2012 (8) TMI 364 - AT - Income Tax

Validity of reopening proceedings of firm in which assessee is partner - assessment reopened on ground that firm has made payment of Rs.83.25 lacs on various dates towards purchase of land and that firm is neither assessed to tax nor it has filed any return of income in respect of these years or for any earlier AY - Held that - It was noted that the assessee firm was not having any regular and known source of income and, therefore, the source of payment made against purchase of land remained unverified and unexplained as per the A.O. Addition was made in the hands of individual Shri R N Patel on protective basis and, therefore, the assessment of this assessee was reopened u/s 147. Since the proviso to Section 147 is not applicable in the present case and the notice was issued by the A.O. after recording the reasons, hence reopening upheld - Decided against assessee. Advance towards plot booking received form 41 persons out of which the assessee produced only 3 persons - creditworthiness of the alleged depositors could not be proved - Held that - Since no such evidence regarding creditworthiness of the depositors and genuineness of transaction could be produced, hence addition confirmed - Decided against assessee Introduction of capital by partners - Held that - This issue is now covered in favour of the assessee by the judgement rendered in the case of Pankaj Dyestuff and hence, no addition could be made in the hands of the firm but the revenue is at liberty to reopen assessment of the partners as per law and this issue can be examined in their cases as to whether they could explain the source of investments in the assessee firm or not - Decided in favor of assessee Deletion of addition made in hands of partners in their individual capacity on protective basis - Held that - It is found that entire addition in both the years was deleted by CIT(A) on this basis that substantive addition has already been made in the case of the firm M/s. Maruti Developers and therefore, the protective addition made in the hands of the individual partner is to be deleted. Hence, no addition can be made in the hands of the assessee on protective basis - Decided against Revenue

Summary

Issues:
1. Validity of reopening proceedings in the case of the firm.
2. Addition of plot booking advances and capital introduced by partners under section 68.
3. Dispute regarding deletion of additions made by the Assessing Officer in the case of an individual partner.

Issue 1: Validity of reopening proceedings in the case of the firm:
The Assessing Officer (A.O.) noted that the firm had made payments towards the purchase of land without a known source of income, leading to the reopening of assessment under section 147. The Appellate Tribunal upheld the reopening, stating that the notice was issued after recording reasons and the proviso to Section 147 was not applicable. Therefore, the ground raised by the assessee regarding the validity of reopening proceedings was rejected.

Issue 2: Addition of plot booking advances and capital under section 68:
Regarding the addition of Rs.70.45 lacs and Rs.13.25 lacs made by the A.O. and confirmed by the Commissioner of Income Tax (CIT) in respect of plot booking advances and capital introduced by partners, the Tribunal found that the assessee failed to establish the creditworthiness of depositors and the genuineness of transactions. The Tribunal confirmed the additions under section 68 for both assessment years, as evidence supporting the transactions was lacking.

Issue 3: Dispute regarding deletion of additions made by the Assessing Officer in the case of an individual partner:
The CIT(A) deleted the additions made by the A.O. in the case of an individual partner, as substantive additions had already been made in the case of the firm. The Tribunal upheld the CIT(A)'s decision, stating that no further additions were necessary in the individual's case since the source of investments had been verified in the firm's case. Therefore, the protective additions made in the individual's case were deemed unnecessary.

In conclusion, the Tribunal partly allowed the appeal of the assessee in one assessment year and dismissed it in another, while dismissing the revenue's appeals in both years. The judgment focused on the validity of reopening proceedings, additions under section 68, and the deletion of additions made in the case of an individual partner based on substantive additions in the firm's case.