2016 (9) TMI 1069 - AT - Income Tax

Addition made on account of cash deposit in bank account u/s 69A - assessmnet of partners share in partnership firm - Held that - We find that as far as source of the cash deposit in the saving bank account of the assessee is concerned, it is explained as the cash sales of the partnership firm, namely, M/s Moti Mahal Restaurant, in which the assessee is one of the partners. The objection of the Revenue is, however, that the section 19(2) of the Partnership Act, 1932 prohibits opening of an account by a partner in his own name on behalf of the firm. Also as objected by the Revenue that opening of the account in the name of partner was not in accordance to the terms of the partnership deed of M/s Moti Mahal Restaurant. According to the section 19(2)(b) of the Indian Partnership Act, 1932, in absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to open a bank account on behalf of the firm in his own name. The implied authority of the partner binds the firm against the acts of the firm. This restriction on the implied authority of the partner is subject to the usage or custom of the trade, therefore, in absence of evidences of usage or custom of the trade, we cannot say that there was any violation of section 19(2) of the Indian partnership Act, 1932. In our opinion, what is important is that in deposit of trading receipts of the firm in the bank account of the partner, the assessee has not violated any of the provisions of the Income Tax Act, even if it may be a violation of the section 19(2) of the Indian Partnership Act, 1932, and further, there is no dispute that the money belonged to the partnership firm and after deposit, the money was transferred to the partnership firm, in such circumstances, no addition is called for in the case of partner of the firm. - Decided in favour of assessee

Issues Involved:

1. Deletion of addition made on account of cash deposit in the bank account under Section 69A of the Income Tax Act, 1961.
2. Prohibition under Section 19(2) of the Indian Partnership Act, 1932 regarding opening of account by a partner in his own name on behalf of the firm.
3. Whether the bank account in the assessee’s individual name was the bank account of the firm.
4. Whether the Assessing Officer was required to dispose of objections filed by the assessee against the reasons recorded for issuance of notice under Section 148 of the Income Tax Act, 1961 by a separate speaking order.
5. Timeliness of the appeal filed by the department.

Detailed Analysis:

1. Deletion of Addition under Section 69A:

The Revenue challenged the deletion of ?63,47,405/- added by the Assessing Officer as unexplained deposits in the bank account of the assessee. The assessee contended that these deposits were cash sales of the partnership firm, M/s. Moti Mahal Restaurant, and were reflected in the firm's books of accounts and balance sheet. The Commissioner of Income-tax (Appeals) (CIT(A)) deleted the addition, concluding that the deposits were duly accounted for by the firm and did not represent the assessee’s concealed income. The Tribunal upheld the CIT(A)’s decision, emphasizing that the deposits were indeed the firm's sales receipts and were transferred to the firm's current account, thus no addition was warranted.

2. Prohibition under Section 19(2) of the Indian Partnership Act, 1932:

The Revenue argued that Section 19(2) of the Indian Partnership Act prohibits a partner from opening a bank account in his own name on behalf of the firm, and this action was not in consonance with the partnership deed. The Tribunal noted that while the assessee may have violated Section 19(2) of the Partnership Act, this did not constitute a violation of the Income Tax Act. The Tribunal held that the deposits were the firm’s money and were transferred to the firm’s account, thus no addition was justified in the partner’s case.

3. Bank Account in Assessee’s Individual Name:

The Revenue contended that the bank account in the assessee’s name was not the firm’s account. The Tribunal found that despite the account being in the assessee’s name, it was used for depositing the firm’s sales receipts, and the balances were reflected in the firm’s books. The Tribunal concluded that the firm’s ownership of the funds was not compromised, and thus the addition was unwarranted.

4. Disposal of Objections Against Notice under Section 148:

The assessee raised a cross objection regarding the Assessing Officer’s failure to dispose of objections against the reopening of assessment by a separate speaking order. The Tribunal found this issue academic since the assessee had already been granted relief on the merit of the addition. Therefore, the Tribunal did not adjudicate on this issue, dismissing the cross objection as infructuous.

5. Timeliness of the Department’s Appeal:

The Tribunal did not explicitly address the timeliness of the department’s appeal, focusing instead on the substantive issues of the case.

Conclusion:

The Tribunal upheld the CIT(A)’s order deleting the addition of ?63,47,405/- and dismissed the Revenue’s appeal, concluding that the deposits were the firm’s sales receipts and were duly accounted for. The Tribunal also dismissed the assessee’s cross objections as infructuous since the primary issue had been resolved in the assessee’s favor. The decision was pronounced in the open court on 13th July 2016.

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