9911796707
TMI Blog2025 (1) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's Appeal) 2. The assessee has raised the following grounds of appeal : 1. The order of the learned Commissioner of Income -tax (Appeals) is erroneous to the extent it is prejudicial to the appellant. 2. The learned Commissioner of Income-tax (Appeals) erred in confirming the addition made of Rs. 7,51,858/- by the Assessing Officer on the ground that the said amount represent unsecured loan pertaining to K. Subbaratnamma and without considering the explanation submitted. 3. The learned Commissioner of Income-tax (Appeals) ought to have seen that the said amount was found in a rough balance sheet; was not in the regular books of account and, therefore, it should not have been considered as true in view of the provisions of Sec.132(4A) of the I.T. Act. 4. Without prejudice, the appellant submits that the learned Commissioner of Income Tax (Appeals) having found that there is an opening balance of Rs. 6,42,518/- as 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- was received in earlier financial year through cheques and the balance amount of Rs. 1,09,340/- has been received during the financial year, relevant to the assessment year under consideration through bank account. The assessee also filed confirmation letter from the creditor. Similarly, the assessee has explained the difference between net profit as per rough balance sheet and net profit admitted in the financial statements filed along with the return of income. The Ld.CIT(A) after considering the relevant submissions of the assessee, allowed partial relief in respect of additions towards net profit of Rs. 1,01,190/- by holding that the assessee has explained the difference with relevant evidences, but the Assessing Officer has made additions without any observation as to discrepancy in reconciliation filed by the assessee. However, the Ld.CIT(A) confirmed the additions made towards difference in unsecured loan of Rs. 7,51,858/-. 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 unse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credits on 25.02.2015. Further, the appellant has repaid the loan in cash on 31.03.2015. From the details filed by the assessee, it appears that the loans have been received in cheque and repaid in cash. Therefore, the allegation of the Assessing Officer that the appellant has received the loan in cash is incorrect. Further, the appellant has also filed relevant evidences including confirmation letter along with ITR copies of Smt. K. Subbaratnamma. From the details filed by the assessee, we find that the loan given to the appellant has been disclosed in the financial statement of the creditor. Therefore, we are of the considered view that the appellant has filed relevant evidences to prove the amount of loan received from the creditor. Further, the reason for difference in the rough balance sheet and the final balance sheet is explained and as per the rough balance sheet, the appellant has recorded loan received from Smt.K.Subbaratnamma, 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 unsec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, without there being any incriminating material found during the course of search is unsustainable because the assessment for the impugned assessment year is unabated / concluded as on the date of search, which is evident from the date of search in the present case i.e. on 04.03.2019 and as on the date of search, the time limit for issue of notice u/s 143(2) of the Act had expired. The learned Counsel for the assessee, referring to the decision of Hon'ble Supreme Court in the case of PCIT Vs. Abhisar Buildwell Pvt. Ltd. [2023] 454 ITR 0212 (SC), submitted that the issue is squarely covered by the decision of Hon'ble Supreme Court, wherein, it has been held that in respect of completed assessment / unabated assessment, no additions can be made by the Assessing Officer in the absence of any incriminating material found during the course of search u/s 132 of the Act. Therefore, she submitted that the additions made by 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction with respect to such abated assessment, which does not provide that all completed / unabated assessment shall abate. If the submission on behalf of the Revenue is accepted, in that case, second provision to section 153A and sub-section (2) of Section 153A would be redundant and / or rewriting the said provisions, which is not permissible under the law. The sum and substance of the ratio laid down by the Hon'ble Supreme Court is that, 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 Assessing Officer 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, we are of the considered opinion that the additions made by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the subsequent financial years. Therefore, it cannot be held that fresh capital introduced by the partners is unaccounted income of the appellant firm. 18. We have given our thoughtful consideration to the reasons given by the Ld.CIT(A) to delete the additions made by the Assessing Officer towards capital account of the partners in light of the arguments of the Ld.DR and counter arguments of the learned Counsel for the assessee and we ourselves fully subscribe to the reasons given by the Ld.CIT(A) for the simple reason that, the Assessing Officer made additions towards fresh capital introduced by the partners only on the basis of suspicion and surmises, without there being any evidence to suggest that the capital introduced by the partners is unaccounted income of the appellant firm. On the other hand, appellant firm submitted the details of partners along with name and address, PAN and income tax returns filed. The partners 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 par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the assessee further referring to the decision of Hon'ble High Court of Telangana in the case of Nova Medicare Vs. ITO [2023] 150 taxmann.com 363 (Telangana), submitted that assuming for a moment, the appellant could not explain the source of income of partners regarding the capital contribution, but the same cannot be added as income of the appellant and further unexplained credits should have been assessed in the partners individual accounts alone. Therefore, she submitted that the additions made by the Assessing Officer and sustained by the Ld.CIT(A) should be deleted. 22. The learned DR, on the other hand, supporting the order of the Ld.CIT(A) submitted that the capital introduced by the partners is in cash and the appellant firm has failed to explain the source of capital introduced by the partners. Although the appellant claims to have filed all evidences, but the Ld.CIT(A) recorded his categorical finding that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of business. The returns submitted by the respondent-firm were processed, and the facts and figures furnished by it were accepted. However, the matter was reopened at a later point of time. The Assessing Officer treated the capital raised by the firm in the form of contributions made by the partners as income. This conclusion was arrived at on the ground that source of income for the partners was not explained. Learned counsel for the appellant placed reliance upon the judgment of the Patna High Court in CIT v. Anupam Udyog [1983] 142 ITR 133/15 Taxman 259. The Tribunal rested its conclusions upon the judgment of the Bombay High Court in Narayandas Kedarnath v. CIT [1952] 22 ITR 18 and that of Allahabad High Court in CIT v. Jaiswal Motor Finance [1983] 141 ITR 706. 8. Section 68 of the Act no doubt directs that if an assessee fails to explain the nature and source of credit entered in the books of account of any previous year, 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 busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denied of making deposits. In the field of Arrack business, it is not uncommon that the retail dealers are required to keep security deposits with the supplier. At any rate, it is a pure question of fact. 12. Therefore, the appeal is dismissed. 15. Following and applying the aforesaid decision of this Court, Patna High Court in Anurag Rice Mills (supra) held that in such circumstances the unexplained cash credits would have to be assessed at the hands of the partners of the firm and not the firm itself. Such amounts could not have been treated as income of the firm by relying upon Section 68 of the Act. 16. In view of the above position, we answer the substantial questions of law in favour of the appellant- assessee and against the respondent-revenue insofar the cash credits pertaining to the two partners of the appellant firm i.e., Smt. K. Sujatha and Sri K. Prabhakar Reddy only are concerned." 24. In view 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 receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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