2023 (3) TMI 218 - HC - Income Tax

Addition u/s 68 - unexplained loans taken by the partners - cash credits pertaining to the two partners of the appellant firm - HELD THAT - We are of the view that issue raised in this appeal is squarely covered by the decision of this Court in M.Venkateswara Rao 2015 (3) TMI 153 - ANDHRA PRADESH HIGH COURT which is binding on us. That was also a case where certain cash credits were advanced by the partners, which according to the revenue authorities remained unexplained and accordingly were added to the income of the firm. Unexplained cash credits would have to be assessed at the hands of the partners of the firm and not the firm itself. Such amounts could not have been treated as income of the firm by relying upon Section 68. We answer the substantial questions of law in favour of the appellant-assessee and against the respondent-revenue insofar the cash credits pertaining to the two partners of the appellant firm i.e., Smt. K.Sujatha and Sri K. Prabhakar Reddy only are concerned.

Summary

Issues:
Whether Tribunal was justified in upholding the investments made by the partners as additions to the total income of the assessee under Section 68 of the Income Tax Act, 1961 for the assessment year 1998-99.

Detailed Analysis:

1. Background of the Case: The appellant filed an appeal under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal upholding the addition of Rs.4,70,966 to the appellant's income for the assessment year 1998-99.

2. Section 68 of the Income Tax Act: Section 68 states that if any sum is found credited in the books of an assessee with no satisfactory explanation provided, it may be charged as income of the assessee for that year.

3. Assessment Proceedings: The appellant, a registered firm engaged in the export business, claimed to have taken loans from partners and others. The assessing officer found discrepancies in the credits from partners and added them to the appellant's income under Section 68.

4. Appellate Proceedings: The Commissioner of Income Tax (Appeals) upheld the assessing officer's decision, leading the appellant to appeal to the Tribunal, which also confirmed the addition.

5. Arguments: The appellant argued, citing precedent judgments, that contributions of partners cannot be added to the firm's income under Section 68. The Standing Counsel referred to a different court decision to support the addition.

6. Court's Decision: The Court analyzed the facts and relied on a previous judgment to conclude that the contributions made by partners cannot be treated as income of the firm under Section 68. The Court emphasized that such credits should be assessed at the hands of the partners, not the firm.

7. Final Judgment: The Court ruled in favor of the appellant, modifying the Tribunal's order to exclude the cash credits related to the two partners from the firm's income. The appeal was disposed of with no costs awarded.

This detailed analysis highlights the legal interpretation and application of Section 68 in the context of partner contributions and provides a comprehensive overview of the judgment delivered by the High Court.