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2018 (5) TMI 852 - AT - Income TaxAdditions towards share of the assessee in the undisclosed profit of the partnership firm - taxability of undisclosed income detected in the course of search in the case of partnership firm where the assessee is a partner - income can be taxed only in the hands of the partnership firm - Held that - We find ourselves in complete agreement, in principle, with the said proposition raised on behalf of the assessee-partner that the undisclosed income once already considered for taxation in the hands of the partnership firm cannot be taxed once again in the hands of the partner. However, in the same vein, we find that question as to whether the undisclosed income in controversy, forms part of the additional income declared before the Settlement Commission or not, is essentially a question of fact. This aspect has not been raised before the lower authorities, and thus remained unanswered. Hence, as a measure of fair-play, the issue requires to be remanded back and restored to the file of CIT(A) to re-appreciate the limited aspect as to whether income in dispute has already been included in the additional income offered by the partnership firm before the Settlement Commission, directly or indirectly.
Issues:
Appeals filed against CIT(A) orders under section 143(3) r.w.s. 147 concerning undisclosed profit of a partnership firm. Analysis: The appeals involved inter-connected issues as all assessees were partners of a common firm. The lead case, ITA No.3447/Ahd/2016, focused on the dispute regarding undisclosed profit of the partnership firm. The AO added ?9.75 lakhs to the total income of the assessee-partner as unaccounted profit for assessment year 2008-09. The CIT(A) upheld the AO's decision, stating that undisclosed income of the firm must be added to the partners' hands if the firm has not disclosed it for taxation. The CIT(A) found no merit in the contention that the undisclosed income of the firm should not be taxed in the partners' hands. The assessee then appealed to the Tribunal, arguing that the undisclosed income had already been included in the settlement application filed by the partnership firm under section 245C(1) of the Income Tax Act. The Tribunal acknowledged the principle that undisclosed income taxed in the hands of the partnership firm cannot be taxed again in the partners' hands. However, it noted that whether the disputed income was part of the additional income declared before the Settlement Commission was a factual question not raised before the lower authorities. Therefore, the Tribunal remanded the issue back to the CIT(A) for re-evaluation. The Tribunal also considered the argument that income should be taxed only in the hands of the partnership firm but emphasized the partners' liability for the firm's acts under the Partnership Act. Since the matter was remanded, the Tribunal did not delve further into this aspect. Consequently, the Tribunal set aside all appeals for fresh adjudication by the CIT(A) based on the directions provided. The decision was pronounced on 11th May, 2018, at Ahmedabad.
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