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TMI Blog2021 (3) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... at page no. 13 of the assessee's paper book wherein the total taxable income was declared at ₹ 1,69,080/- and the tax payable was ₹ 52,246/-. The said return was signed by one Shri Nitendra Tiwari in capacity of the partner on 31/03/2014, therefore the identity of the firm M/s Vastech Solution cannot be doubted. The said firm also confirmed the loan given to the assessee to the A.O. copy of the said confirmation is placed at page no. 19 of the assessee's compilation. We therefore considering the peculiar facts of the present case, are of the view that the addition made by the A.O. and enhanced by the Ld. CIT(A) was not justified, accordingly the same is deleted. - ITA No. 1326/CHD/2019 - - - Dated:- 2-3-2021 - SHRI. N.K.SAINI, VICE PRESIDENT AND SHRI R.L. NEGI, JUDICIAL MEMBER Assessee by : Shri Shri Jaspal Sharma, Advocate Revenue by : Shri Ashok Khanna, Addl. CIT ORDER PER N. K. SAINI, VICE PRESIDENT : This is an appeal filed by the Assessee against the order of the Ld. CIT(A)-1, Chandigarh dt. 05/07/2019. 2. Following grounds have been raised in this appeal: 1.The impugned order is both against facts and erroneous in law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition of ₹ 12,20,510/- and treated the same as income of the assessee. 4. Being aggrieved the assessee carried the matter to the Ld.CIT(A) and furnished the additional evidences under Rule 46A of the Income Tax Rules 1962. The said evidences were forwarded by the Ld. CIT(A) to the A.O. for his remand report. In response the A.O., submitted as under: In this regard as per AOs report it is submitted that the assessee during the assessment proceedings was given ample time to explain the identity of source and genuineness and creditworthiness of the transaction. However, the assessee failed to discharge its onus. Now, the assessee along with the submission of documents before the Ld. CIT(A) has submitted that these documents could not be filed during the assessment proceedings as these were not traceable as the firm was dissolved in January, 2011. The assessee itself is accepting that the firm had been dissolved hence a dissolved entity could not advance money to anyone and the identity of source itself and genuinty of the transactions is under doubt in these circumstances. Further, the assets and liabilities of the dissolved firm had become a part of the assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear.' It is pertinent to mention here that as per the material available on record, the directors of M/s Virtuosa Netsoft Pvt. Ltd. during the year under consideration, were Sh. Nitendra Tiwari and Smt. Asha Phagna, the same individuals which were partners in the dissolved firm M/s Vastech Solutions. Further, from the ROC site it has been obtained that the assessee company i.e. M/s Virtuosa Netsoft Pvt. Ltd. was incorporated on 21.01.2011 just a day after when the partnership firm M/s Vastech Solutions was dissolved to upgrade it into a new company that is the assessee company M/s Virtuosa Netsoft Pvt. Ltd. 6. It is a matter of fact that the same was confronted to the assessee vide order sheet entry dated 27.01.2016 which reads as under: '2. You have produced dissolution deed of M/s Vastech Solutions as per which the firm was dissolved on 20.01.2011. However, you are showing loan from M/s Vastech Solutions standing as on 31.03.2012 amounting to ₹ 25,31,765/- and received during the year ₹ 12,20,510/-. Explain from where this fresh amount of ₹ 12,20,510/-received. Give details of the source. Also explain, in the event of no source why not this amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Smt. Asha Phagna. The said firm M/s Vastech Solutions was dissolved on 20.01.2011. A copy of Dissolution Deed was filed during assessment proceedings (copy attached at pages 1-2). The assessee company namely M/s virtuoso Netsoft Pvt. Ltd. came into existence on 21.10.2011 with its promoter directors, Shri Nitendra Tewari and Smt. Asha Phagna. As regards the source of loan given by M/s Vastech Solutions to assessee company, a confirmation was submitted to the,Ld. AO during the course of assessment proceedings, signed by Shri Nitendra Tewari as partner on behalf of M/s Vastech Solutions wherein details of loan with dates and amount, was given (certified copy of confirmation attached at page 3). It is respectfully submitted that it was on account of recovery from sundry debtors in the hands of M/s Vastech Solutions as reflected in balance sheet as on 31.03.2012 (pg 4, 8 of additional evidence) relating to M/s Vastech Solutions and further receipts received by M/s Vastech Solutions during the financial year 2012-13. A copy of ledger account of M/s Vastech Solutions in the books of assessee company during the previous year, is attached herewith at page 1 of additional evidence. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,510/- without considering the facts correctly. 3. As for comments of AO in Remand Report, that M/s Vastech Solutions was dissolved and that it could not have advanced money to the assessee company, it is respectfully submitted that M/s Vastech Solutions has been a regular assessee till A.Y. 2013-14 (pages 4-8) showing receipts from customers till the contracts lasted with some parties. On the other hand the assessee company started its business effectively during the previous year relating to the asstt. year 2013-14 by way of new contracts with parties. Copies of ITRs of assessee company for the A.Ys. 2012-13 and 2013-14 respectively, are attached at pages 9-11. It is respectfully submitted that partnership firm and a private limited company are two different and independent persons under the law. A partnership firm can run its business by mutual understanding of the parties. It cannot be said that assets and liabilities of dissolved firm had become part of assessee company by virtue of Dissolution Deed. A company is created and formed under the Companies Act and capital is generated by issuing shares to the shareholders. It is further submitted that the firm was duty bound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er enquiry and to report the result of the same to him. This position has been made clear by sub-rule (4) which specifically provides that the restrictions placed on the production of additional evidence by the appellant would not affect the powers of the AAC to call for the production of any document or the examination of any witness to enable him to dispose of the appeal. Under sub-section (4) of section 250, the AAC is empowered to make such further inquiry as he thinks fit or to direct the ITO to make further inquiry and to report the result of the same to him. Sub-section (5) of section 250 empowers the AAC to allow the appellant, at the hearing of the appeal, to go into any ground of appeal not specified in grounds of appeal, on his being satisfied that the omission of the ground from the form of appeal was not willful. It is clear from the above provisions that the powers of the AAC are much wider than the powers of an ordinary court of appeal. The scope of his powers is coterminous with that of the ITO. He can do what the ITO can do. He can also direct the ITO to do what he failed to do. The power conferred on the AAC under sub-section (4) of section 250 being quasi-judicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders. In other words, rule 46A without sub-rule (4) will be open to challenge as ultra vires section 250 of the Act . 5.2.6. Thus, a reading of the exposition of law relating to the power of the Commissioner of Income-tax (Appeals) to admit additional evidence, as made by the Bombay High Court and relied on by the Kerala High Court (discussed above) reveals that even if repeated opportunities were given to the appellant to produce evidence and even if the appellant does not suo motu produce any evidence, in the spirit of justice and fair-play, it is incumbent on the first appellate authority, being a quasi-judicial authority, to require the appellant to produce requisite evidence or to make necessary inquiry and admit any such fresh and additional evidence, of course, by virtue of section 250(4) and (5) read with sub-rule (4) of rule 46A. ' 5.2.7. In the present case, the details submitted by the appellant are crucial to the adjudication of the grounds raised in appeal inasmuch confirmation and bank accounts statements submitted by the appellant will help to adjudicate the matter in judicious way. The major addition on the appellant's case having been made on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of source is immaterial. Hence, addition to the correct amount of ₹ 14,50,000/- [instead of ₹ 12,20,510/-] is confirmed. The Ground of Appeal is No.2 is dismissed. 5. Now the assessee is in appeal. 6. The Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and further submitted that only business activity of the partnership firm M/s Vastech Solution were seized however the said firm was regularly filing the return of income and maintaining the books of account, therefore the identity of the firm and the capacity to advance the loan to the assessee company was verifiable from the record as the said firm was maintaining the books of account, the reference was made to page no. 1 to 3 of the assessee's compilation which are the copies of the ledger account of M/s Vastech Solution in the assessee's books of account and the bank statement of the said firm. It was also submitted that the assessee proved the identity as well as credit worthiness of the creditor and genuineness of the transaction, therefore the addition made by the A.O. and sustained by the Ld. CIT(A) under section 68 of the Act was not justified. 7. ..... 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