2014 (2) TMI 1370 - AT - Income Tax

Additions on the basis of transactions found in the bank account in the name of partner - bank account of the Partnership firm, which was opened in the name of a Partner is not accepted - HELD THAT - The partnership deed was made effective from 23.03.2007 and the relevant assessment year involved is 2008-09. It means that the partnership firm has now owned up this account, the revenue should take action in the hands of the firm and not in the hands of individual, if law permits - the AO is directed to delete this addition in the hands of individual i.e. the assessee and if any action is required i.e. required in the hands of the firm and not in the hands of the individual - decided in favor of assessee. Addition on account of Gross profit - restriction on the addition of peak credit at ₹ 10,60,742/- as against the total addition of ₹ 18,02,087/- - HELD THAT - The bank account maintained with Axis Bank is under dispute i.e. the deposits and withdrawals at ₹ 1,02,92,960/-. The AO has added peak credits at ₹ 18,02,087/- and CIT(A) restricted the peak at ₹ 10,60,742/-. As, it is already adjudicated, that this bank account belongs to partnership firm and not to the individual, taking the same view, the AO is directed to take action in the hands of the firm, if any and that also as per law. Appeal of assessee allowed.

Summary

Issues:
1. Addition of Rs. 3,81,383 on account of gross profit.
2. Restriction of peak credit addition to Rs. 10,60,742.

Analysis:

Issue 1: Addition of Rs. 3,81,383 on account of gross profit
The appeal by the assessee challenged the order of CIT(A) confirming the addition of Rs. 3,81,383 on account of gross profit. The AO noticed discrepancies in the assessee's bank accounts, leading to the addition. The assessee claimed the undisclosed bank account was under a partnership firm, but the AO disagreed. CIT(A) upheld the addition, stating that the undisclosed bank account was actually the appellant's own, created to avoid tax. The partnership deed and bank account details were scrutinized. However, the Tribunal found that the bank account belonged to a partnership firm, not the individual, based on the partnership deed's clauses. The AO was directed to delete the addition in the individual's hands and take any necessary action in the firm's hands.

Issue 2: Restriction of peak credit addition to Rs. 10,60,742
The second issue involved the restriction of peak credit addition to Rs. 10,60,742, as opposed to the total addition of Rs. 18,02,087. The bank account's transactions were disputed, with peak credits being added by the AO. CIT(A) reduced the peak credit amount. The Tribunal, considering the bank account as belonging to a partnership firm, directed the AO to take any necessary action in the firm's hands as per the law. Consequently, the appeal of the assessee was allowed, and the order was pronounced in favor of the assessee on 13th Feb., 2014.