2014 (7) TMI 504 - AT - Income Tax

Deletion of unexplained capital Capital introduced by partners of firm Held that - The source of funds cannot be held as unexplained only because the name as appearing in the balance sheet of Shri Hiteshbhai D. Patel shows loan from Shri Jagdish Vasania (Indl.) whereas it has been actually given by Shri Jagdish Vasania & Co., firm - The bank statement shows that the funds came from Shri Jagdish Vasania & Co., a fact not disproved by the AO and therefore it cannot be considered as unexplained in the hands of the assessee firm - sources of capital introduction by Shri Hiteshbhai D. Patel is held as explained in view of the evidences produced - As regards, Shri Maganlal Jhaviya, it is seen that he has introduced an amount of ₹ 2,00,000/- as capital into the firm - no other sources of income on fund has been shown as available to him for introduction - 3 acres of land, however, fertile will not be able to generate income leave alone any savings so as to enable this person to introduce capital of ₹ 2,00,000 - source of fund introduced by this partner is not explained, and addition made u/s.68 of the Act is therefore upheld - The addition u/s 68 of the Act treating capital introduction as unexplained is therefore sustained to the extent of ₹ 2,00,000/- only - CIT(A) after considering the submissions of the Assessee and the Remand Report received from AO, by reasoned and detailed order granted substantial relief to the Assessee - Revenue could not controvert the findings of CIT(A) by bringing any contrary material on record thus, there is no reason to interfere with the order of CIT(A) Decided against Revenue.

Summary

Issues:
Appeal against CIT(A) order for A.Y. 2006-07 regarding deletion of addition on unexplained capital introduced by partners of the firm.

Analysis:
The appeal was filed by the Revenue against the CIT(A)'s order for the assessment year 2006-07. The Assessee, a firm engaged in sugar manufacturing and sales, declared a loss in its income tax return. During scrutiny, the Assessing Officer (A.O.) noted an addition of &8377; 22 lakhs to the partners' capital account, which was considered unexplained income. The Assessee failed to provide satisfactory explanations, leading to the addition. However, the CIT(A) granted relief after considering detailed submissions and evidence. The CIT(A) found the source of capital introduced by some partners to be explained, based on documentary evidence provided. For other partners, the lack of I.T. returns or bank statements was not deemed crucial as the capital was introduced in cash. The CIT(A) upheld the unexplained addition only for one partner who could not justify the source of &8377; 2 lakhs introduced as capital. The Revenue appealed the CIT(A)'s decision.

During the appeal hearing, the Revenue relied on the A.O.'s order. The ITAT, after reviewing the submissions and the Remand Report, found that the CIT(A) had provided detailed reasoning for granting relief to the Assessee. The Revenue failed to present any contradictory evidence. Consequently, the ITAT upheld the CIT(A)'s decision and dismissed the Revenue's appeal. The ITAT's judgment was pronounced on 13-06-2014, affirming the relief granted to the Assessee regarding the unexplained capital addition by partners.