Rao), Rs. 1,16,000 (Bavanpalli Srinivasa Rao), Rs. 1,46,000 (T. Venkanna), Rs. 1,94,000 (B. Hari Prasad), and Rs. 1,85,000 (M. Kishore Kumar).

3. Onus of proving genuineness of investments:
The assessee argued that they discharged the onus by providing detailed addresses, confirmation letters, and proving the genuineness of the investments.

4. Applicability of Supreme Court decision in CIT Vs. Bharat Engineering and Construction Company:
The assessee cited the Supreme Court decision in CIT Vs. Bharat Engineering and Construction Company (83 ITR 187)(SC), arguing that the capital introduced in the first year of business should be considered as capital receipts. However, the Tribunal noted that this decision was distinguished by the Calcutta High Court in CIT V/s. Ashok Timber Industries (125 ITR 336)(Cal) and the Madhya Pradesh High Court in Bansidhar Agarwal Panna V/s. CIT (148 ITR 523), making S.68 of the Income-tax Act, 1961 applicable.

5. Credit for additional income offered in revised return:
The Tribunal rejected the plea for credit for additional income offered in the revised return, noting no nexus between the credit entries in partners' accounts and the business income determined at the end of the year.

6. Merits of additions sustained by CIT(A) for each partner's capital introduction:
- K. Sri Hari: Addition reduced to Rs. 50,000 from Rs. 1,05,000, allowing credit for Rs. 55,000 borrowed from friends.
- B. Srinivasa Rao: Addition reduced to Rs. 60,000 from Rs. 1,20,000, allowing credit for agricultural income.
- Bavanpalli Srinivasa Rao: Addition reduced to Rs. 46,000 from Rs. 1,16,000, allowing credit for Rs. 70,000 borrowed.
- T. Venkanna: Addition reduced to Rs. 40,000 from Rs. 1,46,000, allowing credit for agricultural income and Rs. 72,000 borrowed.
- B. Hari Prasad: Addition reduced to Rs. 75,000 from Rs. 1,94,000, allowing credit for agricultural income.
- M. Kishore Kumar: Addition reduced to Rs. 40,000 from Rs. 1,85,000, allowing credit for agricultural income and Rs. 98,000 borrowed.

Conclusion:
The appeal was partly allowed, with reductions in the additions sustained by the CIT(A) for the capital introduced by the partners.

Order pronounced in the open Court on 9/4/2010.

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