2023 (8) TMI 874 - AT - Income Tax

Cash credit u/s 68 - assessee is a partner has declared income under IDS 2016 but the declaration failed as the taxes due on income declared was not paid by the firm - AO held that the income from partnership firm can be claimed as exempt only when the firm has paid tax on such income - CIT(A) upheld the addition for the reason that the genuineness as well as source of this credit entry stands unproved by the assessee - HELD THAT - We notice that the CBDT has issued a circular No.8/2014 dated 31/03/2014 where it is clarified that income of the firm is to be taxed in the hands of the firm only and the same can under no circumstances be taxed in the hands of the partners even if the income of the firm is declared as NIL on account of deductions and exemptions. AR during course of hearing submitted that the addition towards the income declared under IDS 2016 is made in the hands of M/s Monarch and Qureshi Builders and the firm is in appeal before the CIT(A) against the impugned addition. Therefore we see merit in the submission of the ld AR that the revenue on the one hand taking a stand that the income belongs to the partnership firm and on the other hand taxing the same income again in the hands of the assessee resulting in double taxation. From the perusal of the CBDT circular and considering the ratio of the decision in the case of KT.Joseph 2009 (8) TMI 122 - ITAT COCHIN it is clear that the income belonging to the firm whether disclosed or undisclosed can be taxed only in the hands of the firm and not in the hands of the partner . Accordingly we are of the considered view that the income cannot be taxed as income of the assessee u/s 68 of the Act and the addition thus made stands deleted on merits also. Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer.
2. Addition under Section 68 of the Income Tax Act for unexplained cash credit.
3. Double taxation of income declared under the Income Declaration Scheme (IDS) 2016.

Summary:

Issue 1: Jurisdiction of the Assessing Officer
The assessee argued that the assessment order passed by the DCIT was without jurisdiction as per CBDT Instruction No. 1/2011, which states that cases with declared income less than Rs. 20 lakhs should be assessed by the ITO, not the DCIT. The assessee's declared income was Rs. 11,50,260/-. The Tribunal admitted this additional ground for adjudication, referencing the Supreme Court judgment in National Thermal Power Company Ltd. Vs. CIT. The Tribunal considered previous judgments, including the Bombay High Court in Ashok Devichand Jain vs UOI and the Kolkata Bench of the ITAT in Krishnendu Chowdhury Vs ITO, which supported the assessee's contention. Consequently, the Tribunal held that the assessment completed by the DCIT was without jurisdiction and quashed the assessment order.

Issue 2: Addition under Section 68 for Unexplained Cash Credit
The Assessing Officer added Rs. 6,16,83,505/- to the assessee's income under Section 68, treating it as unexplained cash credit. The CIT(A) upheld this addition, stating that the assessee failed to explain the nature and source of the credit entry in his capital account. The CIT(A) noted that the amount was credited on 01/04/2015 and utilized by the assessee, indicating it was not a mere book entry. The CIT(A) emphasized that the assessee did not provide financial statements of the partnership firm to substantiate the credit entry. The Tribunal, however, found that the income declared under IDS 2016 by the partnership firm should be taxed in the hands of the firm, not the partner, referencing CBDT Circular No.8/2014 and the Special Bench decision in ACIT vs KT. Joseph. The Tribunal concluded that the addition under Section 68 was not justified and deleted the addition on merits.

Issue 3: Double Taxation of Income Declared under IDS 2016
The assessee contended that the income declared under IDS 2016 by the partnership firm should not be taxed again in his hands, as it would result in double taxation. The Tribunal agreed, noting that the income declared under IDS 2016 was already assessed in the hands of the partnership firm, which was in appeal before the CIT(A). The Tribunal referenced the Cochin Bench decision in KT.Joseph and the CBDT Circular No.8/2014, which clarified that income of the firm, whether disclosed or undisclosed, should be taxed in the hands of the firm, not the partners. Consequently, the Tribunal held that the income of Rs. 6,16,83,505/- could not be taxed as the assessee's income under Section 68 and deleted the addition.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the assessment order on the grounds of jurisdiction and deleting the addition under Section 68 on merits, thereby preventing double taxation of the income declared under IDS 2016.