ARJUN REALTORS,BARGARH vs. THE INCOME TAX OFFICER, WARD BARGARH., BARGARH

PDF · subscribers
ITA 37/CTK/2026Status: DisposedITAT Cuttack14 May 2026AY 2016-177 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO recognized the circuitous transaction and the introduction of capital by the partner. Since the source of the funds was known to the AO and the transaction was accepted, the addition should not have been made in the hands of the firm.

What were the facts?

The assessee firm purchased property for Rs. 4,35,50,000/-. The Assessing Officer (AO) noted that the firm paid part of the amount to the seller, who then transferred it to a partner, who then introduced it as capital in the firm. The AO treated this circuitous capital introduction as bogus and added it to the firm's income.

What were the issues?

Whether capital introduced through a circuitous transaction, where the source is known, can be added as unexplained income in the hands of the firm.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “CUTTACK BENCH, CUTTACK

Before: SHRI GEORGE MATHAN & SHRI RAJESH KUMAR

For Appellant: Shri P. K. Mishra, AR
For Respondent: Shri Ashim Kr. Chakraborty, CIT- DR
Hearing: 14.05.2026Pronounced: 14.05.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “CUTTACK BENCH, CUTTACK VIRTUAL HEARING AT KOLKATA BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA No.37/CTK/2026 Assessment Year: 2016-17 Arjun Realtors ITO, Ward-Bargarh

At-Near Hotel Meera, Vs Gobindpali Road, Dist- Bargarh, 768028, Odisha. (PAN: AATFA4026D) (Appellant) (Respondent)

Assessee by : Shri P. K. Mishra, AR Revenue by : Shri Ashim Kr. Chakraborty, CIT- DR Date of Hearing : 14.05.2026 Date of Pronouncement : 14.05.2026

ORDER PER BENCH: This is an appeal filed by the assessee against the order of the NFAC, Delhi [hereinafter referred to as the ‘CIT(A)’] in appeal no.CIT(A), Sambalpur/10171/2018-19 dated 05.12.2025 for the assessment year 2016-17.

2.

Shri P. K. Mishra, AR, represented on behalf of the assessee and Shri Ashim Kr. Chakraborty, CIT- DR represented on behalf of the revenue.

3.

It was submitted by the ld. AR that the assessee has filed its return of income for the impugned assessment year disclosing an income

ITA No.37/CTK/2026 Nil. The scrutiny assessment was initiated by issuing notice u/s 143(2) in respect of limited scrutiny being the share capital. The notice u/s 143(2) reads as follows:

ITA No.37/CTK/2026 3.1 It was the submission that in the course of assessment, the Assessing Officer noticed that the assessee-partnership firm had purchased a property from one Shri Dinabandhu Meher and four others for a consideration of Rs.4,35,50,000/- as alleged by the Assessing Officer is that the firm had made part-payment to Shri Dinabandhu Meher and then Shri Dinabandhu Meher had transferred the said sum to the partner of the assessee firm being Smt. Chapati Kamalini. Smt. Chapati Kamalini introduced the same amount as capital in her hands in the firm and this circuitous transaction continued. It was the submission that consequently capital introduced by Smt. Chapati Kamalini was to the extent of Rs.4,15,00,000/-. It was the submission that the Assessing Officer treated the said capital introduced by Smt. Chapati Kamalini as not established and treated the capital introduced to be from bogus sources and the same as undisclosed income of the assessee firm. It was further submitted that the identity of the partner is available. The Assessing Officer recognised the circuitous transaction, the Assessing Officer recognised the introduction of capital by Smt. Chapati Kamalini but because it is circuitous transaction treated the source as bogus and has made the addition in the hands of the firm. It was further submitted that the Assessing Officer has made further additions of Rs.17,12,740/- representing unexplained money between cash balance as shown in the balance sheet and cash balance as shown in the books of account. It was further submitted that the Assessing Officer has also added an amount of Rs.8,10,000/- representing

ITA No.37/CTK/2026 unexplained expenditure being investment in the land purchased by the firm from Shri Dinabandhu Meher and his family. It was the submission that in respect of capital introduced by the partner i.e. Smt. Chapati Kamalini, the source is very much available and was also before the Assessing Officer and if at all the addition is supposed to be made, it could have been considered only in the hands of the partner and not in the hands of the firm. In respect of other two additions, it was submitted that these were not the issues of limited scrutiny and has no connection with the limited scrutiny and no permission has been taken for examination of these two issues. The additions are liable to be deleted. It was also another submission that the fact that the Assessing Officer has made an addition of Rs.8,10,000/-, being a difference between sale consideration paid by the assessee to Shri Dinabandhu Meher and the amount shown by the partnership firm, the transaction of the purchase of the land from Shri Dinabandhu Meher and family is not disputed and only the introduction of capital by the partners is treated as bogus when the partnership firm has accepted the capital introduction.

4.

In reply, the ld. CIT-DR has submitted that the base of the transaction is Rs.42 lakhs. The partnership firm paid the amount to Shri Dinabandhu Meher and family members and Shri Dinabandhu Meher and family members are not financially stable. They have given this money to Smt. Chapati Kamalini and Smt. Chapati Kamalini introduced the same amount into the firm in the form of capital. This has been circulated ten times and that too in cash which has been brought out by

ITA No.37/CTK/2026 the Assessing Officer in his assessment order in para 9.3 in a chart. It was the submission that this brought into question the transaction of introduction of capital by Smt. Chapati Kamalini. It was the submission that partners did not have the capacity to introduce the said capital. The same is liable to be assessed in the hands of the firm where the capital has been alleged to have been introduced. It was further submitted that the other two additions were connected with the same transaction and therefore, had link with the capital introduced and should be treated as unexplained.

5.

We have considered the rival submissions. A perusal of para 9.3 of the assessment order clearly shows that the Assessing Officer did recognise that the partnership firm paid money to Shri Dinabandhu Meher and family members for the purpose of the purchase of land from them. The Assessing Officer also recognised that the said Shri Dinabandhu Meher and family members had given the money to Smt. Chapati Kamalini and Smt. Chapati Kamalini, the partner of the assessee-firm had introduced the same as capital in the hands of the firm. The entire transaction was known to the Assessing Officer. The source of the transaction is also known to the Assessing Officer. The Assessing Officer also recognised that the base amount is only about 42 lakhs which has to be routed multiple times. The Assessing Officer also accepted the property at its value at Rs.4,26,40,000/-. The balance sheet and P&LA/c also recognises the said asset in the inventories. The Sub- Registrar has accepted the transaction and has registered the property in

ITA No.37/CTK/2026 the name of the firm. When the whole transaction is very much before the Assessing Officer and the Assessing Officer also recognises the source of the investment by the partners to be loan taken from Shri Dinabandhu Meher by Smt. Chapati Kamalini from the sale of the land, obviously the said amount as capital introduced by the partners cannot be treated as income of the firm. This view of ours is also supported from the decision of Hon’ble Supreme Court in the case of PCIT vs. Vaishnodevi Refoils & Solvex reported in 96 taxmann.com 469 by dismissing SLP of Hon’ble High Court of Gujarat in the case of PCIT vs. Vaishnodevi Refoils & Solvex reported in 89 taxmann.com 80 and also the decision of Hon’ble High Court of Patna in the case of CIT vs. Anurag Rice Mills reported in 88 taxmann.com 420 and also the decision of Hon’ble High Court of Telengana in the case of Nova Medicare vs. ITO reported in 150 taxmann.com 363. If the Assessing Officer did not believe the introduction of capital by the partner, it was very much open to the Assessing Officer to assess the same in the hands of the partner. The capital introduced by the partner which has been accepted by the Assessing Officer cannot be treated as income of the partnership firm. This being so, the addition as made by the Assessing Officer and as confirmed by the ld. CIT(A) stands deleted.

5.1 Coming to the other two additions being the difference in the alleged cash balance and the unexplained expenditure, it is notice that this has no connection with the introduction of capital by the partner Smt. Chapati Kamalini and as the assessment is limited scrutiny

ITA No.37/CTK/2026 assessment, the additions could not have been made without taking the appropriate approval. As the appropriate approval has not been taken, the additions as made by the Assessing Officer and as confirmed by the ld. CIT(A) on both counts stand deleted.

6.

In the result, the appeal of the assessee is allowed.

Kolkata, the 14th May, 2026.

Sd/- Sd/- [Rajesh Kumar] [George Mathan] लेखा सदस्य/Accountant Member न्याययक सदस्य/Judicial Member

Dated: 14.05.2026. RS Copy of the order forwarded to: 1. Appellant - 2. Respondent – 3. CIT(A)- 4. CIT- , 5. CIT(DR),

//True copy// By order Assistant Registrar

More judgments on Section 68

All 29,931 judgments and leading authorities on Section 68 →

Recent GST High Court judgments

Search GST case law →