ITO Vs Antara Tushar Motiwala (ITAT Mumbai)
Section 68 Cannot Be Invoked in Partner’s Hands for Firm’s Loan Write-Back: ITAT Mumbai Upholds Deletion of ₹8.38 Crore Addition
The Mumbai Bench of the ITAT dismissed the Revenue’s appeal for AY 2017-18 and upheld the order of the CIT(A) deleting the addition of ₹8.38 crore made under section 68 read with section 115BBE in the hands of an individual partner. The addition arose from an increase in the assessee’s capital account consequent to the write-back of an old unsecured loan in the books of the partnership firm, M/s Lotus Investment, in which the assessee held a 34% share.
The Tribunal held that the impugned credit in the partner’s capital account was only a consequential book entry flowing from adjustments in the firm’s books and did not represent any fresh inflow of funds during the year. Since the loan was taken in earlier years (FY 2006-07), had been accepted in scrutiny assessments of the firm under section 143(3) for multiple years, and was merely written back in FY 2016-17 on becoming time-barred, section 68 could not be invoked in the year under consideration. Any examination under section 68, if at all, could only be in the hands of the partnership firm, which is a distinct taxable entity under the Income-tax Act.
The ITAT further observed that opening balances or prior-period credits cannot be taxed under section 68 in a subsequent year. The Revenue’s reliance on the assessee’s inability to furnish present-day particulars of the lender was held to be misplaced, particularly when the transaction related to a decade-old loan already accepted in earlier assessments. The Tribunal also rejected the alternative plea based on section 41(1) or section 28(iv), noting that the AO had not invoked those provisions and that mere expiry of limitation does not extinguish a debt but only bars its enforcement.
Accordingly, finding no infirmity in the CIT(A)’s reasoning, the ITAT upheld deletion of the addition and dismissed the Revenue’s appeal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
