2022 (9) TMI 1182 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - identity, genuineness and creditworthiness of the persons proved or not? - HELD THAT - AO was satisfied on the basis of positive replies received to the notices issued u/s 133(6) of the Act and also successful cross-verification of such transactions and AO has specifically observed that the advances were received for the partnership firm M/s. City Live Construction. So, identity, genuineness and creditworthiness of the persons advancing the said sum is not in dispute. The addition has been made merely for the observation that when the said advance was a liability of the partnership firm why it was standing in the books of the assessee. Even, CIT(A) has also confirmed the addition on the basis of this observation of ld. AO. We find no merit in the finding of CIT(A) as he failed to appreciate the simple accounting entry that when the assessee s proprietorship concern received a sum on behalf of the partnership firm then such sum will stand on the liability side of the balance sheet of the sole proprietorship concern and when the said sum is repaid back the credit balance is squared off. There is no other mechanism to reflect such entry in any other way as has been shown by the assessee. Since the assessee has rightly disclosed the said transaction in the books of account as an advance received on behalf of the firm on the liability side of the balance sheet and since genuineness of the sum so received is not in dispute at the end of Revenue parties, we hereby set aside the finding of CIT(A) and delete the addition made by ld. AO u/s 68 - Thus, the effective ground raised by the assessee is allowed.

Summary

Issues:
Appeal against order u/s 250 of the Income Tax Act, 1961 for AY 2012-13 - Addition of Rs. 28,00,900 under section 68 of the Act.

Analysis:
1. The appeal was filed by the assessee against the order passed by the ld. Commissioner of Income-tax (Appeals) pertaining to AY 2012-13. The main issue raised in the appeal was the addition of Rs. 28,00,900 made by the Assessing Officer under section 68 of the Income Tax Act, 1961.

2. The facts of the case revealed that the assessee, an individual earning income from other sources, had filed a return of income for AY 2012-13 declaring an income of Rs. 3,81,917. Subsequently, during assessment proceedings u/s 147 r.w.s. 143(3) of the Act, the Assessing Officer questioned the receipt of Rs. 28,00,900 and invoked section 68 of the Act. The AO observed that the amount was receivable by a partnership firm in which the assessee was a partner and added it to the income.

3. The assessee contended that the sum of Rs. 28,00,900 was received in his sole proprietorship concern on behalf of the partnership firm and was later returned/adjusted in the firm's account. The AO and the CIT(A) confirmed the addition under section 68, stating that the amount was shown as a liability in the balance sheet of the assessee.

4. Upon hearing the arguments, the Accountant Member observed that the sum in question was received by the assessee for the partnership firm's project. The AO had conducted inquiries and verified the transactions, confirming the identity, genuineness, and creditworthiness of the persons advancing the sum. The Accountant Member noted that the addition was made due to the sum being shown as a liability in the assessee's books.

5. The Accountant Member disagreed with the CIT(A)'s finding and emphasized that the accounting entry of the sum received on behalf of the partnership firm should reflect as a liability in the balance sheet of the sole proprietorship concern. As the genuineness of the transaction was not in dispute and the sum was correctly disclosed, the Accountant Member set aside the CIT(A)'s decision and deleted the addition of Rs. 28,00,900 under section 68 of the Act.

6. The Accountant Member allowed the appeal filed by the assessee, stating that since the addition was deleted on merit, the challenge against the ex-parte order became infructuous. The general ground raised by the assessee required no adjudication.

7. In conclusion, the appeal filed by the assessee was allowed, and the addition of Rs. 28,00,900 made by the AO under section 68 of the Act was deleted.

This detailed analysis highlights the key issues raised in the appeal, the arguments presented by both parties, the observations made by the Accountant Member, and the final decision rendered in favor of the assessee.