DHARAMTAR MOTORS SERVICES PETROLEUM PRODUCT,,AHMEDABAD vs. THE ITO, WARD-6(1)(4),, AHMEDABAD

आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

& 2534/AHD/2017 Asstt. Year 2012-13 2 First, we take up A.Y. 2012-13. The assessee has raised the following ground of appeal.

The following grounds are without prejudice to each other. In view of the facts and circumstances of the case -

1. That the lower authority erred in making addition of Rs. 2,59,33,030/- by applying section 68 of the Income Tax Act.

2. That the Learned CIT(Appeal) has also erred in confirming the said addition as per his appeal order dated 21-03-2017, para 5.8 and onwards. It is prayed that the finding given by the CIT(Appeal) in para 5.8 is perverse and factually incorrect and therefore, the decision given by the CIT(Appeal) may please be reversed and addition made may please be deleted.

3. The Learned Assessing Officer has also erred in not appreciating the various written submissions made before him and therefore, the assesse has moved application dated 19-04-2017 which has not been disposed off as on today. Therefore, it is prayed that the addition made ought to have been deleted after due consideration of facts and submissions.

4. In not appreciating the fact that even section 68 is not applicable to the facts of the case and therefore, the action of the Assessing Officer is itself bad in law and void and liable to be quashed.

The appellant craves leave to add/delete/alter and/or amend any of grounds as aforesaid as and when necessary.

The solitary issue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by sustaining the addition of Rs. 2,59,33,030/- under section 68 of the Act.

List of persons whose amount is credited to Capital Account of Chandrakant N Shah Sr.No. Name of the Party Amount 1. Sangita C Shah 28772 2. Suryaben B Parikh 11059 3. Umesh N Shah 22373 4. Dharamtar Motor Service (Maitry) 15000 5. Deepak Automobiles 358975 6. Shree Ram Petroleum 250972 7. Pharma Distributor 4200000 8. Shree Krishna Associates 4000 9. Shree Muroribapa 853 10. Shree Krishna Investment 89335 11. Shree Ramchandara Dongreji 853 12. Shreenathji Bava 27 13. Prof. Gajjar Standard 3650000 14. Mac Laboratories 16496860 Total 25129079 2.1 Similarly the assessee has carried forward the loans and advances since assessment year 2005-06 which were provided to certain parties amounting to Rs. 1,39,35,033.00 in its balance sheet as on 31 March 2012. The details of such loans and advances to the parties stand as under; List of persons whose amount is debited to Capital Account of Chandrakant N Shah Sr.No. Name of the Party Amount 1. Blue Shiled Pvt Ltd 1500000 2. Chandrakant N Shah HUF 24700 3. Dipak C Shah 1447757 & 2534/AHD/2017 Asstt. Year 2012-13 4

2.4 The assessee further claimed that the transactions were merely internal adjustments as there was no flow of any funds in the books in the year under consideration.

2.5 The assessee also claimed that these changes were made in the books of accounts to satisfy the conditions imposed by the prospective partners namely Subhash N Desai and Kalpesh Guilder who agreed to enter into the partnership firm (assessee) as partners with effect from assessment year 2013- 2014. & 2534/AHD/2017 Asstt. Year 2012-13 6 2.6 The assessee during the assessment proceedings admitted the fact that the partners of the firm have not filed the income tax return for the year under consideration. Rather it was submitted that one of the partner namely Shri Chandrakant N Shah has died in the year 2013 and the other partner is absconding.

Considering the submissions made by the AR of the assessee, the following facts were emerged. (i) The Ld. AR of the assessee has not mentioned the name and not provided the proof regarding death and absconding partner. (ii) The relevant changes made in constitution of partnership is not submitted to Income Tax Department as and when the changes came into force. (iii) In respect of unsecured loan, the AR of the assessee has not provided any details except ledger copy from the books of the assessee. (iv) The submission made in respect of addition to the capital account of 2 partners is not satisfactory as the unsecured loan is added as capital of the partner. The submissions made by the AR of the assessee were considered carefully and as the same were not found satisfactory, an addition of Rs. 2,59,33,030/- is made to the totai income of the assessee u/s. 68 of the Act. (Penal proceedings u/s. 271(l)(c) are initiated separately.)

4. Aggrieved assessee preferred an appeal to the ld. CIT-A. The assessee before the learned CIT (A) among other things submitted that the impugned loans were taken in the earlier years which were duly disclosed and accepted in the assessment framed under section 143(3) of the Act for the assessment year 2007-08. As such there was no new loan taken in the year under consideration. & 2534/AHD/2017 Asstt. Year 2012-13 7 4.1 The AO has treated the credit entries appeared in the partners’ capital account as income under section 68 of the Act without giving the benefit of the advances given to the parties which has been duly disclosed in the financial statement.

4.2 The amount of Rs. 2,59,33,030/- on account of the addition in the capital account of the partners as discussed above was representing only the accounting entries. Therefore such book adjustment cannot be added to the total income of the assessee under section 68 of the Act.

4.3 The assessee further submits that after adjusting all loans liability and advances in the partners’ capital account in the year under consideration, there was a change in the constitution of the partnership firm effective from assessment year 2013-14 wherein two new partners were admitted. Subsequently, the credit balance in the account of the partner namely Shri Chandrakant N Shah amounting to Rs. 7,76,053.00 was withdrawn by the wife of the partner upon his (Shri Chandrakant N Shah) death.

5. However, the learned CIT (A) inter-alia observed that the partnership deed was made only on Rs. 500 non-judicial stamp paper but without any witness. The confirmation from all the loan parties was not furnished by the assessee during the assessment as well as appellate proceedings.

5.1 The acceptance of the loan amount in the earlier years does not mean that it has become the genuine loan/transaction. As such the assessee by transferring the loan of the firm in the partner capital account is trying to shift the bogus transaction from the books of the firm. & 2534/AHD/2017 Asstt. Year 2012-13 8 5.2 The Ld. CIT-A also noted that the assessee itself has admitted that such liability has ceased to exist in its books of accounts by way of making such adjustment entries in the books of accounts which are representing trading liabilities. As such, these trading liabilities have ceased to exist in the books of accounts and therefore these are liable to be taxed under the provisions of section 41(1) of the Act.

In view of the above, the learned CIT (A) confirmed the addition by observing as under: 5.26 In the instant case the appellant itself admitted that liability had ceased to exist and thus amount was assessable as deemed income under section 41(1), at this stage the appellant is therefore not be permitted to resile from said admission. The Finance (No. 2) Act, 1997 w.e.f. 1st April, -1997 has inserted Expln. 1 by renumbering existing Explanation as Expln.

Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.

partner. Another submission filed by the assessee before the AO dated 09.03.2015 (PB Page No.85] as well as dated 20.02.2015 (PB Page No.83), 23.03.2015 (PB Page No.86), 05.11.2014 (PB Page No.82] and 09.05.2014 (PB Page Nos. 80 and 81). Another submission dated 30.03.2015 has not been accepted by AO as per PB page Nos. 86A to 91 and, therefore, it has been sent through RPAD. The partner viz. Chandrakant N. Shah has been expired on 17.07.2013 as per death certificate at PB Page No.96 and, therefore, the affidavit of the widow is at PB Page Nos.97 and 98. The copy of account of Chandrakant N. Shah for FY 2011-12 is at PB Page Nos. 99 and 100 and the nature of credit entry transferred to Chandrakant N. Shah for Rs.2,51,29,079/- is at PB Page No.101 and debit entry transferred to his account is at PB Page 102 for Rs.1,39,35,033/-. The AO has only considered the credit entry by applying Section 68. The detailed chart is as per PB Page No.92 also regarding crediting Chandrakant N. Shah and the major amount is in reference to MAC Laboratories, Rs.1,64,96,860/- and Gajjar Standard Chemical, Rs.36,50,000/- and copy of the confirmation from these two parties is from PB Page Nos.93 to 96, as well as in reference to MAC Laboratories, page Nos. 336 to 339. For rest of the parties the assessee has provided the copy of the ledger account which is as per page Nos. 103 to 200. In reference to Nimesh C. Shah this amount has been transferred by Chandrakant N. Shah as per PB Page No.200, wherein, there is transfer entry from Chandrakant N. Shah and this amount has already been included in the figure of Rs.2,51,29,079/- as addition made in the case of Chandrakant N. Shah, and, therefore, it amounts to double taxation. This can be supported from the ledger account of Chandrakant N. Shah as per relevant PB Page No.100. Therefore, in any case, there is no justification for applying Section 68 by AO and Section 41(l)bytheCIT(A) 1.1 The AO has given show cause notice dated 29.03.2015 as per his order page Nos.3 and 4 and reply of the assessee dated 23.03.2015 (PB Page No.86] has been stated to be considered. The AO has stated that the assessee has not discharged the onus lies him regarding the aforesaid credit appeared in capital Account of partners.

1.2 The assessee has submitted completed audited account for AY 2012-13 with ITR as per page Nos.l to 15 and Balance Sheet at page Nos. 16 to 21. The details of loans and advances transferred to partners account is as per chart at page Nos.22 and 23 and trial balance as per 2011-12 is at page Nos.24 to 27. The copy of Balance Sheet, audit report etc. with groupings for the AY ZOOS-06 is as per PB Page No.201 to 217 and details of unsecured loan as outstanding on 31.03.2005 for Rs.2,62,45,733/- is as per page No.213 in reference to the similar parties whose accounts are transferred to the account of Chandrakant N. Shah. The copy of complete audited account for AY 2007-08 is as per page Nos.218 to 235 and details of unsecured loan outstanding is as per page No.230 for the figure of Rs.2,67,65,330/-. Similarly, for the AY 2008-09 the complete annual accounts are as per page Nos. 230 to 252 and details of unsecured loan is as per page No.248 for the figure of Rs.2,64,41,112/-. Similarly, for the AY 2009-10 the complete account is as per page Nos.252A to 2520 and relevant unsecured amount of Rs.2,60,49,757/- is as per page No.252M. The copy of complete audit report for AY 2010-11 is at page Nos. 252 to 266 and unsecured loan grouping for the figure of Rs.2,55,98,541/- at page No.267. The copy of complete audited account for AY & 2534/AHD/2017 Asstt. Year 2012-13 10

2011-12 is as per page No.270 to 287 and the detailed grouping of unsecured loan appeared for Rs.2,51,32,521/- is at page No.284.The assessee has also submitted two partners' capital account from AY 2005-06 to FY 2012-13 which is as per page Nos.310 to 335 which includes the ledger account from FY 2005-06 of two partners as well as latest account of two incoming partners.

1.3 The detailed submission made before the AO is as per page No.290 and the reasons why the balance has been transferred to the partners account is as per page Nos. 291 to 294 alongwith the details regarding partnership deed enclosed with various dates is as per page No.294 for chart and the deeds mentioned therein at page 295 to 309. Therefore, the finding given by CIT(A) in his appeal order page No. 15, para 5.15 that no details filed is factually incorrect in reference to past years audited accounts as well as partnership deeds. Based on this so-called perverse finding, he has applied Section 41(1) which is not applicable to the facts of the case. 1.4 The copy of the confirmation from various parties is as per page Nos." I, ]" 33 to 49, 50 to 79, 340; 341. The complete facts of the case are as per PB Page Nos. 28 to 32. In a submission dated 23.02.2015, therefore, the assessee has rightly stated that the amount was outstand from AY 2005-06. The submission dated 23.03.2015 before AO is at page No.86, wherein, the facts regarding nature of entry has been explained.

2. The copy of submission to CIT(A) is dated 13.01.2017 at page Nos. A to F and page Nos. G and H as well as submission dated 14.11.2017 at page Nos. 342 to 349 and dated 22.02.2017 at page Nos.350 to 356 and dated 13.01.2017 at page Nos.361 to 362. There is application under Section 154 dated 19.04.2017 at page No.357, wherein, assessee has submitted that there is a mistake in para 5.8 of the appeal order by saying that on 23.02.2017, none has been appeared and also on 14.03.2017. Based on this application, CIT(A) has rectified his mistake as per his order dated 28.09.2017 at page No.259, 260. The various case laws relied upon before C1T(A) in reference to Section 68 regarding credit partners account is as per page Nos.363 to 418 and more particularly Ahmedabad ITAT at page Nos.398 to 411 and Gujarat High Court at page Nos.415 to 418.

3. The CIT(A) in appeal order, has given finding in para 5.8 regarding non- compliance, however, thereafter the same has been rectified by him by order dated 27.09.2017 at page Nos. 259, 260. In para 5.8, there is some finding regarding GP which has no relevance since it pertains to AY 2012-13 and at present the dispute is in reference to Section 68 and / or 41(1). In reference to para 5.14, wherein, the CIT(A) has stated that the assessee was required to submit the various partnership deeds and capital accounts etc. and in para 5.16 it has been stated that no details have been filed as asked for. This finding is factually incorrect as can be verified from para 1.2 and para 1.3 referred hereinabove. In para 5.19, there is mentioning of unsecured loan in the books of the firm by MAC Laboratories Ltd. and Gajjar Standard Chemical Works Ltd. as well as Pharma Distributors and Deepak Automobiles, wherein, it is held that there are common Directors and two companies and for rest of the firm, no confirmation has been filed. In this & 2534/AHD/2017 Asstt. Year 2012-13 11 connection we say that even if the party is not traceable after issuing summons under Section 133(6) there is no justification for applying Section 41(1) since CIT(A), ultimately in his appeal order is para 5.6 has applied the aforesaid Section. In para 5.20, it is held that the assessee has not established genuineness on the unsecured loans even though stated by the assessee that the unsecured loans carried forward from AY 2007-08 under Section 143(3) and ITO ward 10(2) has accepted this unsecured loan which has been subsequently credited to the account of Chandrakant N. Shah. After making observation regarding genuineness of unsecured loans in para 5.20, he applied Section 41(1) in para 5.26. In any case, if there is unsecured loan pertaining to AY 2007-08 and earlier year, there is no justification to apply Section 68/41(1) of the Income Tax Act. In para 5.21, 5.22, page 18, CIT(A) has given factual aspect regarding introduction of two new partners namely Subhash Desai and Kalpesh Gilder. In para 5.24, he admits that sec. 68 is not applicable. Thereafter, in para 5.25, he applied sec. 41(1) after making reliance upon 114 ITR 853(Kar), 62 ITR 34 (Bom) and 55 CTR 218 (Cal). In para 5.26, he referred sec. 41(1) to the whole amount of Rs. 2,59,33,030/-. It is strongly stated that in view of the following judgments, sec. 41(1) is not applicable to the facts as narrated herein above.

4. The case law in reference to sec. 41(1) are as under: -

• Satpal & Sons Delhi ITAT 166 ITD 616 wherein, following Gujarat high court in Bhogilal Ramjibhai Atara and Ahmedabad ITAT in Ratnamani Metals, has held in para 7 that as per decision of Supreme Court in Sugauli Sugar Works 236 ITR 518 as well as Gujarat High Court and Ahmedabad ITAT even there was outstanding sundry creditors in last three years of balance sheet and no provision was made to write off outstanding liabilities in books of accounts, there would not be any remission or cessation of liabilities u/s 41(1) even though sundry creditors were not in existence at the address provided after issuing notice u/s 133(6) by the Assessing Officer. In our case, the AO has applied sec. 41(1) to the amount credited to partner's account and addition sought to be made in the case of the appellant i.e. registered firm. • Gujarat High Court in Dattatray Poultry, 104 Taxmann.com 366 dated 29-01- 2019. Identical finding wherein, it is held that, when the genuineness of sundry creditors has been doubted, of respective years then sec. 68 would be applicable in respective years but not sec. 41(1). In this case, there was inquiry under 133(6] has also been made and therefore, genuineness has been doubted. In para 14 of this judgment, it has been held that there is no material brought on record to say that there was cessation or remission of the liability since the genuineness has also been doubted. The decision of Bhogilal Ramjibhai Atara has been referred in para 19 of the judgment. In our case, CIT(A) in our case has also doubted the genuineness of the credit entry appeared in partner's accounts by referring of pastS years assessment order even though assessee has discharged the onus in respective years. • Delhi High Court in 96 ITR 438 wherein, it is held that the onus is on department to prove that, there is cessation of the liability. In our case, CIT(A) has doubted the existence of liability in past years and therefore, he failed to discharge the onus.

& 2534/AHD/2017 Asstt. Year 2012-13 12

• Attention is drawn to 12 Taxmann.com 46 (Ahmedabad) in the case of Bhavesh Print Pvt. Ltd wherein, if reference to outstanding sundry creditors AO has issued notice u/s 133(6) but no confirmation has been received and thereforeS, applied sec. 41(1). In para 7, it is held that in absence of any evidence regarding allowance or deduction in past year, no addition can be made referring to judgment of 325 ITR 593 (P & H) Sitadevi Juneja, 325 ITR52 (P & H) G P International, 254 ITR 434 (SC) Kesariya Tea as well as 78 ITR 55 (SC) Terunelveli Motor Bus as well as Gujarat High Court in Bharat Iron 199 ITR 67. Attention is drawn to 14 ITR 355 (Madras) in N.Rudrappa wherein it is held that where the retiring partner share in loss of the firm is forgive by the firm then Section 41(1) is not applicable. Therefore, based on the aforesaid submission, we hereby submit as under: (a) That, no onus discharged by CIT(A) as lies upon him in reference to Section 41(1) before giving the finding in his appeal order page No.19, para 5.25 and 5.26. (b) In any case, the amount credited to respective partners' account cannot be considered as "loss" "expenditure" "trading liability" and even cannot be termed as "successor in a business", therefore, the provision of 41(1) cannot be applicable to the facts of the case.

(c) That no evidence brought on record that the amount carried forward from the AY 2005-06 and onwards has been claimed by way of various terms as referred in para (b) above and, therefore, without discharging this onus, the provision of 41(1) cannot be applied mechanically.

(d) That the aforesaid amount has been carried forward as unsecured loan in the books of assessee from FY 2004-05, copy of annual accounts, ledger accounts of unsecured loans has been submitted till the year under consideration i.e. FY 2011- 12 and even for subsequent years and, therefore, there is no question of applying Section 41(1) on the ground that there is "remission or cessation". (e) That, on one hand CIT(A) doubted the genuineness of unsecured loan transferred to capital account and, therefore, there cannot be application of Section 41(1).

(f) Therefore, the basic ingredient to invoke Section 41(1) has not been fulfilled.

8.1 However, the learned CIT (A) treated such liabilities as trading liabilities which ceased to exist in the books of accounts and accordingly invoked the provisions of section 41(1) of the Act for making the addition to the total income of the assessee.

8.2 Admittedly, all these loans were taken in the earlier years which were disclosed in all the financial statements effective from assessment year 2005- 06. This fact can be verified from the financial statements for the assessment years 2005-06 which are placed on pages 201 to 217 of the paper book. Thus, it is clear that the same cannot be added in the year under consideration as the same were not obtained in the current year. It is also important to refer the provisions of section 68 of the Income Tax Act, which reads as under;

Cash credits. 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:

8.3 From the plain reading of the aforesaid provision it reveals that, there cannot be any addition on account of such opening balance of loans carried forward from the earlier years. In this regard we find support and guidance from the judgment of Hon’ble Delhi Court in the case of CIT v/s Usha Stud & 2534/AHD/2017 Asstt. Year 2012-13 14 Agricultural Farms Ltd reported in 301 ITR 384 where the head note reads as under: Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment year 1999-2000 - During assessment proceedings, Assessing Officer noticed that assessee had shown certain amount as advance from one 'B' - As assessee failed to file confirmation from B, Assessing Officer made addition of that amount under section 68 - On appeal, Commissioner (Appeals) deleted addition on ground that said cash credit was appearing in books of assessee over past four to five years and, thus, it was not fresh credit entry pertaining to relevant assessment year - Tribunal dismissed appeal filed by revenue - Whether finding recorded by Commissioner (Appeals) was a finding of fact and, as such, no fault could be found with order of Tribunal in endorsing decision of Commissioner (Appeals) - Held, yes 8.4 It is also pertinent to note that such loans were duly enquired by the AO in the assessment framed under section 143(3) of the Act for the assessment year 2007-08 but no addition was made. The relevant extract of the notice issued under section 142(1) for the assessment year 2007-08 reads as under: ii) In a return of income filed you have shown unsecured loan of Rs.2,67,65,330/- for this you are requested to furnish details such as Name, amount borrowed from person.

From the above, it is beyond doubt that there was no credit on account of loan or any sum as contemplated under the provisions of section 68 of the Act in the year under consideration in the books of account of the assessee, therefore, we are of the view that no such addition is warranted under section 68 of the Act. As such, the amount was credited in the account of the partner, thus even if it is assumed that the provisions of section 68 are attracted then it would be applied in the hands of the partner of the assessee. It is because the amount was credited in the account of the partner by way of adjustment entry. As such, the assessee is outside the purview of the provisions of section 68 of the Act. & 2534/AHD/2017 Asstt. Year 2012-13 15 8.5 Coming to the allegations of the learned CIT (A) for invoking the provisions of section 41(1) of the Act, we find important to refer the provisions of section 41(1) of the Act which reads as under: Profits chargeable to tax. 41. 14[ 15(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,— (a) the first-mentioned person has obtained 16, whether in cash or in any other manner whatsoever, any amount in respect of such 16 loss or expenditure 16 or some benefit in respect of such trading liability 16 by way of remission or cessation thereof 16, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained 16, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof 16, the amount obtained 16 by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.

8.6 A plain reading of the aforesaid provisions reveals that it is applicable with respect to the trading liabilities and there is no information available on record suggesting that the impugned liabilities were representing the trading liabilities. As such, it was noticed that the assessee out of such loan and liabilities has advanced a sum of Rs. 1,39,35,033/- to its group concerned and this fact has not been doubted by the authorities below. Therefore, in the absence of documentary evidence it cannot be assumed that there was trading liability which has ceased to exist in the books of accounts.

Furthermore, we find that indeed the liabilities in the books of accounts of the firm have ceased to exist as the same was transferred to the account of the & 2534/AHD/2017 Asstt. Year 2012-13 16 partner. But, it does not mean that the trade creditors have waived their rights for the amount receivable from the assessee. As such, now the partner was liable for the payment of such amount as it was transferred to his individual account by the assessee.

8.7 It is also a fact on records that, the partners are liable for the liabilities of the partnership firm. Thus, the liability of the partnership firm is not limited unlike the body corporate. In this regard, we place our reliance on the judgment of Hon’ble Supreme Court in the case of M/s Malabar Fisheries Co. Vs. CIT reported in 2 taxman 409 wherein it was held as under: 2. It is clear that a partnership firm, under the Indian Partnership Act, 1932, is not a distinct legal entity, apart from the partners constituting it, and equally, in law, the firm, as such, has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets, all that is meant is property or assets in which all partners have a joint or common interest. If that be the position, it is difficult to accord the contention that upon dissolution the firm's rights in the partnership assets are extinguished. The firm, as such, has no separate rights of its own in the partnership assets but it is the partners who own jointly in common its assets and, therefore, the consequence of the distribution, division or allotment of assets to the partnership, which flows upon dissolution after discharge of liabilities, is nothing but a mutual adjustment of rights between the partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within the meaning of section 2(47). There is, therefore, no transfer of assets involved, even in the sense of any extinguishment of the firm's rights in the partnership assets, when distribution takes place upon dissolution.

8.8 Thus, we are of the view that the liability has not ceased to exist in true sense in the given facts and circumstances as it has shifted to the partner of the firm who was always otherwise liable for such liability in his personal capacity being partner.

Without prejudice to the above, we are also conscious to the fact that the ld. CIT-A has clearly held that the impugned loans are not genuine as reproduced under: & 2534/AHD/2017 Asstt. Year 2012-13 17

5.20 The appellant was specifically asked to prove the genuineness of the above transactions and also asked to explain the status/payment/receipt of the unsecured loan and advances given after transferring the same to the retiring partners whether the same is still outstanding in the partner's account. However in spite of specific request, the appellant could not establish the genuineness of the unsecured creditors and advances given to the debtors. The appellant merely submitted that the loans were examined in AY 2007-08 and same has been found genuine by the AO in assessment u/s 143(3). The appellant fled the questionnaire issued by the AO, ITO, Ward 10(2), Ahmedabad where the details of unsecured loans of Rs. 2,67,65,330/- was called for. However while making the assessment the AO has not commented on the genuineness of the loans outstanding and accepted the return of income. It is observed that the assessment passed by the AO is not proper and he has not examined the issues of genuineness of the loans. It is noticed from the assessment order of AY 2007-08 that the AO has just ignored the issue and not given any finding in the order that the loan outstanding was found genuine. The failure of the AO in examining the outstanding loans does not establish that the loans were genuine. It is duty of the appellant to establish the genuineness of the loan in the year when the unsecured loan seized to exist. However instead of filing the details and establishing the genuineness, the appellant has opted for technical reply. Considering the facts discussed above it is observed that the loan taken and advance given were not genuine.

The above finding has not been challenged by the Revenue, thus the provisions of section 41(1) cannot be applied as held by the Hon’ble Gujarat High Court in the case of Dattatray Poultry breeding farm Pvt. Ltd. Vs. ACIT reported in 104 taxmann.com 366. The relevant extract is reproduced as under: From the findings recorded by the Assessing Officer as well as the Tribunal, it appears that the very genuineness of such entries has been doubted, inasmuch as the Assessing Officer has tried to verify the existence of such liabilities from the creditors, however, many were not found at the given address and some of them had categorically denied having any transaction with the assessee. If the existence of liabilities was doubted, the same could have been disallowed in the year in which it was claimed, or could have been treated as unexplained cash credit in the hands of the assessee under section 68 in the relevant assessment year, but the same could not be taxed under section 41(1), inasmuch as if the liability itself was not genuine, the question of remission or cessation thereof would not arise.

8.9 After considering the facts in totality as discussed above, we hold that the provisions of section 41(1) of the Act cannot be invoked in the given facts and circumstances. Accordingly we reverse the order of the authorities below. & 2534/AHD/2017 Asstt. Year 2012-13 18

Hence the ground of appeal of the assessee is allowed.

Coming to ITA number 2534/Ahd/2017

Hence the ground of appeal of the assessee is allowed.

Order pronounced in the Court on 21/11/2019 at Ahmedabad.