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PER N.K. SAINI, VICE PRESIDENT
This is an appeal by the Assessee against the order dt. 25/03/2019 of Ld. CIT(A), Hisar.
Following grounds have been raised in this appeal:
The Ld. Commissioner of Income Tax (Appeals), Hisar erred in confirming the addition, in hands of partnership firm, for capital contributions of Rs. 11, 00,000/- (comprising of Rs. 1,50,000 & 9,50,000/-) by Manoj Kumar Partner. The addition was liable to be deleted considering the evidence and settled principles of law relied upon by the appellant.
1.1 That the addition confirmed is based on mere assumptions and conjectures as the facts and evidence recorded on oath, based on the verified bank accounts by the Assessing Officer, have not been properly appreciated and considered for the assumed addition of Rs. 9,50,000/-.
1.2 That Ld. Commissioner of Income Tax (Appeals) could not infer and indicate an iota of evidence that the said capital contribution by partner related to the funds of Partnership firm. Thus, the decisions of Hon'ble Jurisdictional High Court & Other Hon'ble High Courts relied upon by appellant were fully ignored.
2. That the appellant craves leaves to amend, add the grounds of appeal with the kind permission of Income Tax Appellate Tribunal, till the same is finally heard and disposed off.
3. From the aforesaid grounds it is noticed that the only grievance of the assessee relates to the addition of Rs. 11,00,000/- made in the hands of the assessee on account of capital contributed by one of the partner namely Shri Manoj Kumar.
Facts of the case in brief are that the assessee e-filed the return of income on 14/09/2010 declaring an income of Rs. 10,76,750/- which was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’). Later on the case was selected for scrutiny.
During the course of assessment proceedings the A.O. noticed that a sum of Rs. 9,50,000/- had been credited in the account of Shri Manoj Kumar, Partner on 26/05/2009 in the books of the assessee firm which was claimed to have been received from Shri Jagdish Chander through RTGS. The A.O. recorded the statement of Shri Jagdish Chander under section 131 of the Act the A.O. observed that Shri Jagdish Chander categorically denied having given any loan to Shri Manoj Kumar and that the assessee had not been able to controvert the statement given by Shri Jagdish Chander. He therefore treated the said amount of Rs. 9,50,000/- as income of the assessee from undisclosed sources and made the addition in the hands of the assessee. The A.O. also noticed that Shri Manoj Kumar, Partner had introduced cash amounting to Rs. 1,50,000/- on 01/04/2009 in his capital account which was claimed to have been introduced out of cash available from salary and other receipts. The said claim was also not accepted and the addition of Rs. 1,50,000/- was made in the hands of the assessee under section 68 of the Act.
Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted that sum of Rs. 9,50,000/- was advanced from Syndicate Bank through RTGS on 25/05/2009 by Shri Jagdish Chander S/o Shri Ram Niwas having PAN-AASPC2464L to Shri Manoj Kumar, copy of Bank Account was also furnished.
It was also stated that the statement of Shri Jagdish Chander was recorded behind the back of the assessee under section 131 of the Act and opportunity for his cross examination was sought. The Ld. CIT(A) provided the copy of the statement of Shri Jagdish Chander to the assessee. In response, the assessee submitted that Shri Jagdish Chander seems to have inadvertently mentioned that the loan of Rs. 9,50,000/- was given to M/s Lucky Wines and actually it was given to Shri Manoj Kumar which was verifiable from his copy of Syndicate Bank Account. The Ld. CIT(A) asked the remand report from the A.O. The assessee also furnished the written submission which had been incorporated in para 4.2 and 4.3 of the assessment order, for the cost of repetition the same is not reproduced herein. The Ld. CIT(A) after considering the submissions of the assessee sustained the addition made by the A.O. He also did not accept this contention of the assessee that if any addition was to be made the same should have been made in the income of the Partner and not the assessee firm by observing that the A.O. had not accepted the submission of the assessee and contended that the same was actually unaccounted money of the firm and it was given the garb of genuineness by routing it through banking channels. The Ld. CIT(A)accordingly sustained the addition made by the A.O.
Now the assessee is in appeal.
Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee furnished the copy of bank account of Shri Manoj Kumar (Partner) as well as the copy of bank account of Shri Jagdish Chander i.e; the person from whom he received the loan therefore the addition made in the hands of the assessee firm was not justified. It was further submitted that the assessee had given explanation about the source of the contribution by the Partner who himself was an assessee and admitted having made the deposit with the assessee firm, therefore the addition made in the hands of the assessee was not justified, reliance was placed on the following case laws:
• CIT Vs. Metachem Industries reported at [2001] 116 Taxman 572 (MP) • CIT Vs. Jaiswal Motor Finance reported at [1983] 141 ITR 706(All) • CIT Vs. Metal & Metals of India reported at [2007] 208 CTR 457 (P&H) • CIT Vs. Burma Electro Corporation reported at [2003] 126 Taxman 533 (P&H)
In his rival submissions the Ld. Sr. DR strongly supported the orders of the authorities below.
We have considered the submissions of both the parties and perused the material available on the record. In the present case it is an admitted fact that the Partner of the assessee firm made the contribution towards his capital account and explained the source for the same.
11.1 On a similar issue the Hon'ble Madhya Pradesh High Court in case of CIT Vs. Metachem Industries (supra) held as under:
Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee-firm is over. The assessee-firm cannot ask that person who makes investment, whether the money invested is properly taxed or not. The assessee is only to explain that the investment has been made by the particular individual and it is the responsibility of that individual to account for the investment made by him. If that person owns that entry, then the burden of the assessee-firm is discharged. It is open for the Assessing Officer to undertake further investigation with regard to that individual who has deposited this amount. So far as the responsibility of the assessee is concerned, it is satisfactorily discharged. Whether that person is an income-tax payer or not or from where he had brought this money, is not the responsibility of the firm. The moment the firm has given a satisfactory explanation and produced the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income-tax. It is open for the Assessing Officer to take appropriate action under section 69 against the person who has not been able to explain the investment. In the present case, there was the concurrent finding of both the Commissioner (Appeals) as well as of the Tribunal that the firm had satisfactorily explained the aforesaid entries. Therefore, no addition in the instant case could be made in the hands of the assessee-firm on account of the cash credits in the names of its partners.
11.2 Similar view has been taken by the Hon'ble Allahabad High Court in the case of CIT Vs. Jaiswal Motor Finance(supra) held as under:
“ It there are cash credit entries in the books of the firm in which the accounts of the individual partners exist and it is found as a fact that cash was received by the firm from its partners then in the absence of any material to indicate that they were profits of the firm, it could not be assessed in the hands of the firm. Therefore, the Tribunal did not commit any error of law and rightly held that the deposits shown in its accounts were satisfactorily explained and that the onus placed on the assessee by section 68 had been duly discharged.” 11.3 Similarly the Hon'ble Jurisdictional High Court in the case of CIT Vs. Metal & Metals of India (supra) held as under:
“ that the firm had given explanation about the source, namely, partner, who himself was an assessee. The said partner had admitted having made deposit with the firm. Thus, as far as the firm was concerned, even if the gift claimed to have been received by the partner was to be rejected, the said partner might be liable to be taxed by treating the said amount as undisclosed income, but the firm could not be subjected to tax on that ground. Therefore, the addition in the hands of the firm was to be deleted.” 11.4 Similarly the Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Burma Electro Corporation (supra) held as under:
The assessee was a partnership concern. The Assessing Officer made additions to the returned income on account of unexplained cash credits in the capital accounts of the partners. The Commissioner (Appeals) confirmed the additions. On second appeal, the Tribunal found that it could not be established that the partners had sufficient funds in their possession to prove that said investments were made from that found in the capital accounts. The concerned partners, however, admitted to have made those investments. The Tribunal finally deleted the additions on the ground that the revenue and failed to establish the availability of funds at the time of investment with the assessee and further to bring on record any material to indicate that those unexplained investments were the profits of the assessee. It held that as such said credits could not be assessed as the income of the assessee in terms of section 68 but might be assessed in the individual hands of the partners, if it is permissible under section 69.
We therefore by keeping in view the ratio laid down in the aforesaid referred to cases are of the view that when the Partner of the assessee firm accepted that he deposited the amount in the assessee firm as a share of his capital contribution and also explained the source of the deposits then the addition made in the hands of the assessee firm was not justified and if at all the A.O. was not satisfied from the explanation / source of the Partner, then the additions could have been made in the individual hands of the Partner if it was permissible under section 69 of the Act. In that view of the matter the addition made by the A.O. and sustained by the Ld. CIT(A) is deleted.
In the result, appeal of the Assessee is allowed.
(Order pronounced in the open Court on 07/01/2020 )