2012 (7) TMI 753 - AT - Income Tax

Addition on account of credits in the capital accounts of the three partners Held that - Amounts in question have been brought into the firm by the partners themselves, there is no dispute with regard to the identity of the persons - no justification for the adverse inferences drawn by the lower authorities, considering the statements of the partners and their capital accounts, copies of which are filed in the paper-book - partners, admittedly, are income-tax assessees and have given plausible explanation for the sources for the investments claimed to have been made by them in the firm - no justification for the additions under S.68 of the Act, made by the assess Addition on account of credits in the account of Ms. Priyanka, sister of the partner Held that - assessee discharged the onus that lies on it to establish the identity of the creditor, her credit-worthiness and the genuineness of the transaction - assertion of the assessee before us that substantial portion of the amount of Rs. 10,75,000 has been received by the assessee from Ms. Priyanka Gadodia by way of cheques - matter remaded to the file of the assessing officer Deduction under S. 80-IB of the Act - Held that - Assessee failed to make claims u/s. 80IB in the earlier assessment years - assessee has not furnished all the relevant particulars of the relevant year for claiming deduction u/s. 80IB of the IT Act - relief under S.80IB of the Act has not been claimed in the return - there was no valid reason given by assessee for not making such a claim in earlier years, there was no infirmity in order of Commissioner (Appeals) - ground of the assessee rejected Interest under S.234B of the Act Held that - Provisions of S.234B of the Act come into play only if there was a liability under S.208 of the Act in favor of assessee

Summary

Issues Involved:
1. Addition of Rs. 7,90,000 under S.68 of the Act.
2. Addition of Rs. 10,75,000 on account of credits in the account of Ms. Priyanka Gadodia.
3. Addition related to the consumption of gum.
4. Addition of Rs. 82,229 on account of difference in the valuation of the closing stock.
5. Claim for deduction under S. 80-IB of the Act.
6. Plea for telescoping of alleged unexplained expenditure with cash credits.
7. Charging of interest under S.234B of the Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 7,90,000 under S.68 of the Act:
The assessee contended that the credits in the capital accounts of the partners were from personal savings and a gift from a partner's father. The CIT(A) had not accepted these explanations, treating the deposits as cash credits. However, the Tribunal found that the partners were income-tax assessees and had provided plausible explanations for their investments. It was concluded that the department's insistence on proving the source of the source was not permissible in law. The Tribunal deleted the addition, allowing the assessee's grounds on this issue.

2. Addition of Rs. 10,75,000 on account of credits in the account of Ms. Priyanka Gadodia:
The assessee argued that Ms. Priyanka Gadodia, sister of a partner, had advanced the amount via cheques and was an income-tax assessee, thus establishing her creditworthiness. The Tribunal set aside the CIT(A)'s order and restored the matter to the assessing officer to verify the bank entries and re-decide the issue with regard to the creditworthiness of the creditor and the genuineness of the transactions.

3. Addition related to the consumption of gum:
The assessing officer had added Rs. 7,94,420 under S.69C of the Act for unexplained expenditure on gum consumption. The CIT(A) reduced this to Rs. 4,67,586. The Tribunal found the addition sustained by the CIT(A) to be on the higher side and restricted it to Rs. 3 lakhs, considering the elaborate analysis submitted by the assessee.

4. Addition of Rs. 82,229 on account of difference in the valuation of the closing stock:
The assessee contended that it was unfair to disturb the closing stock figure without adjusting the opening stock. The Tribunal directed the assessing officer to decide the issue in light of the decision in K.G. Khosla & Co. P Ltd. v. CIT, which mandates that both opening and closing stocks must be valued on the same basis.

5. Claim for deduction under S. 80-IB of the Act:
The CIT(A) rejected the claim for deduction under S. 80-IB, noting that the assessee had not claimed it in earlier years and no valid reason was provided for this omission. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the reasoning given.

6. Plea for telescoping of alleged unexplained expenditure with cash credits:
The CIT(A) rejected the plea for telescoping unexplained expenditure against unexplained credits, stating that such a plea can only be made when sales or profit are estimated. The Tribunal found no infirmity in this reasoning and upheld the CIT(A)'s order on this issue.

7. Charging of interest under S.234B of the Act:
The Tribunal held that the assessee was not liable to pay advance tax under S.208, as the tax on current income was entirely covered by TDS. Consequently, the provisions of S.234B were not applicable. The Tribunal relied on the decisions in Datamatics Ltd. v. Asstt. CIT and CIT v. Sushila Devi Jain to support this conclusion.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, with significant relief granted on several issues, while some contentions were rejected, upholding the CIT(A)'s decisions.