2019 (3) TMI 892 - AT - Income Tax

Taxing the right person - land transaction done by the partnership firm - assessment in the hands of partners or partnership firm - sale consideration received by partnership firm is reflected in their books of account and also offered for taxation - tax in the he hands of the individual partners as ultimate beneficiary - HELD THAT - As gone through the books of account of the assessee as well as partnership firm. It is demonstrated that cash payment was made by the M/s. Pooja Export and credited to the firm M/s. B.U. Bhandari Real Estate Corporation. Transaction of the amount was assessed in the hands of the M/s. B.U. Bhandari Real Estate Corporation. In such scenario, terming the assessee as ultimate beneficiary is not appropriate as evident through the facts on record. That the Hon ble Supreme Court in the case of ITO Vs. Ch. Atchaiah (1995 (12) TMI 1 - SUPREME COURT) has clearly held that assessment has to be done in the right hands. Therefore, in the present case, when sale of land transaction has been done by the partnership firm, addition cannot be made in the hands of the individual assessee even though he is a partner of the firm. - Decided in favour of assessee.

Summary

Issues Involved:
Assessment of sale consideration in the hands of individual partners for taxation in a partnership firm.

Detailed Analysis:
1. Background: Two appeals by different assessees from the common order of Ld. CIT(Appeals)-9, Pune for the assessment year 2008-09. The grievance was regarding the assessment of sale consideration received by a partnership firm in the hands of individual partners for taxation.

2. Assessing Officer's View: The Assessing Officer observed a cash component received by the partnership firm towards the sale of land and issued a notice u/s.148 of the Act to the individual partners. The AO believed that the partners, including the assessee, were beneficiaries of the cash received, which was not disclosed in their individual returns.

3. First Appellate Proceedings: The Ld. CIT(Appeals) upheld the AO's findings, stating that the partners should have reflected their share of income from the land transaction in their individual returns. The partnership firm had already offered the income to tax.

4. Assessee's Appeal: The assessee contended that as the transaction was done by the partnership firm and the income was already offered to tax by the firm, the amount should not be taxed in the hands of individual partners. Citing legal precedents, the assessee argued that assessment should be done in the right hands as per the Supreme Court and High Court decisions.

5. Tribunal's Decision: After analyzing the case records, the Tribunal found that the transaction was credited to the partnership firm, and the assessment was correctly done in the firm's hands. Referring to legal precedents, the Tribunal held that in a case where the sale transaction was conducted by the partnership firm, the addition cannot be made in the hands of individual partners, even if they are partners of the firm.

6. Judgment: The Tribunal set aside the Ld. CIT(Appeals)'s order and allowed the appeal of the assessee in both cases (ITA Nos.1028 & 1029/PUN/2017) based on the principle that assessment must be done in the right hands. The appeals of the assessees were allowed, and the orders were pronounced on 07th March 2019.