2018 (5) TMI 135 - AT - Income Tax

Unexplained investment - source for capital not explained by any of the partner - Held that - Since the assessee s capital investment is in the partnership firm is properly explained, the A.O. is not permitted to make the investment made by the other partners in the partnership firm as income in the hands of the assessee. If the source for capital is not explained by any of the partner , the same required to be taxed either in the hands of the partnership firm or in the hands of the respective partner but not in the hands of the assessee. Accordingly, addition made by the A.O. in the hands of the assessee with regard to the investment in capital of the firm is bad in law and the same is unsustainable. Hence, we uphold the order of the ld. CIT(A) and dismiss the appeal of the revenue on this ground. Unsecured loans appearing in the balance sheet of the partnership firm - Held that - The unsecured loans are appearing in the books of the partnership firm but not in the books of the assessee. The only investment made by the assessee is contribution to capital which was explained in his hands. If the sources of unsecured loans are unexplained, the addition should be made in the hands of the partnership firm but not in the hands of the assessee. The assessing officer has not established that the unsecured loans were introduced by the assessee in the partnership firm his unexplained source of income. Making addition of unsecured loans relating to the partnership firm in the hands of the assessee is bad in law and unsustainable. Hence we up hold the order of the Ld.CIT(A) and dismiss the appeal of the revenue on this ground. Addition made by the AO on account of gifts received by the assessee from the family members - Held that - Since all of them are assessed to tax and the CIT(A) has discussed the sources of accumulation of income, we do not see any reason to suspect the genuineness of the gifts received by the assessee. In case the A.O. is of the opinion that the sources of gifts are unexplained the same should be brought to tax in the hands of the donors but not in the hands of the assessee. Once the source is explained by the assessee, the burden shifts on revenue to disprove the evidence furnished by the assessee. In the instant case, though the assessee furnished the affidavits, the revenue did not shift the burden to the assessee by disproving the genuineness of the gifts. Therefore, we do not see any reason to interfere with the order of the Ld. CIT(A) and the same is upheld. This ground of appeal is dismissed.

Issues Involved:
1. Addition of ?1,23,13,627/- under the head unexplained investment.
2. Addition of ?38,40,123/- under the head unsecured loans.
3. Addition of ?52,50,000/- on account of gifts received by the assessee from family members.

Issue-wise Detailed Analysis:

1. Addition of ?1,23,13,627/- under the head unexplained investment:

The Assessing Officer (A.O.) found that the assessee, along with his three sons, invested in acquiring M/s. Nagothu Innaiah function plaza for ?1,90,00,000/-. The A.O. observed discrepancies in the sources of investment and added ?84,73,515/- to the assessee's income, considering it unexplained. Additionally, unsecured loans amounting to ?38,40,123/- were also added, making a total addition of ?1,23,13,672/-.

The Commissioner of Income Tax (Appeals) [CIT(A)] found that all partners of the firm were assessed to taxes and had sufficient sources for their investments. The CIT(A) deleted the addition, noting that the major source for purchasing the function plaza was a loan from Indian Bank, sale proceeds of agricultural land, and sale proceeds of a vacant site. The CIT(A) concluded that the A.O.'s contention lacked proper evidentiary support.

2. Addition of ?38,40,123/- under the head unsecured loans:

The A.O. added ?38,40,123/- to the assessee's income, treating unsecured loans in the partnership firm as unexplained. The CIT(A) observed that the assessee had furnished confirmation letters and income tax assessment details for these loans. The CIT(A) held that there was no case for making the addition in the hands of the assessee, as the loans were recorded in the partnership firm's books and not in the assessee's personal books.

3. Addition of ?52,50,000/- on account of gifts received by the assessee from family members:

The A.O. added ?52,50,000/- to the assessee's income, suspecting the genuineness of gifts received from his three sons and daughter-in-law. The A.O. noted that the gifts were received in cash shortly after the donors realized debts from their debtors, raising suspicion.

The CIT(A) found that the gifts were properly explained and supported by affidavits from the donors, who were also assessed to tax. The CIT(A) concluded that the gifts were genuine and deleted the addition. The CIT(A) emphasized that if the A.O. suspected the sources of gifts, the addition should be made in the hands of the donors, not the assessee.

Conclusion:

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s order, dismissing the revenue's appeal. The ITAT agreed that the additions made by the A.O. were not justified and that the sources of investment, unsecured loans, and gifts were adequately explained by the assessee and supported by documentary evidence. The ITAT emphasized the importance of assessing the correct entity and not making additions without proper evidence.

Final Judgment:

The appeal filed by the revenue was dismissed, and the order of the CIT(A) was upheld. The ITAT found no reason to interfere with the CIT(A)'s findings and conclusions. The judgment was pronounced in the open court on 25th April 2018.

← Previous Next →