Case Law Details
ITO Vs. M/s. Shree Kastbhanjan Dev Developers (ITAT Ahmedabad)
It is seen that the partner namely Mr Ashwin Patel had paid the loan taken by the appellant from HUDCO from his own bank account. The copy of such bank account statement had been submitted before the AO. The AO asked the appellant to explain the sources of deposits made in this bank account which the appellant failed to do. As a matter of fact, no details were submitted before the AO regarding the sources of such deposits. But the fact remains that the account belongs to the partner and the partner had also appeared before the AO during the course of the assessment proceedings. This fact has been noted by the AO in his assessment order. Thus this partner is not a fictitious person and the payments to HUDCO has been made out of his bank account. Under such circumstances as per the decision of the jurisdictional High Court as reproduced above, such capital introduction cannot be taxed in the hands of the appellant. But at the same time it is seen that despite being given several opportunities of being heard, the sources of deposits made in the partners bank account has not been explained by the appellant despite the fact that this partner was also present before the AO during the course of the assessment proceedings. Hence as held by the Hon’ble Allahabad High Court in its decision in the case of Jaiswal Motor Finance (supra), no addition of such capital can be made in the hands of the assessee, but if the AO is not satisfied with the explanation offered by the partners, he may proceed against the partners and assess the same in their hands.
Hence on the basis of these discussions, the additions made by the AO of the capital introduced by the partner in the hands of the firm is directed to be deleted. At the same time, the AO will be at liberty to proceed against the partner on the basis of evidence on his records as per law, as the partner has not provided any explanation of the sources of amounts deposited in his bank account. As a result this ground of appeal is allowed.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This Revenue’s appeal for assessment year 2011-12 arises against the CIT(A)-1, Vadodara’s order dated 30.12.2015, in case no. CAB-1/155/2015-16, reversing Assessing Officer’s action making Section 68 addition of Rs. 1,26,11,000/- as unexplained cash credits in respect of capital introduction by assessee’s partner Shri Ashwin Patel, in proceedings u/s. 143(3) of the Income Tax Act, 1961; in short “the Act”.
Case called twice. None appears at assessee’s behest. The registry has already sent an RPAD notice to the assessee. Its copy is already on record. We therefore proceed ex parte against the assessee.
2. Learned Departmental Representative vehemently contends that the CIT(A) has erred in law as well as on facts in deleting the impugned Section 68 addition made by the Assessing Officer qua assessee’ s partner’s contribution in its capital as under:
“3.1. The AO in his order has stated that one of the partners of the appellant firm namely Shri Ashwin Babarbhai Patel, had introduced capital in the firm during the year amounting to Rs. 1,26,11,000/-. The AO provided several opportunities of being heard to the appellant as has been listed in detail in his assessment order, to file the relevant details and provide evidences in support of this transaction as well as other transactions of the appellant incurred during FY 2010-11. But, the appellant went on making non compliances on different dates and only part details were furnished without producing any supporting evidences. Regarding introduction of capital by the partner, the AO subsequently asked the appellant to submit complete details with all supporting evidences. After seeking adjournment and not attending the assessment proceedings on the various dates as discussed by the AO in his order, the appellant submitted ledger account of B. O.B account of this partner and the account extract of booking deposits account in its books. The AR submitted before the AO that the entries in these account extract would explain the partners’ capital introduction. The AO has observed that: perusal of these account extracts indicates the transfer entries in the bank account summary submitted and also cash deposits. Accordingly, the AO asked the appellant’s AR to explain the amounts received in the bank account of Shri Ashwin Patel and submit supporting evidences in respect of the above deposits like loan confirmations in respect of amounts taken by cheque and details regarding cash deposits. In response to this, the AR could not offer any satisfactory and cogent explanation. Hence, the AO provided a final opportunity to produce all the relevant records along with books of account and supporting evidences. Again, no compliance was made on 28.03.2014 and 31.03.2014. Subsequently, the AO made addition of this amount in the hands of the firm by observing as follows:
“8. On verification of the capital account, it is noted that the partner of the firm Shri Ashwinbhai B Patel has an opening balance of Rs. 50,48,322/-. The assesses has introduced capital of Rs. 1,26,11,000/- which comprises of cash and bank receipts in his bank account and out of the same, repayment of HUDCO loan is shown to be made from partner’s bank account. The total introduction by banking channels amounts to Rs. 1,22,88,000/-and the balance amount of Rs. 3,23,000/- is by cash. As mentioned in the preceding paras, the assessee ‘s ARs have made submissions on the various issues without any supporting evidences like loan confirmations, assessment particulars of the loan creditors etc., to justify the genuineness and reliability of the transactions. Thus the assessee has failed to discharge the onus cast upon it, to prove the genuineness of the transactions etc as mandated u/s.68 of the Act. In the absence of any evidences and satisfactory explanation, the capital introduction of Shri Ashwin Patel is treated as unexplained cash credit u/s.68 of the Act. Accordingly the amount of Rs. 1,26,11,000/- is added to the total income.
Penal proceeding u/s. 271(1)(c) are separately initiated for concealing the particulars of income.”
3.1.1 As already stated during the course of the appellate proceedings, the appellant has again not made any compliance to the notice of Hearings. In the statement of facts also no specific argument has placed regarding this addition. In the grounds of appeal also the appellant has clearly stated that it had only produced the partner’s capital account along with loan statement from HUDCO and copy of ledger account of HUDCO Loan before the AO during the course of the assessment proceedings. Thus, neither the confirmations from this partner nor the details of income-tax returns of this partner or the original bank statement of this partner had been produced before the AO in order to prove the capacity of the partner to introduce this capital account in the books and to prove the genuineness of such transactions. Whether capital introduced by the partner in the books of account of the firm can be assessed as income of the firm u/s 68 of the Act or not is to be decided in the light of the ratio laid down by the Jurisdictional High Court in the case of M/s. Odedara Construction 362 ITR 338 (Gujarat). In this decision the Court has held as follows:
“4. Having heard the learned counsel Mr. Pranav Desai for the Revenue and having perused the orders, we see no reason to interfere. In view of the findings of the CIT (Appeals) and the Tribunal, it clearly emerges that the capital was introduced by the partners. The Assessing Officer did not bring any material to indicate that the partners had no capacity to introduce such capital. In other words, the Assessing Officer did not hold that the capital was, in fact, not introduced by the partners, but it was only in disguise the cash credit of the firm. Significantly, the partners were also subjected to tax assessment. Their assessment orders were placed on record, which showed that in the return of income, they declared the income from agricultural operations. They have produced extracts of 7/12 and 8-A of the lands in support of their claims. In that view of the matter, the Tribunal was perfectly justified in applying the ratio of the decision of this Court in the case of Pankaj Dyestuff Industries (supra), in which it was held and observed as under :
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“13. Applying the aforesaid principles to the facts of the present case, apparent that the assessee had furnished the details, which would discharge the onus which lay on the assessee. It is not the case of the revenue that the partners of the assessee firm are fictitious. The Income Tax Officer has not disputed that the credits in the accounts of the partners were not deposits from the partners. Moreover, it is an admitted position that this was the second year of the firm, and that it was running in loss. It is true that the Income Tax Office did not accept the explanation given on behalf of the assessee in respect of the new deposits or cash credits in the accounts of the partners. The mere non-acceptance of that explanation does not, however, provide material for finding that the said sum represented income of the assessee firm. As held by the Allahabad High Court in case of Jaiswal Motor Finance (supra), in the absence of any material to indicate that there were profits of the firm, the amount credited to the partners’ accounts could not be assessed in the hands of the firm. Once the partners have owned that the monies deposited in their accounts are their own, the Income Tax Officer is entitled to and may proceed against the partners and assessee the same in their hands, if their explanation is not found satisfactory.”
3.1.2. Thus, the facts of the present case are required to be examined in the light of the above decision. It is seen that the partner namely Mr Ashwin Patel had paid the loan taken by the appellant from HUDCO from his own bank account. The copy of such bank account statement had been submitted before the AO. The AO asked the appellant to explain the sources of deposits made in this bank account which the appellant failed to do. As a matter of fact, no details were submitted before the AO regarding the sources of such deposits. But the fact remains that the account belongs to the partner and the partner had also appeared before the AO during the course of the assessment proceedings. This fact has been noted by the AO in his assessment order. Thus this partner is not a fictitious person and the payments to HUDCO has been made out of his bank account. Under such circumstances as per the decision of the jurisdictional High Court as reproduced above, such capital introduction cannot be taxed in the hands of the appellant. But at the same time it is seen that despite being given several opportunities of being heard, the sources of deposits made in the partners bank account has not been explained by the appellant despite the fact that this partner was also present before the AO during the course of the assessment proceedings. Hence as held by the Hon’ble Allahabad High Court in its decision in the case of Jaiswal Motor Finance (supra), no addition of such capital can be made in the hands of the assessee, but if the AO is not satisfied with the explanation offered by the partners, he may proceed against the partners and assess the same in their hands.
3.1.3 Hence on the basis of these discussions, the additions made by the AO of the capital introduced by the partner in the hands of the firm is directed to be deleted. At the same time, the AO will be at liberty to proceed against the partner on the basis of evidence on his records as per law, as the partner has not provided any explanation of the sources of amounts deposited in his bank account. As a result this ground of appeal is allowed.”
3. We find no merit in Revenue’s instant argument since hon’ble jurisdictional high court’s judgment in M/s. Odedara Construction (supra) as relied upon by the CIT(A) settles the law that such an addition is to be made in partner’s hands instead of that in a firm’s case. The CIT(A) has already issued necessary directions to this effect to the Assessing Officer. We therefore see no reason to accept Revenue’s instant sole substantive grievance.
4. This Revenue’s appeal is accordingly dismissed.
[Pronounced in the open Court on this the 18th day of January, 2018.]
