M/S M/S JAY AMBEY TRANSPORT CO,KANKER vs. THE JOINT COMMISSIONER OF INCOME TAX,RANGE-II, RAIPUR (CG)

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ITA 327/BIL/2016Status: DisposedITAT Raipur12 August 2021AY 2011-124 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the obligation to explain the source of cash capital lies with the individual partner, not the partnership firm. Citing judicial precedents, the Tribunal deleted the addition made in the firm's hands.

What were the facts?

A partnership firm received Rs. 5 lakhs as cash capital from one of its partners. The Assessing Officer treated this amount as unexplained income of the firm and made an addition, which was upheld by the CIT(A).

What were the issues?

The key legal issue was whether a partnership firm is obligated to explain the source of cash capital contributed by a partner, or if this obligation rests solely with the individual partner.

Which sections of the Income-tax Act were involved?

Section 68,Section 250(6)

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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR

Before: SHRI PRADIP KUMAR KEDIA, HONBLE & SHRI PAWAN SINGH, HON’BLE

For Appellant: Shri R.B. Doshi, CA
For Respondent: Shri R.K. Baral, DR
Hearing: 12/08/2021

O R D E R PER PRADIP KUMAR KEDIA, AM:

This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-33, New Delhi dated 26/07/2016 passed u/sec. 250(6) of the Income Tax Act, 1961 (hereinafter referred to as the "Act") for the A.Y. 2011-12.

2 (M/s. Jay Ambey Transport Co.) 2. We have heard rival submissions. The solitary issue involved in this appeal is taxability of unexplained capital to the tune of Rs. 5.00 lakhs in the hands of the partnership firm.

3.

In the course of assessment, the AO inter alia observed that there is a credit of Rs. 11.00 lakhs reflected against the capital of one of the partners Shri Anoop Singh Rathore. The AO observed that an amount of aggregating to Rs. 6.00 lakhs has been brought by the partnership firm through banking channel. The remaining amount of Rs. 5.00 lakhs in aggregate was however credited in the hands of the partnership firm by way of capital in cash. The AO was not satisfied with the explanation offered towards source of cash of Rs. 5.00 lakhs. Accordingly, he proceeded to make the addition of Rs. 5.00 lakhs as undisclosed income of the partnership firm i.e. assessee.

4.

In this regard, it is the case of the assessee that the AO while assessing the partnership firm has accepted the claim of the assessee firm that money has been received from the partner of the assessee. This being so, the obligation of the partnership firm stands discharged and the assessment of alleged unexplained cash if any, can possibly be made only in the hands of the partner of the partnership firm. This view has been propounded by the Hon'ble Gujarat High Court in the case of PCIT vs. Vaishnodevi Refoils & Solvex [(2018) 253 taxman 135 (Gujarat)]. A similar view has been expressed by the Coordinate Bench of this Tribunal in the case of Asian Cable Company vs. ITO in ITA No. 92/BILR/2013, order dated 19/02/2016.

3 (M/s. Jay Ambey Transport Co.) 5. Ld.DR, on the other hand, submitted that assessee-firm and the partners are no different and, therefore, obligation was case upon the partnership firm to prove the credits. Ld.DR, thus, relied on the orders of AO and ld. CIT(A).

6.

Having examined the rival submissions, we find that the existence of partners and their respective partners capital accounts are not in dispute. Certain amounts have been received through cheques while an amount of Rs. 5.00 lakhs has been received by the firm by way of cash through the capital account of one of the partners. In an identical fact situation, the Hon'ble Gujarat High Court as well as Coordinate Bench have expressed a view that the source of cash is required to be examined and assessed in the hands of the partner. Thus, partnership firm cannot be fastened with the obligation to explain the source of cash in the hands of the respective partner. Secondly, we also take note of the fact that the amount involved is small and therefore stale and insignificant issue is not required to be raked out without any cogent reason. Applying the decisions referred to above on the issue, we set aside the order of the ld.CIT(A) and delete the additions made by the AO.

7.

In the result, appeal of the assessee is allowed. Order Pronounced in open Court on this 12th day of August, 2021.

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