Case Law Details
Anand Sweets & Savouries Vs DCIT (ITAT Bangalore)
In a recent ruling, the Income Tax Appellate Tribunal (ITAT) in Bangalore addressed the appeal filed by Anand Sweets & Savouries against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which was issued on February 9, 2024. The case concerns the assessment year 2016-17 and focuses on the issue of cash seized from the premises of partners during a search operation and its subsequent adjustment against the partnership firm’s tax liability.
Background of the Case
The primary contention raised by Anand Sweets & Savouries was that the CIT(A) had erred in confirming the assessment officer’s (AO) decision, which denied the adjustment of cash seized from the partners’ premises against the tax liability of the partnership firm. The firm argued that this cash had been offered as self-assessment tax but was not accounted for in the intimation generated under Section 143(1) of the Income Tax Act.
Cash Seizure and Adjustment Denial
The facts presented indicated that cash amounting to ₹9,30,000 was seized from the premises of the partners during the search proceedings. The partnership firm claimed that this cash was recorded in its books of accounts and, therefore, should be considered an asset of the firm.
However, the CIT(A) maintained that the partners and the partnership firm are distinct entities under the law. Thus, since the cash was seized from the partners’ premises, it could not be adjusted against the tax liabilities of the partnership firm. The appeal by the firm was subsequently dismissed on these grounds.
Appeal to ITAT
Dissatisfied with the CIT(A)’s ruling, the partnership firm brought the matter before the ITAT. The authorized representative (AR) for Anand Sweets & Savouries submitted a comprehensive paper book, which included various documents to support their claim. The AR argued that the seized cash legitimately belonged to the partnership firm and was adequately recorded in its cash book.
Furthermore, the AR presented an affidavit signed by all partners, stating their acknowledgment that the cash in question was the firm’s and expressing no objection to its adjustment against the partnership’s tax liability.
Tribunal’s Observations
The tribunal considered the arguments presented by both the assessee and the revenue department. While the departmental representative (DR) supported the earlier decisions made by the CIT(A), the ITAT critically evaluated the evidence and submissions put forth by the AR.
The ITAT pointed out that the seizure of cash from the partners’ premises does not automatically indicate that it belongs solely to the partners, emphasizing the close interrelation between a partnership firm and its partners. It noted that any cash or assets found related to the partnership should be regarded as belonging to the firm unless proven otherwise.
The tribunal also underscored that the cash had not been adjusted against any individual partner’s tax liabilities, indicating that the partners had duly paid taxes on their disclosed income. This fact further corroborated the argument that the seized cash rightfully belonged to the partnership firm.
Conclusion
In light of the findings, the ITAT found the reasoning provided by the CIT(A) insufficient. The tribunal ruled that the cash seized, amounting to ₹9,30,000, should indeed be adjusted against the tax liability of Anand Sweets & Savouries. As a result, the ITAT set aside the previous order of the CIT(A) and instructed the assessing officer to make the necessary adjustments.
The ITAT’s decision is a significant one, emphasizing the importance of recognizing the legal distinctions and relationships between partners and partnership firms in tax matters. By allowing the adjustment of the seized cash against the firm’s tax liability, the tribunal reaffirmed the principle that assets belonging to a partnership should not be treated as individual holdings of the partners.
The appeal was officially allowed, marking a favorable outcome for Anand Sweets & Savouries, as they seek to clarify their tax liabilities for the assessment year in question. The tribunal’s order was pronounced in open court on August 21, 2024.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee against the order passed by the ld. CIT(A)-11, Bangalore dated 09/02/2024 in DIN No. ITBA/APL /M/250/2023-24/1060695509(1) for the assessment year 2016-17.
2. The only issue raised by the assessee is that the ld. CIT(A) erred in confirming the order of the AO by not allowing the adjustment of cash seized from the premises of the partners during the search proceedings.
2.1 The necessary facts are that there was cash seized from the premises of the partner which was offered as self assessment tax by the partnership firm but the same was denied in the intimation generated u/s 143(1) of the Act.
3. On appeal, the ld. CIT(A) observed that the partners and the partnership firm are two different assessees. The cash was sized from the premises of the partners and, therefore, the same cannot be adjusted against the tax liability of the partnership firm. Thus the ld. CIT-A dismissed the appeal of the assessee.
4. Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
5. The ld. AR before us filed a paper book running from pages 33 to 193 and submitted that the cash belongs to the partnership firm, and it was duly recorded in the books of accounts of the partnership firm. To this effect, the ld. AR drawn our attention on the cash book of the partnership firm placed at page 133 of the paper book. The ld. AR also field an Affidavit duly signed by all the partners stating that the cash belongs to the firm and none of the partners has any objection if the impugned cash is adjusted against the tax liability of the firm. The ld. AR also submitted that none of the partner has adjusted such cash against their individual tax liability.
6. On the other hand, the ld. DR vehemently supported the order of the authorities below.
7. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the cash was seized from the premises of the partners of the assessee which the partners of the firm claimed to adjust against the liability of the partnership firm being the assessee. However, the learned CIT-A denied making such adjustment on the reasoning that that the partners of the firm and the partnership firms are different entities under the provisions of law. Therefore, the cash belonging to the partner cannot be adjusted against the tax liability of the partnership firm. However, the learned AR of the assessee before us contended that cash belongs to the firm. To this effect, the ld. AR drawn our attention on page 133 of the paper book demonstrating that cash seized by the revenue for Rs. 9,30,000.00 was duly recorded in the cash book of the partnership firm.
7.1 Besides the above, the ld. AR before us has also filed the affidavit of the partners duly notarized stating that the seized cash belongs to the partnership firm which has also been recorded in the cash book of the partnership firm. The affidavit was signed by the partners and the legal heir of the partner. Thus, from the above, it appears to us that the cash seized by the revenue from the premises of the partner of the firm belongs to the firm and not the partners.
7.2 It is not out of the place to mention that a partnership firm is represented by the partners of the firm and if anything found relating to the partnership firm from the premises of the partner, no inference can be drawn that such document belongs to the partner and not the partnership firm. The relationship between the partnership firm and its partners is closely interrelated. As such, from the finding of the authorities below, it appears that the authorities below have formed a belief that the cash seized belongs to the partners merely on the reasoning that it was seized from the premises of the partner. Such basis formed by the Revenue is based on surmise and conjuncture.
7.3 It is equally important to note that the cash seized by the revenue was not adjusted against the existing liability of the partners. It is because the partners have paid the due taxes on the income disclosed in the income tax return. This fact also indicates that the firm was the owner of the impugned cash seized from the premises of the partner of the firm. In view of the above, we are not convinced with the findings of the authorities below. Accordingly, we set aside the order of the ld. CIT-A and direct the AO to adjust the amount of cash seized for ₹ 9,30,000.00 against the liability of the partnership firm. Hence the ground of appeal of the assessee is hereby allowed.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in court on 21st day of August, 2024
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