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TMI Blog2025 (1) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... in the final balance sheet. Assessee has explained the difference in unsecured loan from two balance sheets by filing reconciliation. AO and the CIT(A) without appreciating relevant facts, simply sustained the additions made by the AO. Thus direct to delete addition - Decided in favour of assessee. Assessment u/s 153A - Addition u/s 68 - introduction of fresh capital in cash by partners - identity, genuineness and creditworthiness of the partners who introduced capital not established - HELD THAT:- As in respect of completed assessments / unabated assessments, no additions can be made in the absence of any incriminating material found during the course of search u/s 132 of the Act. In the present case, going by the assessment order, we find that the additions made by the AO towards capital account of partners u/s 68 of the Act is not based on any incriminating material found as a result of search. Therefore, additions made by the AO towards capital account of partners u/s 68 in the assessment order passed u/s 153A of the Act, without any reference to incriminating material found during the course of search us 132 of the Act cannot be sustained. Capital contributions from partners - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 01.04.2015 and made fresh investment of Rs. 1,09,340/- during the year, erred in confirming the entire addition made as the amount does not relate to the year of account. 5. Any other ground or grounds that may be urged at the time of hearing. 3. The brief facts of the case are that the assessee, M/s Satty and Associates is a partnership firm and is a licensed book maker with Hyderabad Race Club. A search and seizure operation u/s 132 of the Income tax Act, 1961 ("the Act") was conducted in the case of Sri Satty Ramkumar Reddy and the appellant on 04.03.2019. Consequent to search, notice u/s 153A of the Act, dated 22.01.2020 was issued and duly served on the assessee. In response to the notice u/s 153A, the assessee filed return of income on 03.02.2020, admitting total income of Rs. 52,010/-. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that during the course of search and seizure, certain material was found from the premises of the assessee, which contained rough balance sheet as on 31.03.2015 of the appellant firm. The Assessing Officer further noticed that as per the rough balance sheet found during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8/-. 5. Aggrieved by the Ld.CIT(A) order, the assessee is now in appeal before the Tribunal. 6. The learned Counsel for the assessee submitted that the Ld.CIT(A) erred in confirming the addition of Rs. 7,51,858/- made by the Assessing Officer towards unsecured loan received and repaid to Smt. K. Subbaratnamma u/s 69A of the Act, without appreciating the fact that the same cannot be added u/s 69A of the Act, because, the entries found in the books of accounts of the assessee are neither, money which is unexplained nor the explanation of the assessee is incorrect. The learned Counsel for the assessee, further referring to paper book filed by the assessee, submitted that the assessee has received unsecured loan of Rs. 7,51,858/- from Smt. K. Subbaratnamma and the same has been repaid on 31.03.2015. The unsecured loans shown in the rough balance sheet is not considered repayment of loan to the creditor. The assessee has explained the reasons by filing reconciliation statement and the Assessing Officer and the Ld.CIT(A) without considering relevant facts, simply made addition u/s 69A of the Act. Therefore, he submitted that the additions made by the Assessing Officer should be deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratnamma, whereas, after considering the details of repayment of loan, the account was squared up in the final balance sheet. Therefore, from the details filed by the assessee, it is undisputedly clear that the assessee has explained the difference in unsecured loan from two balance sheets by filing reconciliation. The Assessing Officer and the Ld.CIT(A) without appreciating relevant facts, simply sustained the additions made by the Assessing Officer. Thus, we set aside the order of the Ld.CIT(A) and direct the Assessing Officer to delete the addition of Rs. 7,51,858/- made towards unsecured loan received from Smt.K.Subbaratnamma u/s 69A of the Act. 9. In the result, appeal filed by the assessee is allowed. ITA No.236/Hyd/2022 (Revenue's Appeal ) and CO No.13/Hyd/2022 10. The Revenue has raised the following grounds : 1. The Ld.CIT(A) erred both in law and on facts of the case in allowing relief to the assessee. 2. The Ld.CIT(A) erred in deleting the addition of Rs. 5,14,62,895/- made u/s 68 of the Act towards introduction of fresh capital in cash by partners. 3. The Ld.CIT(A) erred in holding that the identity, genuineness and creditworthiness of the partners who intro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Assessing Officer towards capital account of partners u/s 68 of the Act cannot be sustained and needs to be deleted. 13. The Ld.DR for the Revenue, on the other hand, supporting the order of the Ld.CIT(A) on this issue submitted that when the Ld.CIT(A) passed appellate order, the decision of Hon'ble Supreme Court in the case of PCIT Vs. Abhisar Buildwell Pvt. Ltd.(supra) was not available. Therefore, on the basis of the above decision, the benefit cannot be given to the assessee. Therefore, he submitted that there is no merit in the ground of cross objection filed by the assessee, and same needs to be dismissed. 14. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessment year in question is unabated / concluded as on the date of search, because the date of search in the present case is on 04.03.2019 and due date for issue of notice u/s 143(2) of the Act for selection of case for scrutiny assessment was expired on 31.07.2017. It is also an admitted fact that the additions made by the Assessing Officer towards fresh capital introduced by partners is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer towards capital account of partners u/s 68 of the Act in the assessment order passed u/s 153A of the Act, without any reference to incriminating material found during the course of search us 132 of the Act cannot be sustained. Thus, we direct the Assessing Officer to delete the additions made towards capital account of partners u/s 68 of the Act. 15. Coming back to the appeal of the Revenue, the Revenue has challenged the order of the Ld.CIT(A) on merits, where the Ld.CIT(A) has deleted the additions made by the Assessing Officer towards fresh capital introduced by partners amounting to Rs. 5,14,62,895/- made u/s 68 of the Act. The Ld.DR submitted that the Ld.CIT(A) erred in deleting the additions made by the Assessing Officer towards capital account of partners without appreciating the fact that the appellant failed to file relevant evidences to prove identity, genuineness and creditworthiness of the partners. The Ld.DR, further submitted that the Ld.CIT(A) ought to have followed the his decision for the A.Y. 2018-19, wherein, the amounts introduced as capital in cash were held as unexplained, even though the facts are identical for both the assessment years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also filed confirmation letters before DDIT (Investigation) vide letters dated 11.06.2019. The DDIT (Investigation) summoned the partners and recorded statement u/s 131 on 14.06.2019, where, they have admitted to have introduced fresh capital into the partnership firm. From the details submitted by the assessee, we find that the appellant is able to establish identity, genuineness of transactions and creditworthiness of the partners. The Ld.CIT(A) after considering relevant facts has rightly held that the Assessing Officer has made addition only on the basis of suspicion and surmises, without any clinching evidence to suggest that the amount of capital introduced by the partners is unexplained credit or income of the appellant firm. The findings of facts recorded by the Ld.CIT(A) is uncontroverted by the Revenue. Therefore, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the Revenue. 19. In the result, cross objection filed by the assessee is allowed and the appeal filed by the Revenue is dismissed. ITA No.163/Hyd/2022, A.Y.2018-19 (Assessee's Appeal) 20. The assessee has raised the following grounds of appeal : 1. The order of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant firm failed to establish identity, genuineness and creditworthiness of the partners. Further out of 24 partners, 22 partners are not assessed to income tax. All the 24 partners have filed generic confirmation letters and neither a word about sources of income is mentioned nor a single document in support of the sources was furnished. Therefore, the Ld.CIT(A) has rightly sustained the additions made by the Assessing Officer and the order should be upheld. 23. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. We have also carefully considered relevant case laws relied upon by the learned Counsel for the assessee in support of their contention. Admittedly, the appellant firm has filed relevant details including name and address of the partners, amount of capital contribution to the appellant firm and confirmation letter from the parties. Further the appellant had also filed other evidences like ITR copies in few cases. From the details filed by the assessee, we find that the capital contribution from the partners is less than Rs. 2 lakhs in all the cases. Since the appellant has filed certain evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the same can be treated as income. In this case, the amount, that is sought to be treated as income of the firm, is the contribution made by the partners, to the capital. In a way, the amount so contributed constitutes the very substratum for the business of the firm. It is difficult to treat the pooling of such capital, as credit. It is only when the entries are made during the course of business that can be subjected to scrutiny under Section 68 of the Act. 9. Even otherwise, it is evident that the respondent explained the amount of Rs. 76,57,263 as the contribution from its partners. That must result in a situation, where Section 68 of the Act can no longer be pressed into service. However, in the name of causing verification under Section 68 of the Act, the Assessing Officer has proceeded to identify the source for the respective partners, to make that contribution. Such an enquiry can, at the most be conducted against the individual partners. If the partner is an assessee, the concerned Assessing Officer can require him to explain the source of the money contributed by him to the firm. If on the other hand, the partner is not an assessee, he can be required to file a ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this matter and considering the facts of the case and also by respectfully following the decision of Hon'ble High Court of Telangana in the case of Nova Medicare Vs. Income Tax Officer (supra), we are of the considered view that, where the assessee firm received capital contribution from its partners, the assessee firm was not required to explain the source of income of partners of such capital contribution and thus, the additions made u/s 68 in the hands of the firm towards capital contribution as unexplained cash credit cannot be sustained. The Ld.CIT(A) without appreciating the relevant facts, simply sustained the additions made by the Assessing Officer. Thus, we set aside the order of the Ld.CIT(A) and direct the Assessing Officer to delete the additions made towards capital contribution u/s 68 of the Act.
25. In the result, appeal filed by the assessee is allowed.
26. To sum up, appeals filed by the assessee for the A.Y.2015- 16 and 2018-19 and the cross objections filed by the assessee for the A.Y.2016-17 are allowed and the appeal filed by the Revenue for the A.Y.2016-17 is dismissed.
Order pronounced in the Open Court on 12th December, 2024. X X X X Extracts X X X X X X X X Extracts X X X X
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