2025 (1) TMI 1109 - AT - Income Tax

Addition u/s 69A - unexplained money - unexplained receipts towards unsecured loan received from Smt. K. Subbaratnamma on the ground that the assessee has received loan in cash and hence the same is not reflected in the regular accounts of the assessee - HELD THAT - From the details filed by the assessee we find that the loan given to the appellant has been disclosed in the financial statement of the creditor. Therefore we are of the considered view that the appellant has filed relevant evidences to prove the amount of loan received from the creditor. Reason for difference in the rough balance sheet and the final balance sheet is explained and as per the rough balance sheet the appellant has recorded loan received from Smt.K.Subbaratnamma whereas after considering the details of repayment of loan the account was squared up in the final balance sheet. Assessee has explained the difference in unsecured loan from two balance sheets by filing reconciliation. AO and the CIT(A) without appreciating relevant facts simply sustained the additions made by the AO. Thus direct to delete addition - Decided in favour of assessee. Assessment u/s 153A - Addition u/s 68 - introduction of fresh capital in cash by partners - identity genuineness and creditworthiness of the partners who introduced capital not established - HELD THAT - As in respect of completed assessments / unabated assessments no additions can be made in the absence of any incriminating material found during the course of search u/s 132 of the Act. In the present case going by the assessment order we find that the additions made by the AO towards capital account of partners u/s 68 of the Act is not based on any incriminating material found as a result of search. Therefore additions made by the AO towards capital account of partners u/s 68 in the assessment order passed u/s 153A of the Act without any reference to incriminating material found during the course of search us 132 of the Act cannot be sustained. Capital contributions from partners - The appellant is able to establish identity genuineness of transactions and creditworthiness of the partners. The Ld.CIT(A) after considering relevant facts has rightly held that the Assessing Officer has made addition only on the basis of suspicion and surmises without any clinching evidence to suggest that the amount of capital introduced by the partners is unexplained credit or income of the appellant firm. The findings of facts recorded by the Ld.CIT(A) is uncontroverted by the Revenue. Therefore we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the Revenue.

1. ISSUES PRESENTED and CONSIDERED

The judgment addresses several core legal issues:

Whether the addition of Rs. 7,51,858/- towards unsecured loans under Section 69A of the Income Tax Act was justified.
Whether the introduction of fresh capital by partners amounting to Rs. 5,14,62,895/- can be treated as unexplained cash credits under Section 68 of the Act.
Whether additions can be made under Section 153A of the Act in the absence of incriminating material found during search operations.
Whether the capital contributions from partners can be added to the income of the firm under Section 68 when the source of income of the partners is not explained.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Rs. 7,51,858/- under Section 69A

Relevant Legal Framework and Precedents: Section 69A of the Income Tax Act deals with unexplained money, investments, etc., found during assessment.
Court's Interpretation and Reasoning: The Tribunal found that the assessee had filed sufficient evidence to prove the loan was received through bank transactions and repaid in cash. The Assessing Officer's claim that the loan was received in cash was incorrect.
Key Evidence and Findings: The assessee provided ledger accounts, bank statements, and confirmation letters from the creditor.
Application of Law to Facts: The Tribunal concluded that the assessee had adequately explained the discrepancy between the rough and final balance sheets.
Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument regarding the identity and creditworthiness of the creditor.
Conclusions: The Tribunal ordered the deletion of the addition of Rs. 7,51,858/- made under Section 69A.

Issue 2: Addition of Rs. 5,14,62,895/- under Section 68

Relevant Legal Framework and Precedents: Section 68 addresses unexplained cash credits. The Tribunal referenced the Supreme Court's decision in Abhisar Buildwell Pvt. Ltd. regarding completed assessments.
Court's Interpretation and Reasoning: The Tribunal emphasized that no additions could be made without incriminating material in completed assessments.
Key Evidence and Findings: The Tribunal noted that the additions were based on regular books and not on any material found during the search.
Application of Law to Facts: The Tribunal applied the Supreme Court's ruling, determining that the additions were unsustainable.
Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the CIT(A) should have followed a different decision for a previous year.
Conclusions: The Tribunal directed the deletion of the additions made under Section 68.

Issue 3: Additions under Section 153A

Relevant Legal Framework and Precedents: Section 153A pertains to assessments following a search. The Tribunal cited the Supreme Court's decision on the necessity of incriminating material for additions.
Court's Interpretation and Reasoning: The Tribunal held that the absence of incriminating material made the additions invalid.
Key Evidence and Findings: The Tribunal found that the Assessing Officer's additions were not based on search findings.
Application of Law to Facts: The Tribunal concluded that the additions were not justified under Section 153A.
Treatment of Competing Arguments: The Tribunal dismissed the Revenue's reliance on the unavailability of the Supreme Court decision at the time of the CIT(A)'s order.
Conclusions: The Tribunal ordered the deletion of the additions under Section 153A.

Issue 4: Capital Contributions from Partners

Relevant Legal Framework and Precedents: The Tribunal referenced the Telangana High Court's decision in Nova Medicare regarding capital contributions by partners.
Court's Interpretation and Reasoning: The Tribunal held that the firm is not required to explain the source of the partners' capital contributions.
Key Evidence and Findings: The Tribunal noted that the firm provided evidence of the partners' contributions and identities.
Application of Law to Facts: The Tribunal applied the High Court's ruling, determining that the additions were not sustainable.
Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the firm should explain the partners' sources of income.
Conclusions: The Tribunal directed the deletion of the additions related to capital contributions.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "In respect of completed assessments / unabated assessments, no additions can be made by the Assessing Officer in the absence of any incriminating material found during the course of search u/s 132 of the Act."
Core Principles Established: Additions under Sections 68 and 69A require substantive evidence, and completed assessments cannot be reopened without incriminating material.
Final Determinations on Each Issue: The Tribunal allowed the assessee's appeals, dismissing the Revenue's appeal, and directed the deletion of the contested additions.

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