9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2012 (11) TMI 715 - AT - Income TaxUnexplained Addition on account of capital introduced by partners out of Agricultural Income Held that -In the case of Veeraiah,considering the smallness of the amount ie Rs.1 lakh and the fact that he was having some agricultural Lnad holding the genuineness of the source for credit in the capital account is not to be doubted and hence delete the same. With respect of M.Srikanth - Held that - As the assessee has produced documents for land holdings only to the extent of 3.66 acres, which are in his father s name,it is reasonable to restrict the addition in respect of credit entry in the account of M. Srikant to Rs. 4,00,000/- by allowing credit for the agricultural income of this partner as against the addition of Rs. 7,00,000/- made by the Assessing Officer and confirmed by the CIT(A). With respect to G Venkata Rao Held that - As the assessee furnished the details of holding of 11.3 acres ,the probability of earning agricultural income could not be ruled out. However, he had not appeared before the AO for personal examination due to his health condition and, therefore, we find it reasonable to restrict the addition to Rs. 4,00,000/- as against Rs. 7,00,000/- made by the Assessing Officer and confirmed by the CIT(A). Interest on Capital u/s 40(b) - With respect to the plea of the Counsel that the CIT(A) has not justified confirming the additions reading the interest of above three credits, AO noticed that the assessee had claimed interest of Rs.11,26,527/- on the capital account of the partners computed at the rate of 18% p.a. since the provisions of Sec.40(b)(iv) of Act permits interest on partners capital account @ 12%, the AO disallowed the balance excess amount of Rs.3,75,509/. with respect to additions u/s.68 of the Act is restricted and the addition in the case of B. Veeraiah has been deleted,issue is set aside to the AO to rework the interest after taking into consideration the additions sustained in the case of M. Srikant and G. Venkata Rao - In the result the appeal of the assessee is partly allowed for statistical purposes.
Issues involved:
1. Addition on account of capital introduced by partners during the year 2. Cash credit u/s.68 of the Income tax Act 1961 3. Justification of additions made by the Assessing Officer 4. Confirmation of additions by the CIT(A) 5. Disallowance of interest on capital account of partners Analysis: Issue 1: Addition on account of capital introduced by partners during the year The Assessing Officer (AO) made additions in the income return by the assessee firm for the assessment year 2006-07, including unexplained credits u/s 68 of the Act. The AO disbelieved the explanations provided by the partners regarding the source of the capital introduced. The CIT(A) upheld the additions, stating that the partners failed to provide specific details and evidence supporting the cash deposits made in their respective accounts. The CIT(A) found the explanations insufficient and justified the additions as unexplained credits. Issue 2: Cash credit u/s.68 of the Income tax Act 1961 The AO added the amounts introduced by the partners as unexplained credits under section 68 of the Income Tax Act. The partners failed to provide satisfactory evidence supporting the sources of the cash deposits. The CIT(A) agreed with the AO's decision and upheld the additions, emphasizing the lack of specific details in the confirmation letters provided by the partners. Issue 3: Justification of additions made by the Assessing Officer The partners submitted explanations for the capital introduced, attributing it to savings from agricultural operations and employment income. However, the AO and CIT(A) found the explanations lacking in supporting evidence and specifics regarding the cash deposits. The AO disallowed the amounts as unexplained credits, which was upheld by the CIT(A) based on the partners' failure to substantiate their claims adequately. Issue 4: Confirmation of additions by the CIT(A) The CIT(A) confirmed the additions made by the AO, stating that the partners' explanations were not backed by sufficient evidence. The CIT(A) reviewed the details provided by the partners and found discrepancies between the explanations and the actual cash deposits, leading to the decision to treat the amounts as unexplained credits under section 68 of the Act. Issue 5: Disallowance of interest on capital account of partners The AO disallowed excess interest claimed by the assessee on the partners' capital accounts, as it exceeded the permissible rate under the Income Tax Act. The AO also disallowed proportionate interest attributable to the capital accounts not accepted as genuine. The CIT(A) upheld the disallowance of excess interest and proportionate interest, considering the additions made under section 68 of the Act. In conclusion, the ITAT partially allowed the appeal for statistical purposes, restricting the additions in the case of two partners and deleting the addition in the case of another partner. The issue of interest disallowance was set aside for the AO to rework after considering the revised additions.
|
