2021 (4) TMI 906 - AT - Income Tax

Unexplained cash credit u/s.68 - Failure to prove the genuineness and creditworthiness of fresh capital introduced by the partners of the firm during the year under consideration - HELD THAT - After going through the FIR, and other criminal events among the partners, we note that one of the partners has killed another partner on the occasion of Garba festival, therefore, there was fight/quarrel and serious dispute among the partners, one of the partners put into jail by Police/Court and one of the partners has died, hence there was no co-operation among the partners, therefore the required documents could not be submitted before the assessing officer/CIT(A), as the situation was beyond control. Considering the above facts, we note that because of these criminal events the assessee did not get opportunity to submit documents and evidences during the assessment stage. We note that it is settled law that principles of natural justice and fair play require that the affected party is granted sufficient opportunity of being heard to contest his case. Therefore, in the interest of justice, we restore the matter back to the file of Ld. Assessing Officer for de novo adjudication and pass a speaking order after affording sufficient opportunity of being heard to the assessee. Addition on account of alleged suppressed its pass income and treated as undisclosed income - HELD THAT - The accounts were reconciled only after the event was over and the 'pass income' was collected from the agent and pass selling centers. The difference in the figures of pass income is due to the fact that both the Profit and Loss accounts were prepared on different time periods and the correct figures were included after the reconciliation. However, ld DR for the Revenue reiterated the stand taken by the assessing officer. We note that AO has taken two different figure pertaining to 'pass income' from the Profit Loss account as on 31.03.2007 and as on 31.03.2008. The figures of December 2007 were provisional figures where the net profit of ₹ 1,01,908/- has been shown while in the Profit Loss account for 31.03.2008 the net loss of ₹ 48,68,592/- has been shown. The period mentioned as 01.04.2007 to 31.03.2008 is by default settings of the accounting software. The pass income' has been shown at ₹ 39,79,500/- in the Profit Loss account filed during the course of the event. Subsequently, when the accounts was reconciled, the pass income increased to ₹ 89,50,000/-from the income shown of ₹ 39,79,500/- on which the net profit ₹ 1,01,908/- has been shown. We note that assessee has shown voluntarily the higher pass income at ₹ 89,50,000/- as compared to earlier pass income at ₹ 39,79,500/- therefore, it should not be doubted that assessee has concealed his income. Whether turnover/sales is treated as income or net profit embedded in sales is treated as income of the assessee? - Hon ble Gujarat High Court in the case of President Industries 1999 (4) TMI 8 - GUJARAT HIGH COURT held that only net profit embedded in sales should be treated as income. As Learned Counsel submits and draw our attention to the profit and loss account of the assessee vide paper book page no.93, wherein the net profit is shown to the tune of ₹ 1,01,908/-. Therefore, considering the facts and precedent applicable to these facts, as narrated above, we delete the addition of ₹ 49,70,500/- and direct the assessing officer to treat the net income of the assessee at ₹ 1,01,908/-. Thus, ground No.4 raised by the assessee is allowed in above terms.

Summary

Issues Involved:
1. Validity of assessment reopening under Section 147 of the Income Tax Act, 1961.
2. Addition of ?67,53,500/- as unexplained cash credit under Section 68.
3. Addition of ?34,50,000/- as unexplained cash credit under Section 68.
4. Addition of ?49,70,500/- as undisclosed income.

Detailed Analysis:

Issue 1: Validity of Assessment Reopening under Section 147
- The assessee did not press this ground; hence, it was dismissed as not pressed.

Issue 2 and 3: Addition of ?67,53,500/- and ?34,50,000/- as Unexplained Cash Credit under Section 68
- Facts: The AO received information that partners introduced fresh capital and unsecured loans during the assessment year. The assessee failed to provide evidence for the genuineness and creditworthiness of these amounts.
- Arguments: The assessee's counsel argued that due to a serious dispute among partners, including a murder and imprisonment, they could not submit the required documents.
- Decision: The tribunal noted the extraordinary circumstances and the principles of natural justice. The matter was remitted back to the AO for fresh adjudication, allowing the assessee to provide necessary evidence.

Issue 4: Addition of ?49,70,500/- as Undisclosed Income
- Facts: The AO observed discrepancies in 'pass income' between provisional and final profit and loss accounts, leading to an addition of ?49,70,500/- as undisclosed income.
- Arguments: The assessee explained that the difference arose due to reconciliation after the event, and the higher income was voluntarily disclosed. The counsel cited the Gujarat High Court judgment in President Industries, arguing that only net profit, not total sales, should be treated as income.
- Decision: The tribunal accepted the assessee's explanation and deleted the addition of ?49,70,500/-, directing the AO to treat the net income as ?1,01,908/-.

Conclusion:
- The appeal was partly allowed for statistical purposes, with the tribunal setting aside the additions under Sections 68 and remitting the matter back to the AO for fresh adjudication, while deleting the addition of ?49,70,500/- for undisclosed income. The order was pronounced on 19/04/2021.