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2014 (2) TMI 515 - AT - Income TaxUnexplained credit Capital introduced by the partner in the firm - Held that - The Assessee had satisfactorily explained the nature and source of capital introduced by the partner and had also proved even the source of source - all the partners are assessed to tax and the Assessee placed on record, the copy of the I.T. returns, personal balance sheets - From the computation of the income of the various partners placed on record, revenue pointed out that the interest on capital received from the firm has been shown by the Assessee as income and the same has also been allowed and the income on capital has also been allowed as expenditure by the Revenue Relying upon CIT vs. Ranchhod Givabhai Nakhaba 2012 (5) TMI 186 - GUJARAT HIGH COURT - the order of the CIT(A) upheld - the Revenue could not controvert the findings of CIT(A) nor has brought any material on record in its support Decided against Revenue. Addition made u/s 69C of the Act Held that - CIT(A) was of the view that only real income should be taxed and therefore there was no reason for determining income u/s. 69C when the expenses were actually recorded - even in principle the expenses found, which related only to six weeks and that too in a period of two months, cannot be averaged over the whole year as production is not at the same levels throughout the year and depends on several factors - If the unexplained expenditure made under section 69C is removed from the income, meager taxable income remains in the hands of Assessee - CIT(A) has noted that on the comparison of details of expenses recorded in the books and those mentioned in the loose papers - the expenses were recorded in the books except from some minor discrepancies for week ending 22.12.2007 - mismatch of data for one week cannot be extrapolated for the year Revenue could not controvert the findings of CIT(A) nor has brought any material on record in its support Decided against Revenue.
Issues Involved:
1. Deletion of addition on account of unexplained credits of Rs. 23,99,365. 2. Deletion of addition on account of unexplained expenditure under section 69C of the Act of Rs. 20,22,861. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Unexplained Credits of Rs. 23,99,365: During the assessment proceedings, the Assessing Officer (A.O.) noticed the introduction of capital of Rs. 22,16,365 in the firm and requested evidence for the source and genuineness of the transaction. The A.O. found the explanations unsatisfactory for several partners' capital contributions, leading to the addition of Rs. 23,99,365 as unexplained income. The CIT(A) deleted these additions based on the following findings: - Shivjibhai Patel: The CIT(A) accepted the explanation of withdrawal from Shree Surya Packaging and noted that the negative capital balance did not negate the source of funds. The non-production of the cash book was deemed irrelevant as the transactions were recorded in the partner's capital account and balance sheet. The CIT(A) concluded that the introduction of capital of Rs. 6,86,000 was satisfactorily explained and deleted the addition. - Pareshbhai Patel: The CIT(A) found that the partner had deposited funds withdrawn from Shree Surya Packaging into his bank account before contributing to the firm. The A.O.'s reliance on the non-production of the cash book of Shree Surya Packaging was considered inadequate, and the addition was deleted. - Rajeshbhai Patel: The CIT(A) noted that the A.O.'s conclusion about the partner's capacity to invest was based solely on his income, without considering other potential sources. The explanation was deemed satisfactory, and the addition was deleted. - Ramnikbhai Patel: The CIT(A) accepted the explanation that the capital contribution was made from available cash balance, reflected in the balance sheet, and deleted the addition. - Kantibhai Patel: The CIT(A) found that the cash balance available with the partner was sufficient for the capital contribution and deleted the addition. - Hitesh Mistry: The CIT(A) accepted the explanation of remittances from abroad as the source of funds and noted that sufficient withdrawals were made from bank accounts to explain the capital introduction. The addition was deleted. - Dineshbhai Patel: The CIT(A) accepted the explanation that the name in the rough notings was incorrect and allowed the benefit of telescoping with additional income disclosed in the survey, deleting the addition. The CIT(A) concluded that the additions made by the A.O. were based on doubts without substantial evidence and deleted the total addition of Rs. 23,99,365. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the order. 2. Deletion of Addition on Account of Unexplained Expenditure under Section 69C of the Act of Rs. 20,22,861: During the survey, a notebook containing details of weekly expenses was found, leading the A.O. to reject the books of accounts and estimate unexplained expenditure of Rs. 31,69,565, later adjusted to Rs. 20,22,861 after accounting for recorded expenses. The CIT(A) deleted the addition based on the following: - The expenses recorded in the notebook tallied with the regular books for five out of six weeks, with minor discrepancies for the week ending 22.12.2007. - The CIT(A) found that the mismatch for one week could not be extrapolated for the entire year. - The CIT(A) noted that the additional income disclosed during the survey was sufficient to cover the alleged unexplained expenditure. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue could not controvert the findings or provide substantial evidence against the CIT(A)'s conclusions. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of additions on account of unexplained credits and unexplained expenditure, finding no reason to interfere with the reasoned order of the CIT(A). The order was pronounced in Open Court on 07-02-2014.
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