2017 (12) TMI 932 - HC - Income Tax

Revision u/s 263 - unexplained income of firm - amount of cash was brought to the partnership firm by two partners - guinity of gifts - Held that - As assessee has given support of the gift or the amount received from the particular person with necessary documents, such as, copies of demand drafts and cheques etc., no addition could have been made by this appellant in respect of the amount received by the assessee. Under Section 68 of the Income Tax Act, the Assessing Officer while assessing a Partnership Firm, can go behind the source of income of the partnership firm, but he cannot go to source of source . The aforesaid aspect of the matter has been properly appreciated by the Income Tax Appellate Tribunal by allowing the appeal preferred by the respondent assessee and no error has been committed by the Income Tax Appellate Tribunal, Circuit Bench, Ranchi. In view of all so far as the question raised by the appellant is concerned, no error has been committed by the Income Tax Appellate Tribunal in quashing and setting aside the order passed by the Commissioner of Income Tax under Section 263 - Decided in favour of assessee.

Issues Involved:
1. Validity of the ex-parte dismissal of Tax Appeal No.38 of 2008.
2. Legality of the assessment reopened under Section 263 of the Income Tax Act, 1961.
3. Examination of the identity, genuineness of the transaction, and creditworthiness of the donors.
4. Scope of the Assessing Officer's authority to investigate the source of funds received by a partnership firm.

Issue-wise Detailed Analysis:

1. Validity of the ex-parte dismissal of Tax Appeal No.38 of 2008:
The petitioner challenged the ex-parte dismissal of Tax Appeal No.38 of 2008 under Order XLI Rule 21 of the Code of Civil Procedure, read with Section 260A (7) of the Income Tax Act, 1961. The court acknowledged the petitioner's reliance on the Madhya Pradesh High Court's decision in Shrinath Buliyan Refinery V. Commissioner of Income-tax, which allows challenging and restoring ex-parte orders if sufficient cause is shown. Consequently, the court recalled its order dated 14.09.2010 and restored Tax Appeal No.38 of 2008 to its original file.

2. Legality of the assessment reopened under Section 263 of the Income Tax Act, 1961:
The Commissioner of Income Tax exercised revisional power under Section 263 to reopen the assessment for the year 2001-2002, citing that the Assessing Officer did not properly investigate the substantial cash brought into the partnership firm by two partners. The Income Tax Appellate Tribunal (ITAT) had previously allowed the assessee's appeal, noting that the amounts were received via cheques/demand drafts, and the details were provided by the partners. The court upheld the ITAT's decision, emphasizing that the partnership firm had adequately explained the source of the funds received.

3. Examination of the identity, genuineness of the transaction, and creditworthiness of the donors:
The department's appeal focused on the identity and creditworthiness of the donors, Ranjan Jaiswal and Anju Jaiswal, and the genuineness of the transactions. The court noted that the partnership firm received funds through account payee cheques or bank drafts, which were legitimate financial instruments. The court reiterated that the partnership firm is not required to prove the source of the donors' funds, but only the source of its own income. The ITAT's findings that the partnership firm had sufficiently explained the source of the funds were upheld.

4. Scope of the Assessing Officer's authority to investigate the source of funds received by a partnership firm:
The court referred to several judicial precedents, including decisions from the Gujarat High Court, Patna High Court, Delhi High Court, and others, which established that the Assessing Officer cannot investigate the "source of the source" of funds received by a partnership firm. The court highlighted that once the partnership firm provides the necessary documentation, such as cheques or demand drafts, the onus shifts to the department to prove any lack of creditworthiness or genuineness. The court concluded that the ITAT correctly applied these principles in its decision.

Conclusion:
The court dismissed the department's appeal, affirming the ITAT's decision that no error was committed in quashing the order passed by the Commissioner of Income Tax under Section 263. The court emphasized that no substantial question of law was involved, and the partnership firm had adequately explained the source of the funds received from its partners.

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