2022 (5) TMI 615 - AT - Income Tax

Additional ground raised before the ld. CIT(A) which was not considered during appellate proceedings - iolation of Rule 46A of the Income Tax Rules, 1962 by stating that Income-tax Non Statutory Form-51 ITNS-51 is not sufficient - HELD THAT - In the case of Ramco Cements Ltd. 2014 (11) TMI 447 - MADRAS HIGH COURT as directed the ld. CIT(A) to consider the additional ground which was raised before the ld. CIT(A) and which was not considered during appellate proceedings, as the assessee in that case has given certain reasons with records to show that it was a bonafide claim but out of inadvertence, it was not stated in the return of income, whereas, the matter was not remanded to the Assessing Officer on the pretext that the Assessing Officer is not empowered to adjudicate a claim which was not claimed in the original return of income or by way of revised return. We are of the considered opinion that the ld. CIT(A) has perfectly assumed the jurisdiction by exercising of powers conferred upon him under section 250(4) of the Act read with sub-rule (4) of Rule 46A of the Income Tax Rules to adjudicate the ground raised in the appeal based on the materials available on records. We find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed. Addition u/s 68 on unexplained capital - HELD THAT - Figures of Balance Sheet reported by the assessee firm while filing its return of income for the impugned assessment year are erroneous and is a result of mistake committed by the assessee firm. The only basis for making the addition by the Assessing Officer was purely on the basis of amounts reflected in the return of income and not with reference to any other documentary evidence. Thus, the addition made by the Assessing Officer is erroneous for the reason that the basis for making the addition itself is erroneous and liable to be deleted. Whether the unexplained partners capital is assessable in the hands of the assessee or not in terms of section 68? - Whether the partners capital is assessable in the hands of the assessee firm has been adjudicated by various Benches of the Tribunal as well as various courts and held that there cannot be any addition in the hands of the assessee firm on account of capital contribution by its partners. See INDIA RICE MILLS VERSUS COMMISSIONER OF INCOME-TAX 1995 (12) TMI 55 - ALLAHABAD HIGH COURT and M/S. M. VENKATESWARA RAO OTHERS 2015 (3) TMI 153 - ANDHRA PRADESH HIGH COURT Thus the capital introduced by the partners cannot be taxed in the hands of the assessee-firm under section 68 - we are of the considered opinion that the ld. CIT(A) has fully justified in deleting the addition made under section 68 of the Act. Thus, the appeal filed by the Revenue is dismissed. Penalty levied under section 271(1)(c) - Once quantum addition has been deleted at appellate stage and duly confirmed by the Tribunal hereinabove, the penalty levied under section 271(1)(c) of the Act could not survive. Accordingly, the appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Violation of Rule 46A of the Income Tax Rules, 1962.
3. Deletion of addition of unexplained capital under Section 68 of the Income Tax Act, 1961.
4. Deletion of penalty levied under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The Revenue challenged the condonation of a 300-day delay in filing the appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee attributed the delay to wrong advice from a part-time accountant and the ill health of the managing partner, supported by medical certificates. The CIT(A) found these reasons credible and condoned the delay, allowing the appeal to proceed on merits. The Tribunal upheld this decision, stating that the CIT(A) had rightly condoned the delay based on authentic evidence and reasonable cause.

2. Violation of Rule 46A of the Income Tax Rules, 1962:
The Revenue argued that the CIT(A) violated Rule 46A by not calling for a remand report from the Assessing Officer (AO) and relying on Income-tax Non-Statutory Form-51 (ITNS-51). The CIT(A) had issued ITNS-51 to the AO, who did not respond. The CIT(A) proceeded to adjudicate based on the bank statements and other records, concluding that the AO's addition was erroneous as it was not based on the books of accounts. The Tribunal found no fresh evidence warranting a remand report and upheld the CIT(A)'s decision, citing judicial precedents that support the appellate authorities' power to consider claims based on existing records.

3. Deletion of Addition of Unexplained Capital under Section 68:
The AO added ?2.40 crores as unexplained capital based on the assessee's return, which erroneously reported ?9.70 crores as partners' capital. The CIT(A) clarified that this was a mistake and that the firm had not received any capital during the assessment year. The Tribunal noted that Section 68 applies only when there is a credit in the books of accounts, which was not the case here. The Tribunal agreed with the CIT(A) that the addition was erroneous and upheld the deletion, referencing multiple judicial precedents, including the Hon'ble Allahabad High Court and the Hon'ble Jurisdictional High Court, which state that partners' capital contributions cannot be taxed in the firm's hands under Section 68.

4. Deletion of Penalty Levied under Section 271(1)(c):
The AO levied a penalty under Section 271(1)(c) for allegedly concealing income and furnishing inaccurate particulars. The CIT(A) deleted the penalty, reasoning that the quantum addition had been deleted. The Tribunal concurred, stating that without the quantum addition, the penalty could not survive. Thus, the appeal against the penalty was dismissed.

Conclusion:
The Tribunal dismissed both the appeals filed by the Revenue and the cross-objections filed by the assessee, confirming the CIT(A)'s orders on all counts. The decision was pronounced on May 6, 2022, in Chennai.