JAY JALARAM DEVELOPERS,SURAT vs. ITO, WARD-3(2)(6), SURAT

Copy of bank statement of Sri Pravinbhai Khodabhai Gabani maintained in ICICI Bank (A/c 005201518311) for the period 3-04-2014 to 26-03-2015

Copy of Acknowledgement of return of income filed by Sri Pravinbhai Khodabhai Gabani for Assessment year 2017-18. 3. Copy of capital account of Sri Pravinbhai Khodabhai Gabani in books of appellant firm.

On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing officer in making addition of Rs. 1,26,34,300/- on account of alleged unexplained investment u/s.69 of the Act.

On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing officer in initiating penalty proceedings u/s.271AA(C) of the Income tax Act, 1961. 4. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals)

Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.

Ld. Counsel appearing for the assessee submitted before us, a paper book containing the sale deed dated 20.07.2016, with english translated copy and Cancellation Deed dated 09.06.2022, bank statement of partnership firm, partners capital account, all the banks account to demonstrate that the funds were paid by the Partners in their individual capacity. Thus, no addition can be made in the hands of the firm. Ld. Counsel in this connection relied upon the following case laws:-

Per contra, ld. DR appearing for the Revenue supported the orders passed by the lower authorities and requested to uphold the same.

We have given our thoughtful consideration and perused the materials available on record, including the paper book and case laws filed by the assessee. The very basis for reopening of assessment, is the assessee purchased immovable property during the Financial Year 2016-17 for a consideration of Rs. 2.48 crores and not filed by return of income. During the reassessment proceedings, the assessee filed bank statement, capital accounts, balance-sheet and computation of income. The assessee also informed that during the financial year, it has paid only Rs. 83,28,000/-. The sale could not be materialized and therefore, since the seller could not convert the industrial land into residential plots. Further, the assessee firm also could not make the full payment to the sellers which are resulted in cancelling the above sale deed by registering a Cancellation Deed on 08.06.2022 for a consideration of Rs. 2.49 crores and registered as Document No. 8938 of 2022. 9.1 It is seen from the registered Sale Deed dated 20.09.2016. The payments were made through cheques by the Partners in their individual capacity as follows:-

3 In the above circumstances, the Hon’ble Supreme Court in the case of PCIT vs. Vaishnodevi Refoils & Solvex [2018] 96 taxmann.com 469 (SC), held that where the Assessing Officer made addition to assessee firm’s income under section 68 in respect capital introduced by one partner of firm, in view of fact that amount received by assessee firm had been duly reflected in books of account maintained by I.T. A No. 162//SRT/2026 A.Y. 2017-18 Page No 9 concerned partner and he had also confirmed such contribution, impugned addition was to be set aside and SLP dismissed

4 Similarly, the Hon’ble Madras High Court in the case of CIT vs. Taj Borewells [2007] 291 ITR 232 (Madras HC) in a case where the first year of assessment held as under:- “The assessment year in question was the first year of assessment of the assessee. The assessee did not maintain books of account. Certain amounts were added under section 68. The assessee had explained that those amounts represented only capital contribution made by the partners. The Assessing Officer was of the view that the accounts of the assessee-firm were in the form of profit and loss account and balance-sheet and held that they were the books of account. The Assessing Officer did not reject the explanation of the assessee-firm. Later, however, he examined the partners of the firm and rejected their explanations and made addition of the amounts in question. Held that the profit and loss account and the balance-sheet are not books of account as contemplated under the provisions of the Act. The Assessing Officer cannot ask the assessee-firm to prove source of a source. Once the firm has offered an explanation and established that the capital was contributed by the partners, the same could not be assessable in the hands of the firm. Unless there are contradictions and inconsistencies in the statement of the partners, the credit cannot be treated as unexplained and cannot be added under section 68 in the hands of the assessee-firm. The most striking feature of the present case was that all the partners made contribution during the accounting year and the assessee-firm also explained the source and the same was not rejected and only the partners' explanations were rejected. Hence the Tribunal, had rightly taken a view that, if at all, the Assessing Officer could assess the same in the hands of the partners. In the present case since there were no books of account, there could be no credits in such books. It was the first year of assessment of the assessee. The explanation offered by the assessee-firm was not rejected and only the explanations offered by the partners were rejected. Hence, it is not a fit case for making addition under section 68 in the assessee's hands.”

Assessee

Revenue

Concerned CIT

CIT (A)

DR, ITAT, Surat

Guard file. By order/आदेश से,