2013 (12) TMI 12 - HC - Income Tax

Loan from parties - amount taken by the partners for investment in the firm - Held that - All the loans were old and only transfer entries were made during the year under consideration - The ITAT has righlty observed that the amount brought by the partners of the assessee firm in the capital account is to be assessed in their individual hands of of the partners, unless they failed to explain the same properly - No loan has been taken by the assessee firm in its capacity - Decided against Revenue.

Summary

Issues:
1. Appeal under Section 260-A of the Income Tax Act regarding additions made in the books of account of the assessee firm for assessment year 1989-90.
2. Whether the Tribunal was justified in confirming the order of the CIT (A) regarding examination of the genuineness of creditors and deletion of the addition.
3. Whether the Tribunal was justified in upholding the order of CIT (A) regarding the transfer of loans from an individual to a firm without creditor's consent.

Analysis:
The High Court heard an Income Tax Appeal arising from the Income Tax Appellate Tribunal's order for the assessment year 1989-90. The department raised substantial questions of law regarding the genuineness of creditors and the transfer of loans from an individual to a firm without consent. The AO had made additions in the books of account of the assessee firm, leading to an appeal. The CIT (A) remanded the matter to examine confirmations from creditors. The ITAT allowed the appeal, directing a denovo examination by the CIT (A) on the issue of disallowance of cash credit.

The Revenue's appeal was dismissed as the Tribunal accepted that the loans were old and only transfer entries were made during the relevant year. It was noted that no fresh loans were taken, and the loans were transferred when the individual became a partner in the firm. The Court found that the loans were not new, and no cash was received by the assessee during the year. The Tribunal also observed that the CIT (A) correctly directed the examination of credits in the individual hands of partners if not explained properly.

The High Court concluded that no error of law existed in the ITAT's order to delete the additions made in the books of account of the assessee firm. It was determined that no substantial question of law arose for consideration, leading to the dismissal of the Income Tax Appeal. The Court affirmed the findings of the ITAT regarding the treatment of the loans and the examination of credits in the individual hands of partners if necessary.

In summary, the High Court upheld the ITAT's decision to delete the additions in the books of account, emphasizing the examination of credits in the individual hands of partners and dismissing the Income Tax Appeal due to the absence of any substantial question of law.