2022 (6) TMI 413 - AT - Income Tax

Additions of unsecured loan - unexplained partners capital - settlement petition before the Hon'ble Settlement Commission, in respect of the capital and loan introduced in the appellant firm by individual partners - Assessee stated that capital introduced by the partners cannot be treated as unexplained under the provision of section 68 as the partners has confirmed the introduction of such capital - HELD THAT - Substantial ground No.1 is covered in favour of the assessee by the decision in the case of PCIT Vs Vaishnodevi Refoils Solvex 2018 (1) TMI 861 - GUJARAT HIGH COURT wherein it was held that capital introduced by one partner of the firm, in view of the fact that it is duly reflected in books of account maintained by the concerned partner and confirmed by such partner the impugned addition is liable to be set aside. We find that three partners of assessee-firm who contributed capital, are close family members. Thus, they are not stranger and their identity is not in dispute. The partners have not disputed the capital contribution. Further it is not in dispute that the partners who had contributed capital have filed petition before ITSC Mumbai and their settlement petition has not been dismissed or the proposal is not declined. As assessee furnished the details of capital introduced by partners of the firm and the partner has confirmed such contribution, it could be concluded that the assessee has discharged its onus cast upon it. If the assessing officer was not convinced about the creditworthy of the partner, who made capital contribution, enquiry had to be made against such partner and not against firm. Thus, in view of the facts and the legal position, that when the addition under section 68 is liable to be set aside. In the result, substantial ground No. 1 of the appeal is allowed. Addition of unsecured loans - Considering the submissions of ld. AR for the assessee, this issue is restored back to the file of assessing officer to verify the fact that if the unsecured loan is owned by M D Patel in his petition file before ITSC, the additions be deleted. So far as transaction of loan from Kaushik Granites Pvt Ltd is concerned, the assessee has filed complete details like confirmation of party, name, PAN and address, hence, we admit the said documents as additional evidence being relevant for determination of the issue in hand, and also restore this part of the issue direct to the assessing officer to consider those evidence and pass speaking order in accordance with law. Needless to direct that this case relates to AY 2003-04, the assessing officer shall pass the order as early as possible, off course after granting due opportunity to the assessee. The assessee is also directed to provide all information and necessary evidences and documents to the assessing officer and not to linger on the proceedings. In the result, this ground of appeal is allowed for statistical purpose.

Summary

Issues Involved:
1. Treatment of capital contribution by partners under Section 68.
2. Addition of unsecured loans under Section 68.
3. Lump-sum disallowance of various expenses.
4. Reasonable opportunity of being heard and proper appraisal of facts.

Issue-Wise Detailed Analysis:

1. Treatment of Capital Contribution by Partners under Section 68:
The primary issue was whether the capital contribution of Rs.1.98 Crore by partners should be treated as unexplained under Section 68. The assessee argued that the capital introduced by the partners was confirmed by them and was already disclosed in their individual assessments. The partners had also filed a petition before the Income Tax Settlement Commission (ITSC) disclosing the source of the capital. The Tribunal noted that the partners were close family members, their identity was not in dispute, and the capital contribution was confirmed by them. The jurisdictional High Court in PCIT Vs Vaishnodevi Refoils & Solvex (2018) held that if the capital introduced by the partners is confirmed and reflected in their books, the firm has discharged its onus. Therefore, the addition of Rs.1.98 Crore under Section 68 was set aside and allowed in favor of the assessee.

2. Addition of Unsecured Loans under Section 68:
The assessee challenged the addition of Rs.48 lakhs as unsecured loans. The assessee provided details and confirmations for the loans, including those from Kaushik Granites Pvt Ltd and M D International. The Tribunal divided the unsecured loans into two parts: Rs.10 lakhs from Kaushik Granites Pvt Ltd and Rs.15 lakhs from M D International, along with other loans allegedly owned by M D Patel. The Tribunal noted that the assessee had filed complete details for Kaushik Granites Pvt Ltd, fulfilling its primary onus. For the loans allegedly owned by M D Patel, the Tribunal directed the Assessing Officer (AO) to verify if these loans were disclosed in M D Patel's petition before ITSC. If confirmed, these additions should be deleted to avoid double taxation. The issue was restored to the AO for verification and passing a speaking order in accordance with law.

3. Lump-Sum Disallowance of Various Expenses:
The assessee initially contested the lump-sum disallowance of Rs.1 lakh for various expenses, but later did not press this ground due to the smallness of the amount and the age of the case. Consequently, this ground was dismissed as not pressed.

4. Reasonable Opportunity of Being Heard and Proper Appraisal of Facts:
The assessee contended that the CIT(A) passed the appellate order ex-parte without granting a reasonable opportunity of being heard and without properly appraising the facts. The Tribunal did not specifically address this issue separately, but the restoration of the case to the AO for fresh consideration implicitly addressed the need for a proper hearing and appraisal of facts.

Conclusion:
The appeal was partly allowed. The addition of Rs.1.98 Crore as capital contribution was set aside, and the issue of unsecured loans was restored to the AO for verification. The lump-sum disallowance of Rs.1 lakh was dismissed as not pressed. The AO was directed to expedite the proceedings and provide the assessee with a fair opportunity to present evidence.