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TMI Blog2012 (9) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... e any other document to prove the creditworthiness of Shri Tatiparti Venkata Rami Reddy - against assessee. Disallowance of 25% of an expenditure - Held that:- Considering the nature of expenditure claimed and proportion of such expenditure with regard to the total turnover of the assessee firm it is reasonable to restrict the disallowance to 10% of the total expenditure claimed - partly in favour of assessee. - ITA No. 491/Hyd/2009 - - - Dated:- 22-6-2012 - SHRI CHANDRA POOJARI, AND SHRI SAKTIJIT DEY, JJ. Appellant by: Shri S. Rama Rao Respondent by: Shri B.V. Prasad Reddy O R D E R PER SAKTIJIT DEY, JM: The assessee has filed the appeal challenging the order dated 31.12.2008 of the CIT(A), Guntur passed in ITA No. 0194/CIT(A)/GNT/2007-08 pertaining to assessment year 2005- 06. 2. The assessee raised the following grounds: 1. The order of the learned CIT(A) is erroneous both on facts and in law. 2. The learned CIT(A) erred in confirming the action of the Assessing Officer in making addition of the capital introduced by Sri P. Sankar Narayana Rao, who is assessed to tax by applying the provisions of sec. 68 of the I.T. Act. 3. The learned CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n examining the capital account, the Assessing Officer found that the return of income filed by Shri P. Sankar Narayana Rao shows a brought forward balance of Rs. 97,174 with credit of Rs. 8,40,000 from individual salary income, Rs. 7,59,525 from sale of ornaments, Rs. 75,000 from agriculture and Rs. 30,000 from huller mill. The Assessing Officer made further queries to the assessee for submitting details regarding the salary income of Shri P. Sankar Narayana Rao and his wife, the net savings, family expenditure to substantiate the source for investment in the firm. Similar queries were also made in respect of the other partner Shri A. Venkata Subba Rao. Since there was no reply from the partner on the query made by the Assessing Officer, he came to a conclusion that the source of investment in the capital introduced having not been explained it has to be treated as unexplained credit u/s. 68 of the Act and added the amount of Rs. 24,55,169. The assessee being aggrieved with the assessment order filed an appeal before the CIT(A). 6. In course of hearing of appellate proceedings, the assessee contended that Shri P. Sankar Narayana Rao was also assessed to tax in the status of HUF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the addition of Rs. 24,55,169. 8. The learned AR contended before us that the assessee firm came into existence by virtue of a deed of partnership executed on 20.9.2004 and the business of the firm commenced on 22.10.2004. Therefore, the previous year for consideration was from 22.10.2004 to 31.3.2005. The learned AR contended that the capital introduced by both the partners was not only prior to the commencement of the business by partnership firm but also even prior to the coming into existence of the partnership firm. To substantiate the aforesaid claim, the learned AR submitted the details of investment made in contribution of capital of the firm in the following tabular form: Name of the partner Date Amount (Rs.) Details A.V. Subba Rao 14.09.2004 50,000 For purchase of DD No. 361152 in favour of M M Ltd. Bank charges Rs. 83/- 14.09.2004 6,50,000 For purchase of DD No. 361153 Bank charges Rs. 1433 P. Sankar Narayana Rao 09.10.2004 5,00,000 For purchase of DD No. 962525 in favour of M M Ltd. Bank charges Rs. 1000/- 18.10.2004 5,00,000 For purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of the learned AR that no addition could be made u/s. 68 of the Act since the capital was introduced by the partner prior to the commencement of business in the case of GL Foods vs. ITO (supra), the ITAT Lucknow Bench while considering similar nature of dispute held that investment made by the partners as their initial capital before commencement of business of the partnership firm could not be treated as undisclosed income of the assessee firm and no addition could be made in the hands of the firm. The Tribunal further held that even if the Assessing Officer was not satisfied with the explanation offered by the assessee firm with regard to the source of such investment addition could only be made in the hands of the individual partners and not at the hands of the firm. In the aforesaid view of the matter, we direct the deletion of an amount of Rs. 17,53,653. 13. However, so far as the investment made by Shri A. Venkata Subba Rao, the other partner is concerned, we find that the return of income for the relevant assessment year was submitted only on 12.12.2007, at a much belated stage and the assessee has also not disclosed about the introduction of capital to the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The CIT(A) also sustained the addition by accepting the reasoning of the Assessing Officer. 15. The learned AR contended before us that the said person i.e., Shri Tatiparti Venkata Rami Reddy had in fact advanced an amount of Rs. 4,00,600 out of the income earned from agricultural operations. The learned AR submitted that the said person along with his brother were holding land to the extent of 7.30 acres in Koppolu village and the amount has been advanced out of the income earned from sale of agricultural produce grown on the agricultural land. In support of such contention the learned AR invited our attention to the confirmation letter of Shri Tatiparti Venkata Rami Reddy which is at page 49 of the Paper Book. 16. The learned DR, on the other hand, contended that the Assessing Officer had made detailed enquiry through the inspector and after finding that the person concerned did not have sufficient source for advancing the amount of Rs. 4,00,600 had added the amount out of the total amount of loan credit of Rs. 19,66,832. 17. We have heard the rival contentions and perused the material on record. It is seen from the orders of the Revenue authorities that the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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