ITO Vs Arun Sangal (ITAT Delhi)
Conclusion: Additions of Rs.179 crore in the hands of assessee-partner was deleted as income assessed in a firm’s hand was exempt in the hands of its partners as per section 10(2A).
Held: Assessee was a medical professional, filed his returns for the Assessment Year (AY) 2018-19. The appeal concerned an addition of over Rs. 179 crore made by AO under section 68 alleging unexplained cash credits in the assessee’s hands. AO noticed a substantial discrepancy between assessee’s closing capital balance for AY 2017-18 and opening capital balance for AY 2018-19. AO observed a difference of Rs. 183.99 crore, leading him to question the source of the increase. Assessee explained that the capital balance had increased due to his share of profits from a Limited Liability Partnership (LLP), Radius Township LLP, in which he was a partner. The profits accumulated over the previous two years were incorporated into his medical profession’s balance sheet for the first time. AO, however, remained unconvinced by the explanation, accepting only Rs. 4.4 crore of withdrawals from the LLP, while treating the remaining Rs. 179.59 crore as unexplained cash credit. This led to the addition of Rs. 179.59 crore under section 68 of the Act, invoking provisions of section 115BBE, which taxes unexplained income at a higher rate. On appeal, CIT(A) reversed the AO’s decision. CIT(A) concluded that assessee had furnished adequate documentary evidence, including the detailed explanation of the capital account increase and supporting documents such as audited accounts and income tax returns of both the assessee and the LLP. It was held that from assessee’s as well as LLP’s income tax returns, acknowledgements and audited books to this effect, it was clarified that the impugned sum was declared in the balance sheet in individual capacity in assessment year 2018-19 only. Assessee’s return for preceding assessment year 2017-18 along with schedule IF had duly declared himself as a partner in LLP having share in the latter’s profits amounting to Rs.86,52,38,755/-. All these clinching facts had gone unrebutted from the Revenue’s side that the impugned sum added in assessee’s hands as unexplained cash credits in fact represented his share in profits of M/s. Radius Township LLP, who in turns, had been all along assessed for the same. It went without saying that such an income assessed in a firm’s hand was exempt in the hands of its partners as per section 10(2A). Revenue was not able to rebut all these clinching facts duly taken note of by CIT(A)-NFAC in the lower appellate findings under challenge.
