2014 (7) TMI 131 - AT - Income Tax

Determination of total income - income taxable in the hands of firm or partners - Held that - The investment has been made by the partners jointly prior to the formation of the partnership firm the view taken by the CIT(A) is upheld that any addition on account of investment should only be considered in the assessment of the partners and not in the assessment of the partnership firm - revenue was not able to brought any material for the determination of the point also in Commissioner of Income-Tax Versus Smt. PK Noorjahan 1997 (1) TMI 6 - SUPREME Court it has been held that no addition of the magnitude is involved thus, the order of the CIT(A) is upheld Decided against Revenue. Difference in the cost of construction Held that - CIT(A) was of the view that the buyer of the property, Shri Girish Kumar, has confirmed the fact of ₹ 30-lakhs having been spent by him after taking possession of three floors of the building - this part of the investment cannot be taken as that of the assessee - If this amount is reduced from the value of cost of construction estimated by the Departmental Valuation Officer of ₹ 1.50 crores, the value remaining of ₹ 1,20,00,000 does not leave much of a margin above the cost of construction of ₹ 1,14,05, 509 disclosed by the assessee itself - the difference is less than 5%, the addition made by the AO is unjustified revenue has not brought on record any evidence to indicate that the assessee has incurred any expenditure over and above what has been recorded in the books the order of the CIT(A) is upheld that the additions made by the AO cannot be sustained Decided against Revenue. Addition of capital introduced Source not explained properly - Held that - CIT(A) rightly deleted the addition made by the AO observing that the partners have invested the amounts from out of the existing assets as on 31.3.2007 and out of the income derived by them during the year - the investments were also properly recorded in the books of account of the partners and were also shown in the balance sheets filed by them along with the returns of income before the AO - In the absence of anything to the contrary brought on record by the Revenue to disprove the above findings of the CIT(A), there was no justification for the addition made by the AO Decided against Revenue.

Summary

Issues involved:
1. Addition of Rs. 85,00,000 made by the Assessing Officer for the assessment year 2006-07, deleted by CIT(A).
2. Additions made on account of difference in the cost of construction for assessment years 2007-08 and 2008-09, deleted by CIT(A).
3. Deletion of addition of Rs. 12,95,704 made by the Assessing Officer on account of capital introduced for the assessment year 2008-09.

Issue 1: Addition of Rs. 85,00,000 for Assessment Year 2006-07
The Revenue appealed against the deletion of the addition of Rs. 85,00,000 by the CIT(A). The Assessing Officer had treated this amount as income of the assessee based on the view that the land was acquired for Rs. 85.00 lakhs and not Rs. 55,83,600. However, the CIT(A) held that the investment made in acquisition of the property jointly should only be considered in the assessment of the partners, not the partnership firm. Citing relevant case laws, the CIT(A) emphasized that in the first year of business, such cash credit should be treated as capital receipt and not added under Sections 68 or 69 of the Income Tax Act. The Tribunal upheld the CIT(A)'s decision, stating that the investment was made by the partners before the formation of the partnership firm, and hence, the addition was not justified for the firm.

Issue 2: Additions on Account of Difference in Cost of Construction
For the assessment years 2007-08 and 2008-09, the Assessing Officer made additions on account of differences in the cost of construction, which were deleted by the CIT(A). The Valuation Cell determined the total cost of construction, and the Assessing Officer added amounts based on these differences. However, the CIT(A) found that the differences were marginal, less than 5%, and that the buyer of the property had spent a significant amount after taking possession, which should not be considered as the firm's investment. The Tribunal agreed with the CIT(A) that the additions were unjustified, as the Department failed to provide evidence of additional expenditures beyond what was recorded by the assessee.

Issue 3: Deletion of Addition of Rs. 12,95,704 for Assessment Year 2008-09
The Assessing Officer added Rs. 12,95,704 on account of capital introduced by the partners, alleging lack of proper explanation for the sources. However, the CIT(A) deleted this addition, noting that the partners had invested from existing assets and income, which were duly recorded in their books and balance sheets. The Tribunal upheld the CIT(A)'s decision, stating that without evidence to the contrary, the addition made by the Assessing Officer was not justified. Therefore, the appeal for the assessment year 2008-09 was also dismissed.

In conclusion, all three appeals by the Revenue for the assessment years 2006-07 to 2008-09 were dismissed by the Appellate Tribunal. The Tribunal upheld the CIT(A)'s decisions to delete the additions made by the Assessing Officer, emphasizing the proper application of tax laws and the lack of sufficient evidence to support the additions.