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TMI Blog2016 (9) TMI 1381X X X X Extracts X X X X X X X X Extracts X X X X ..... partners - Held that:- We are unable to understand how the AO could make addition of ₹ 10 Lakhs, when he himself gives a finding that there is neither cash introduction in Cash Book nor there is a ledger account in the Books of Account, so relied upon by him. The addition u/s. 68 is not warranted as there is no such credit in ‘books of account’. Be that as it may, assessee in the final accounts has shown ₹ 2 Lakhs credit in the name of each of the partners and has filed the returns in their individual capacities admitting the cash credits. The AO could have verified these in the individual hands but not in the firm’s hands. Therefore, CIT(A)’s order is correct not only on facts but also on law. There is no merit in Revenue’s ground, accordingly the same is dismissed. Disallowance of salary paid to one of the partners Shri K. Mohan Reddy - Held that:- The disallowance is not warranted. First of all, the statement recorded u/s. 131 clearly indicates that Shri Mohan Reddy is aware about his partnership in the firm and admits that he is responsible as a partner for all affairs of the firm. In fact, Question No. 3 itself asks him about the ‘active role in the day-to-day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l statements and his so called discrepancies are based on incomplete Books of Account, we do not see any reason to confirm the net discrepancy so arrived at by the AO. Inflation of expenditure - disallowance as as suppression/inflation of expenditure by listing out in the table under the head ‘expenditure’ - Held that:- We are surprised that AO even after reconciling the amount as noted down the last column of the table thought it fit to disallow the amount. Considering the very same explanation, we are of the opinion that no disallowance is called for as the so called discrepancies arose because of comparisons under taken on the basis of incomplete Books of Account and final statements. There cannot be any inflation of expenditure, when all the expenditures were correctly claimed by assessee in the final statements. Ground of assessee is allowed. Disallowance of part of expenses of partners sitting fees - excess payment of interest to partners of ₹ 13,300/- and sitting fee - Held that:- We are unable to understand how the interest at 12% of ₹ 1,59,600/- can be disallowed. As seen from the final statements, the entire interest on partner’s capital claimed was only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid return was originally processed u/s. 143(1) of the Income Tax Act [Act]. The Assessing Officer (AO), thereafter, conducted survey u/s. 133A of the Act at the premises of assessee on 30-09-2007. AO during the course of survey, impounded certain books of account showing suppression of receipts and inflation of expenditure. AO accordingly issued a notice u/s. 148. AO mentions that on verification of the accounts it is revealed that some of the entries made in the books of account are not considered while preparing the return of income; certain transactions were not at all reported to the department; the P L A/c prepared and annexed to the return of income did not tally with the books of account maintained by assessee; there is also discrepancy between the books of account of one year and another year as the opening and closing balances are not tallying; some of the entries are not made in the books of account. The AO also found that there is an account partners sitting fee which is an imprest account maintained by the Managing Partner and that some of the expenditure recorded therein is not admissible as per law. Accordingly, he passed the assessment order determining the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Partial relief to the extent of ₹ 1,20,000 Balance of additions were confirmed by Ld. CIT(A). Hence both parties are aggrieved. 5. Ld. Counsel submitted that the AO has compared the final statements filed in earlier year and incomplete books of this year and also final statements of this year filed with return of income. It was submitted that the partners cash introduced as capital was adjusted in final accounts last year as well as in this year and the same resulted in various differences in capital accounts, expenditures and claims etc. Not only that in trial balance, the assets and liabilities were shown separately whereas in final accounts, these were shown at net amounts. Therefore, CIT(A) was not correct in accepting partly where as all the additions are explainable. 6. Ld. DR however, explained the details of additions made from the assessment order and submitted that survey has been conducted after three years and so assessee s statement that books of accounts were not closed or final entries were not made is not correct. The acceptance of assessee contentions by Ld. CIT(A) is not correct and supported the grounds raised by Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 i.e., final accounts enclosed to the return of income in AY. 2003-04 and opening balance as on 01-04-2003 in the Books of Account for this year. AO has listed the difference in Liabilities side and Assets side and major difference is with reference to arrear of chit subscriptions and cash in hand. The difference of Liabilities side is only ₹ 446/-. It was the explanation of assessee before the Ld. CIT(A) (as well as before the AO) that the final statements filed along with return of income are after adjusting the partners capital accounts, wherein each of the partners have contributed Rs. one Lakh each totalling to ₹ 5 Lakhs during that year and those amounts have not been carried over as opening balance in the Books of Account for this year. Since the entries are shown in the final accounts filed for the earlier year, the discrepancy of ₹ 5 Lakhs in cash receipt has come in the opening cash balance of this year. Further, an amount of ₹ 79,312/- was collected from the subscriptions on the chits, which was shown as a difference in the statements, whereas this amount collected was adjusted in the final accounts. Thus, the total amount of ₹ 5,79,312/- h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and preferred the ground on this issue. 9.1. After considering the rival contentions, we do not see any reason to interfere with the order of the Ld. CIT(A). First of all, we are unable to understand how the AO could make addition of ₹ 10 Lakhs, when he himself gives a finding that there is neither cash introduction in Cash Book nor there is a ledger account in the Books of Account, so relied upon by him. The addition u/s. 68 is not warranted as there is no such credit in books of account . Be that as it may, assessee in the final accounts has shown ₹ 2 Lakhs credit in the name of each of the partners and has filed the returns in their individual capacities admitting the cash credits. The AO could have verified these in the individual hands but not in the firm s hands. Therefore, CIT(A) s order is correct not only on facts but also on law. There is no merit in Revenue s ground, accordingly the same is dismissed. Disallowance of salary of Shri K. Mohan Reddy: 10. An amount of ₹ 18,000/- was disallowed as salary paid to one of the partners Shri K. Mohan Reddy. According to AO, the said partner is not a working partner and therefore, salary to him is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years of closure of the accounting year, the reconciliation given by assessee was not correctly appreciated by the AO or CIT(A). Since the final accounts are tallying, the so called discrepancies on the basis of incomplete Books cannot lead to an addition that too, when assessee was explaining that both the assets and liabilities are to be reconciled. Considering the reconciliation filed by assessee before the CIT(A), we are of the opinion that there is no need for any addition on this account. Accordingly, the order of CIT(A), deleting the amount of ₹ 20,28,000/- was confirmed and the balance confirmed amount of ₹ 4,83,297/- is also directed to be deleted. Revenue s ground is accordingly dismissed and assessee s ground is allowed. Addition of suppression of income of ₹ 1,082/-: 12. AO by briefly stating that an amount of ₹ 1,082/- was short computed in the dividend account made an addition which assessee contends that dividend is correctly accounted. There is no clarity in the addition of AO. As seen from para 4 of the order, the so called discrepancies between Books and entries in the final statements on the Liabilities side, there was a differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed by assessee in the final statements. Ground of assessee is allowed. Disallowance of part of expenses of partners sitting fees of Rs. 1,72,900/-: 14. According to AO, there is excess payment of interest to partners of ₹ 13,300/- and sitting fee of ₹ 1,59,600/- which was disallowed. The Ld. CIT(A) gave partial relief of ₹ 1,20,000/-. 14.1. After considering the rival contentions, we are unable to understand how the interest at 12% of ₹ 1,59,600/- can be disallowed. As seen from the final statements, the entire interest on partner s capital claimed was only ₹ 51,800/- and the amount claimed in the P L A/c was ₹ 51,800/- only. How an amount of ₹ 1,59,600/- could be disallowed is not explainable. Therefore, we do not find any reason to confirm the addition so made, based on the so called entries in the partners sitting fee account in cash imprest maintained by Managing Partner. However, with reference to the disallowance of ₹ 15,791/- considered to be miscellaneous expenditure, we confirm the disallowance as the interest for business purposes is not explained. Therefore, while confirming the amount of ₹ 15,791/- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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