2022 (10) TMI 355 - AT - Income Tax

Property plot purchased in the name of partners for the benefit of the Partnership Firm out of Partnership Firm funds - Whether property/plot in question was purchased out of the Partnership Firm funds and not out of the funds by the individual partners and no investment have been made by the individual partners for purchase of property in question? - assessee as partner is having 1/3rd equal share on par with other co-partners in the partnership firm on its profit and losses - HELD THAT - Funds are not utilized out of the individual partner s and the entire sum has been paid by the partnership Firm through banking channel and duly shown in it s audited accounts and balance-sheet which is also not disputed by the authorities below. After deducting the cost of acquisition and other expenses out of sale proceed received by the Partnership Firm on the total surplus amount on sale of property Plot Noida, the Partnership Firm viz., M/s. Delhi Plastic Industries has shown the said sum in the P L A/c for the F.Y. 2009-10 as noted by the Ld. CIT(A) in his order which is also included in the returned income of assessee and had paid taxes thereon. This factual matrix has not been disputed or controverted by the Ld. D.R. In this situation, if addition is sustained, then it would amount to double taxation. D.R. could not point out any defect in the short term capital gain calculation shown by the Partnership Firm in it s P L A/c. Since, no profit accrued/earned by the assessee/coowners on the reason that no investment made by the partners, the impugned addition being 1/3rd equal share amongst partners made in the hands of assessee without considering the other expenses like brokerage, stamp duty etc., is hereby deleted. Accordingly, appeal of the assessee is allowed.

Summary

Issues Involved:
Appeals against separate orders of Ld. CIT(A) for A.Y. 2010-11; Reopening of assessment under section 147/148; Addition of income due to failure to disclose material facts; Dispute over property sale proceeds; Taxation of individual partners for property transactions; Double taxation concern; Investment source for property purchase; Treatment of surplus amount in partnership firm accounts.

Analysis:
1. The appeals were filed against separate orders of Ld. CIT(A) for A.Y. 2010-11, and since common issues were raised, they were heard together. The case involved the reopening of assessments under section 147/148 due to the failure of the assessee to disclose material facts related to the sale of immovable property by the partnership firm. The AO added back the undisclosed income to the assessee's total income, resulting in a higher tax liability.

2. The assessee contended that the property was purchased and sold using partnership firm funds, and the proceeds were immediately credited to the firm's account, eliminating the need for individual partners to invest or pay taxes separately. However, the Ld. CIT(A) confirmed the addition of income in the hands of individual partners, citing incomplete explanations provided by the assessees.

3. The Tribunal analyzed the case and found that the property was indeed purchased by the partnership firm using its own funds, with no contribution from individual partners. The surplus amount from the property sale was also credited to the firm's account, reflected in the audited financial accounts and balance sheet. The Tribunal noted that any additional taxation on the individual partners would result in double taxation, as the funds were solely from the partnership firm.

4. Considering the facts presented and the absence of any defects in the capital gain calculation by the partnership firm, the Tribunal ruled in favor of the assessee. It concluded that since no profit accrued to the individual partners due to their lack of investment in the property transactions, the addition of income in their hands was unjustified. Therefore, the Tribunal allowed the appeals of all the assessees involved in the case.

5. The Tribunal's decision to delete the addition of income made by the AO was based on the clear evidence that the property transactions were conducted using partnership firm funds, and any surplus amounts were appropriately accounted for within the firm's financial records. The concerns regarding double taxation and the source of investment for the property purchase were crucial in determining the outcome of the appeals.