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TMI Blog2024 (7) TMI 1420X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has been received from the Partners as a capital contribution and since the identity of the Partners are established and also the investment has been routed through proper banking channels, the question of making addition towards the consideration paid by cheque u/s 68 and amount paid for stamp duty and other registration charges by cheque u/s 69A does not arise. Therefore, we reverse the findings of CIT (A) on this addition and direct the AO to delete the addition made u/s 68 and 69A of the I.T. Act, 1961. - Shri Laliet Kumar, Judicial Member And Shri Manjunatha, G. Accountant Member For the Assessee : Shri P. Murali Mohan Rao, CA For the Revenue : None ORDER PER MANJUNATHA, G. A.M These three appeals filed by the assessee are directed against the separate, but identical orders passed by the learned Commissioner of Income Tax (Appeals)-11 Hyderabad, all dated 01-02-2024 and pertains to A.Ys 2014-15, 2015-16 2017-18. Since the facts are identical and issues are common, for the sake of convenience, these appeals filed by the assessee were heard and are being disposed off by this consolidated order. ITA No.164/Hyd/2024-A.Y 2014-15 2. The assessee raised the following grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Rs. 17,00,000/ out of the total amount of Rs. 42,00,000/- towards unexplained investment in the impugned properties. 9. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the appellant seems to have made an effort to match the cash payments recorded in the sale deeds and present the same as Sundry creditors to avoid the factum of cash payments. 10. On the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have appreciated that the land in question was not handed over in possession by the vendors and the transfer of property was not fulfilled even though the sale deeds were executed and registered. 11. On the facts and circumstances of the case and in law, the Ld. CIT(A) Ought to have considered that no incriminating material was found towards the alleged purchase of AC 11-33 Gts, by paying cash to the extent of Rs. 34,48,50,000/- except the statement recorded u/s 132(4) of the Act which was later retracted. 12. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in considering that the appellant has paid, sale consideration in cash as recorded in the impugned sale deed without considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. He further stated that he cannot explain the source and accordingly admitted the same as undisclosed income in his individual capacity for the A.Y 2014-15. In respect of balance amount of Rs. 5.00 crore contributed by Shry Syed Fayaz Mohd, he stated that the source for the same can be explained by him. 4. Pursuant to search action, notice u/s 153A of the Act dated 11.5.2018 was issued. The assessee did not file return of income in response to notice u/s 153A as per the time provided in the said notice. Later, Shri Gaddam Shyam Prasad Reddy submitted a copy of e-filed return of income in Tapal on 13.11.2018. The Assessing Officer, on the basis of return of income filed by the assessee noticed that, the assessee has filed return of income without admitting the income as admitted by its partners during the course of search on oath statement recorded u/s 132(4) dated 20.09.2017 and sworn statement dated 20.05.2017 and 17.11.2017 and affidavit dated 26.10.2017. Further, the appellant has also filed retraction statement made by Shri Gaddam Shyam Prasad Reddy dated 30.11.2017 and stated that the earlier sworn statement recorded on 17.11.2017 before the DDIT (Inv.) was taken under cohes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r purchase of property was contributed by partners out of their income earned from Real Estate Business and further they admitted to disclose the additional income in their individual capacity for the A.Y 2014-15, the Assessing Officer erred in making addition in the hands of the appellant. The ld. CIT(A) after considering the relevant submission of the assessee and taken note of various facts including the relevant deeds for purchase of property, sworn statement recorded from Shri. Gaddam Shyama Prasad Reddy and subsequent retraction statement from the partner, enhanced the assessment for the A.Y 2014-15 and directed the Assessing Officer to make addition u/s 69A of the I.T. Act, 1961 for Rs. 39,48,50,000/- towards the consideration paid for purchase of property as per sale deeds and not recorded in the books of account of the assessee for the relevant A.Ys. The learned CIT (A) further noted that the appellant also paid sale consideration of Rs. 17.00 lakhs through bank account and stamp duty and registration charges of Rs. 25.00 lakhs for the impugned asst. year which have been added by the Assessing Officer in the assessment order u/s 69 of the I.T. Act, 1961 as unexplained inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no provision under the Act that the learned CIT (A) can travel beyond the subject matter that arose out of the proceedings before the Assessing Officer since separate machinery provisions for such eventuality are provided under the Act. The learned Counsel for the assessee further submitted that the Assessing Officer has made addition u/s 69 of the I.T. Act, 1961 as unexplained investment, whereas the ld. Cit(A) enhanced the assessment by bringing into new source of income by making addition u/s 69A of the I.T. Act, 1961 as unexplained money even though the learned CIT (A) does not have the power to bring in new source of income. The learned Counsel for the assessee further submitted that whenever the question of taxability of income from a new source of income is considered which has not been considered by the Assessing Officer, an appropriate mechanism to deal with the same is u/s 147/148 and section 263 of the I.T. Act, 1961, if requisite conditions are fulfilled and it is inconceivable that in presence of such specific provisions, a similar power is available to first appellate authority. In this connection, the learned Counsel for the assessee referring to the order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny right and title over the property and does not have any possession over the property. Therefore, when the person does not have rights and title over the property, the sale deed executed for transferring the right in the said property is illegal and void. Since the land is not identifiable and no consideration was paid, the question of making addition u/s 69A of the I.T. Act, 1961 as unexplained money does not arise. Therefore, on this count also, the order passed by the learned CIT (A) is not sustainable. 11. In so far as A.Ys 2015-16 2017-18 are concerned, the learned Counsel for the assessee submitted that although the Assessing Officer has made addition u/s 69A of the I.T. Act, 1961 towards the amount paid for stamp duty and other charges, but the learned CIT (A) has enhanced the assessment and assessed the alleged amount paid for stamp duty and other charges u/s 68 of the I.T. Act, 1961 as unexplained cash credit without appreciating the fact that as per the financial statements filed by the assessee, the appellant has claimed entire amount invested in purchase of property including the stamp duty and other charges is got out of partners capital and sundry creditors. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ages, when it comes to individual assessment, the appellant claims that the income is offered by the partnership firm whereas when it comes to the assessment of partnership firm, the appellant claims that the income is offered by the partners. Therefore, he submitted that the argument of the assessee that the amount paid for purchase of property was offered by the partners in their individual capacity is incorrect. The learned DR further referring to the provisions of section 251(1)(a) and 263 of the I.T. Act, 1961 submitted that the powers of the CIT (A) and powers of the Pr. CIT are mutually exclusive. The CIT (A) is having co-terminus power with that of the Assessing Officer can enhance the assessment even if the Pr. CIT has considered the issue during the revision proceedings. Therefore, the argument of the learned Counsel for the assessee that the Pr. CIT has considered the very same issue in revision proceedings and the same has been examined by the 2nd appellate authority and because of this, the learned CIT (A) cannot exercise his enhancement powers is devoid of merit and should be rejected. 14. We have heard both parties, perused the material available on record and gone t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stated that a valid transfer took place to say that the appellant firm has paid the consideration. 15. The Assessing Officer rejected the argument of the assessee in light of retraction statement solely on the ground that the registered document for purchase of property clearly shows consideration paid in cash at the time of registration and further the said consideration was paid by the appellant firm. Therefore, subsequent retraction in light of confirmation of sellers along with other evidence is only an after thought to circumvent to liability of tax in the hands of the firm and this cannot be accepted. Therefore, the Assessing Officer has made addition in the hands of the partnership firm for 3 A.Ys towards consideration paid for purchase of property and other incidental expenses like stamp duty and registration charges. The appellant challenged the assessment order passed by the Assessing Officer before the first appellate authority and challenged the addition made towards the consideration paid for purchase of property u/s 69 of the I.T. Act, 1961 for all the 3 A.Ys. Thereafter, while appeals filed by the assessee are pending for disposal before the learned CIT (A), the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot take up the very same issue under revision proceedings as per the provisions of Explanation 1(c) of section 263 of the I.T. Act, 1961 where it has been clearly defined the powers of the PCIT that where any order referred in this sub-section and passed by the Assessing Officer had a subject matter of any appeal, the powers of the PCIT under this sub-section shall extent and shall be deemed to have extended to such matters as had not been considered and decided in such an appeal. In other words, if an issue is sub judice before the CIT (A) for his consideration, then the PCIT cannot exercise his powers on the issue which is the subject matter before the CIT (A). If we apply the same analogy in the reverse, in our considered opinion, where any order referred to in sub-section and passed by the Assessing Officer had been the subject matter of revision proceedings, then the powers of the CIT (A) shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such revision proceedings. Therefore, if we apply the above principle, in our considered view, once a PCIT has exercised his powers on a particular issue and decided in any proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fers no explanation about the nature and source of acquisition of money or explanation offered by him is not in the opinion of the Assessing Officer satisfactory, the money and the value of bullion or other valuable articles may be deemed to be the income of the assessee for such financial year. In order to invoke section 69A, there should be an investment or unexplained money and the same is not recorded in the books of account, if any, maintained by the assessee and further the assessee offers no explanation, or the explanation offered by the assessee is not in the opinion of the Assessing Officer not satisfactory. In the present case, there is no dispute regarding the fact that the appellant maintains books of account and also recorded investment made in purchase of property in the books of account maintained for the relevant A.Ys. The appellant had also explained the source of income and nature and source of acquisition of the money for purchase of the property and claimed that the entire amount has been contributed by the two partners and this fact is not disputed by the Assessing Officer which is evident from the assessment order passed in the hands of the individual partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore taking any decision while assessing any assessee or his income, rather blaming the assessee for the mistakes committed by the AO. Therefore, we reject the ld. DR arguments on this issue. Further, we have also considered relevant statements and other orders passed by the ld. CIT(A) in the case of partner of assessee firm and find that, those evidence are not in any way helps the case of the revenue. 19. We, further, noted that as narrated by the Assessing Officer, the appellant firm was incorporated on 31.01.2014. The firm has acquired the property by way of 3 registered sale deeds on 11.2.2014. In other words, the firm has acquired the property within 15 days from the date of incorporation or came into existence. The Assessing Officer never disputed the fact that the firm has not carried out any business activity during the above period. Unless an assessee carries out business activity, it cannot be alleged that the appellant earns such a huge amount of unexplained income within a span of 15 days. Therefore, the reasons given by the Assessing Officer/learned CIT (A) to make additions for purchase of property in the hands of the appellant ignoring the explanation offered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is not satisfactory, in the opinion of the Assessing Officer, the sum so credited may be charged to income tax as the income of the assessee of that previous year. 14. The conditions for the applicability of Section 68 would therefore be as follows-- (i) the existence of books of accounts made by the assessee itself; (ii) a credit entry in the books of account; and (iii) the absence of a satisfactory explanation by the assessee about the nature and source of the amount credited. 15. The requirement under the Section is that the assessee is to submit an explanation about the nature and source of the sum which has been credited. The explanation furnished by the assessee is to be satisfactory and the creditworthiness or financial strength of the creditor is to be proved by showing that it had sufficient balance in its accounts to explain the source and the credits in the books of accounts of the assessee. The assessee would be required to explain the source of credit in the books of accounts but not the source of the source i.e. source of the creditor. It is seen that although the requirement under Section 68 is that the Assessing Officer must be satisfied that the explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the firm had offered an explanation and established that the capital was contributed by the partners, the same could not be assessable in the hands of the firm. Unless there are contradictions and inconsistencies in the statement of the partners, the credit cannot be treated as unexplained and cannot be added under section 68 of the Act in the hands of the assessee-firm... 18. The issue relating to addition under Section 68 also came up in Commissioner of Income Tax v Pragati Co-operative Bank Limited [2005] 278 ITR 170 (Guj), and taking note of the language of Section 68 it was held that the word may indicates that the intention of the legislature is to confer a discretion on the Assessing Officer in the matter of treating the source of investment or credit which had not been satisfactorily explained as income of an assessee, but it is not obligatory to treat such source as income in every case where the explanation offered was found to be not satisfactory. It was held thus:- 14. Section 68 of the Act requires that there has to be a credit in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessee offers no explanation about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 161 (SC). 21. The judgment in the case of Kapur Brothers, which forms the basis of the order passed by the Assessing Officer and also that of the Tribunal, and upon which strong reliance has been placed by the Revenue, was a case where the entries had been made in the books of account of the assessee firm about three weeks prior to the end of the accounting period and the different explanations furnished by the assessee at different stages of the proceedings were disbelieved for the reason that the assessee had failed to establish that the partners had actually deposited the money and that the entries were not fictitious, and it was in view of the said facts that the court proceeded to answer the question referred to it by holding that the cash credit entries standing in the names of the partners in the account books of the firm could validly be treated as income of the firm from the undisclosed sources. The operative portion of the judgment in the case of Kapur Brothers is being extracted below:- In that case, the entries were alleged to have been made a week before the end of the accounting period. In the present case, the entries were made about three weeks prior to the end of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee firm, cannot be regarded as income of the assessee firm but the same were to be added in hands of the partners. Distinguishing the judgment in the case of Kapur Brothers, it was held as follows:- Reliance on Kapur Brothers' case [1979] 118 ITR 741 (All) is misplaced, inasmuch as in that case deposits were entered in the books of the firm when it was already carrying on its business. The firm was called upon to explain the source of the deposits. The explanation of the firm was that the deposits represented the sale proceeds of certain assets belonging to the partners. When no evidence was adduced to substantiate that explanation, the assessing authority added the amount as income of the partnership-firm. These facts are materially different from the fact of the Infant case. Most striking feature of the case on hand is that all the deposits came to be made during the accounting year in the books of he assessee-firm before it started its business. Therefore, the onus was on the partners to explain the source in the case on hand and if they failed, the amount could have been added in their hands only and not in the hands of the assessee-firm. 24. The question as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular individual and it is the responsibility of that individual to account for the investment made by him. If that person owns that entry, then the burden of the assessee-firm is discharged. It is open to the Assessing Officer to undertake further investigation with regard to that individual who has deposited this amount. So far as the responsibility of the assessee is concerned, it is satisfactorily discharged. Whether that person is an income-tax payer or not or from where he has brought this money is not the responsibility of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income-tax. It is open to the Assessing Officer to take appropriate action under section 69 of the Act, against the person who has not been able to explain the investment... 25. A similar question was considered in Commissioner of Income Tax v Burma Electro Corporation [2001] 252 ITR 344 (P H) wherein the deletion of the addition made by the Tribunal, on the ground that though there was no evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of an individual partner exists, and it is found as a fact that the cash was received by the firm from its partners then in the absence of any material to indicate that they were profits of the firm, it could not be assessed in the hands of the firm. The learned counsel for the appellant submits that the aforesaid decision applies with full force to the facts of the case on hand. Noticeably, this was also a case where it was the first year of assessment of the firm. The observations made therein if read in the context of the facts of the present case, the submission of the appellant's counsel is well founded. The relevant extract is reproduced below (page 707):- It appears to be well settled that if there are cash credit entries in the books of the firm in which the accounts of the individual partners exist and, it is found as a fact that cash was received by the firm from its partners then in the absence of any material to indicate that they were profits of the firm, it could not be assessed in the hands of the firm. We are, therefore, of the opinion that the Tribunal did not commit any error of law and rightly held that the deposits shown in its accounts were satisfactorily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brothers [1979] 118 ITR 741 (All) were again up for consideration before a Division Bench of this court in the case of India Rice Mill v. CIT (1996) 218 ITR 508. The relevant extract is reproduced below (page 510 of 218 ITR): However, the Tribunal relying on CIT v. Kapur Brothers [1979] 118 ITR 741 (All), held that since the amount was credited in the books of the assessee-firm, it is for the assessee to explain the source of the deposits and as the assessee-firm failed to discharge that onus, the deposits were rightly taken to be the income of the assessee-firm from undisclosed sources by the assessing authority... Reliance on Kapur Brothers' case [1979] 118 ITR 741 (All) is misplaced, inasmuch as in that case deposits were entered in the books of the firm when it was already carrying on its business. The firm was called upon to explain the source of the deposits. The explanation of the firm was that the deposits represented the sale proceeds of certain assets belonging to the partners. When no evidence was adduced to substantiate that explanation, the assessing authority added the amount as income of the partnership-firm. These facts are materially different from the fact of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus forms the basis for invocation of the provisions of Section 68. The satisfaction in this regard, however, must not be illusory or imaginary but is required to be based on the facts and the evidence and on the basis of a proper enquiry of the material before the Assessing Officer. The enquiry envisaged under the provision is to be reasonable and just. 28. Under Section 68, the onus is on the assessee to offer explanation where any sum is found credited in the books of account and where the assessee fails to prove to the satisfaction of the Assessing Officer, the source and nature of the amount of cash credits an inference may be drawn that the credit entries represent income taxable in the hands of the assessee. This does not however absolve the responsibility of the Assessing Officer to prove that the cash credits constitute the income of the assessee. The onus on the assessee has to be understood with reference to the facts of each case and if the prima facie inference on the basis of facts is that the assessee's explanation is probable, the onus shifts to the Revenue. It has been consistently held that once the assessee has proved the identity of its creditors, the genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case at hand, the partners have shown the agricultural income in their personal returns of the past years which had been accepted by the department as such. The partners are all identifiable and separately assessed to tax. The source of investment having been explained, in the event the Assessing Officer was not satisfied the addition could have been considered in the hands of the partners and not in the hands of the firm. The burden of proving the source of the credits having been sufficiently explained the addition could not have been made in the hands of the firm in the facts of the present case. 20. In this view of the matter and considering the facts and circumstances of the case and also by following the decision of the Hon'ble Allahabad High Court (Supra), we are of the considered view that once the assessee explained the source for purchase of property out of capital contribution from Partners, then the Assessing Officer cannot make addition towards investment in purchase of property in the hands of the appellant firm as unexplained money u/s 69A of the I.T. Act, 1961. The learned CIT (A) without appreciating the relevant facts and without any valid reasons enhanced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution from the partners, the next question comes to our mind is whether the amount invested for purchase of property can be added as unexplained credit in the hands of the appellant firm. The provisions of section 68 of the I.T. Act, 1961 deals with unexplained credit etc., and as per the said provision, where any sum found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or explanation offered by him is not in the opinion of the Assessing Officer satisfactory, the sum so credited may be charged to income tax as income of the assessee of that previous year. To invoke section 68, there should be a credit in the books of account, if any, maintained by the assessee and further the assessee offers no explanation, or the explanation offered by the assessee is not in the opinion of the Assessing Officer not satisfactory. In the present case, there is no dispute about the fact that the appellant had explained the source of income and nature and source of credit and claimed that the entire amount has been received from partners and this fact is not disputed by the Assessing Officer which is evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of such credit. 25. In this view of the matter and considering the totality of the facts and circumstances of the case and also by following the decision of the Hon'ble Allahabad High Court in the case of Kesharwani Sheetalaya Sahson vs. CIT (Supra), we are of the considered opinion that once it is noticed that entire contribution towards purchase of property and incidental charges has been received from Partners and further the identity of the partners is proved, then in our considered opinion, the question of making additions towards the amount paid for stamp duty and other charges as unexplained cash credit u/s 68 of the I.T. Act, 1961 in the hands of the appellant firm does not arise. The learned CIT (A) without appreciating the relevant facts simply made addition towards the stamp duty and registration charges u/s 68 of the I.T. Act, 1961. Thus, we set aside the order passed by the learned CIT (A) for both the A. Ys and direct the Assessing Officer to delete the additions made u/s 68 of the I.T. Act, 1961 for Asst. years 2015-16 and 2017-18. 26. In the result, all the three appeals filed by the assessee are allowed. Order pronounced in the Open Court on 24th day of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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