2024 (11) TMI 78 - AT - Income Tax

Addition u/s 68 - assessee has made investments in the two firms by purchasing two cold storage units which was funded by M/s. A.R. Constructions where the assessee is a Managing Partner - HELD THAT - It cannot be disputed that the sources for the investment is not explained. In our considered view funding for the purchase of cold storage units has been made by M/s. A. R. Constructions on behalf of the Managing Partner being the assessee which was later on transferred to M/s.Lakshmi Cold Storage and M/s. Vigneswara Cold Storage as capital of the assessee in the respective firms amount. Since the amount has been considered as the investment by the assessee in the respective firms the observation of the Assessing Officer that it is neither reflected in the books of accounts of M/s. A.R. Constructions could not be accepted. These capital investments made by the assessee are through book entries which is reflected in the books of M/s. A.R. Constructions and consequently in the assessee s capital account in M/s.Lakshmi Cold Storage and M/s. Vigneswara Cold Storage. We therefore direct the AO to delete the addition made u/s 68 r.w.s. 115BBE of the Act as the source for the capital investment has been properly explained by the assessee. Cash deposits investments as a capital in the firm - AR failed to explain why the withdrawals of cash was held for a period more than one year for investment into the partnership firm. The burden lies on the assessee to properly explain the cash deposits investments as a capital in the firm. There is merit in the argument of Ld. DR that the assessee has not properly explained the source of investment in capital of the said firm and hence we are of the considered view that since the investment in the firm remains unexplained, we are inclined to sustain the order of the Assessing Officer on this ground. Accordingly Ground No. 4 raised by the assessee is dismissed. Unsecured loans to the assessee - Since the amount has been transferred from the bank accounts of the respective parties wherein the sources for the amounts available in the bank accounts of the parties granting unsecured loans to the assessee were not disputed by the Revenue, which was demonstrated by the Ld.AR, we are inclined to allow this ground raised by the assessee thereby deleting the addition made by the Assessing Officer. Accordingly, Ground raised by the assessee is allowed. Addition u/s 56(2)(x) - AR submitted that the amount has been received by the assessee as gift from his Father s HUF account - It is an admitted fact that the assessee has received gifts from Shri Devagiri Lakshmi Narsimha Reddy HUF, the father of the assessee being its Kartha. Assessing Officer has rightly considered that the amount has been received without any consideration and assessee also not covered within the definition of relative u/s 56 of the Act. We therefore find no reason to interfere with the orders of the Revenue Authorities, thereby dismissing this ground raised by the assessee. Accordingly Ground raised by the assessee is dismissed by sustaining the addition made by the Assessing Officer.

Summary

Issues Involved:

1. Addition of Rs. 1,94,99,178/- under Section 68 of the Income Tax Act.
2. Addition of Rs. 11,40,665/- under Section 68 of the Income Tax Act.
3. Addition of Rs. 24,50,000/- under Section 68 of the Income Tax Act.
4. Addition of Rs. 1,40,000/- under Section 68 of the Income Tax Act.
5. Addition of Rs. 9,65,000/- under Section 56(2)(x) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,94,99,178/- under Section 68:
The assessee challenged the addition made by the Assessing Officer (AO) concerning investments in two partnership firms. The assessee argued that the investments were funded by M/s. A.R. Constructions, where the assessee is a Managing Partner. The funds were transferred from the bank account of M/s. A.R. Constructions to purchase cold storage units, which were later credited to the assessee's capital account in the respective firms. The Tribunal found that the source of funds was adequately explained through book entries and directed the AO to delete the addition, allowing the assessee's grounds on this issue.

2. Addition of Rs. 11,40,665/- under Section 68:
The assessee claimed that cash withdrawals from his capital account in partnership firms during the financial year 2015-16 were used for investments in 2017-18. However, the Tribunal noted that the assessee failed to justify the holding of cash for over a year before investment. The Tribunal upheld the AO's addition as the source of the investment remained unexplained, dismissing the assessee's ground on this issue.

3. Addition of Rs. 24,50,000/- under Section 68:
The assessee argued that the funds were borrowed as unsecured loans from various parties, supported by confirmation letters and bank statements. The Tribunal observed that the loans were made through banking channels and the sources were not disputed by the Revenue. Consequently, the Tribunal allowed the assessee's ground, directing the deletion of the addition.

4. Addition of Rs. 1,40,000/- under Section 68:
The assessee introduced capital by cash and paid an insurance amount credited to his capital account. The Tribunal found no justification for treating the amount as unexplained, considering the nominal cash introduced and the insurance payment. The Tribunal allowed the assessee's ground, directing the deletion of the addition.

5. Addition of Rs. 9,65,000/- under Section 56(2)(x):
The assessee received a gift from his father's HUF account. The Tribunal noted that the amount was received without consideration and did not fall within the definition of a relative under Section 56. The Tribunal upheld the AO's addition, dismissing the assessee's ground on this issue.

Conclusion:
The appeal was partly allowed, with the Tribunal directing the deletion of certain additions while upholding others. The Tribunal's decision was based on the adequacy of explanations provided for the sources of funds and compliance with relevant provisions of the Income Tax Act.