EVEREST INFRA,VADODARA vs. INCOME TAX OFFICE WARD 1(2)(1), VADODARA

The brief facts of the case are that the assessee had filed its return of income for A.Y. 2016-17 on 27.07.2016 declaring total income of Rs.26,56,250/-, which was processed u/s 143(1) of the Act. Subsequently, the AO had received an information that the assessee had purchased an

Unsecured loan raised during the year: Rs. 41,93,254/- 2. Fresh Capital introduced by partner : Rs. 1,08,08,502/- 3. Advance received from customer who: Rs. 2,13,88,973/- had booked flat

Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed. Th

Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:

General Ground The Ld. Commissioner of Income Tax (Appeals) [CIT(A)] erred in law and on facts in confirming the additions made by the Ld. Assessing Officer (AO) amounting to Rs. 40,40,000/-, thereby upholding the assessment order passed u/s 147 r.w.s. 143(3) and 144B of the Income Tax Act, 1961 ('the Act'). The order is bad in law, contrary to the facts, and violates the principles of natural justice. 2. Addition of Partner's Capital Contribution (Rs. 26,40,000/-) 2.1 The Ld. CIT(A) erred in confirming the addition of Rs. 26,40,000/- u/s 68 of the Act treating capital introduced by partners as unexplained cash credit. 2.2 The Ld. CIT(A) failed to appreciate the binding jurisdictional judgment of the Hon'ble Gujarat High Court in PCIT vs. Vaishnodevi Refoils & Solves (2018), affirmed by the Hon'ble Supreme Court, which categorically holds that if a partner admits to contributing capital, no addition can be made in the hands of the firm, 2.3 The Ld CIT(A) erred in relying on the non-jurisdictional decision of Kamal Motors (Rajasthan HC) while ignoring the binding law of the jurisdictional High Court. 2.4 The Appellant submits that the identity of the partners (Shri Umesh Dadhania and Smt. Hansaben Patel) was established, and they had confirmed the transaction; hence, the onus on the firm stood discharged.

Unjustified Demand for "Source of Source" 3.1 The Ld. CIT(A) erred in confirming the additions on the ground that the "source of source" (ie, the origin of funds in the hands of the lenders/partners) was not explained. 3.2 The Ld. CIT(A) failed to appreciate that for the year under consideration (AY 2016-17), the proviso to Section 68 requiring

Perverse Finding of Fact (Re: Unsecured Loan from Dinesh Kumar Kardani Rs. 2,00,000/-) 4.1 The Ld. CIT(A) committed a grave error of fact in holding that the receipt of Rs. 2,00,000/- from Shri Dinesh Kumar Kardani was "not found" in the bank statement filed by the Appellant 4.2 The Appellant submits that the said amount is clearly reflected in the Appellant's Axis Bank Statement on 18.08.2015 (Instrument No. 146840 via HDFC Clearing), which was already placed on record. The finding of the Ld. CIT(A) is thus perverse, factually incorrect, and liable to be set aside.

Addition of Unsecured Loan from Vallabhbhai Dadhania (Rs. 12,00,000/-) 5.1 The Ld. CIT(A) erred in confirming the addition of Rs. 12,00,000/- from Shri Vallabhbhai Dadhania solely on the basis of cash deposits in the lender's account, ignoring the direct bank transfer to the Appellant. 5.2 The Ld. CIT(A) failed to appreciate that the loan was subsequently repaid along with interest (TDS deducted) via banking channels on 28.06.2017, which serves as conclusive proof of commercial expediency and genuineness (Rel: Shani Prahladbhai Patel, ITAT Ahmedabad)

Audited Books of Account Not Rejected 6.1 The Ld. CIT(A) failed to appreciate that the Appellant's books of account were duly audited u/s 44AB, and the Tax Audit Report clearly reported these transactions without any adverse qualification. 6.2 The Ld. CIT(A) erred in sustaining the additions u/s 68 without rejecting the books of account u/s 145(3) of the Act. The Revenue cannot accept the books for the purpose of business income while selectively treating specific banking entries recorded therein as non-genuine

Penalty Proceedings The Ld. CIT(A) erred in upholding the initiation of penalty proceedings u/s 271(1)(c) of the Act, which is consequential in nature and legally unsustainable given that the quantum additions themselves are liable to be deleted.

Prayer The Appellant prays that the order of the Ld. CIT(A) be set aside, and the additions of Rs. 40,40,000/- be deleted in full. The Appellant craves leave to add, alter, amend, or withdraw any of the grounds of appeal at or before the time of the hearing

We have carefully considered the rival submissions. The case of the assessee was reopened to examine the source of investment made in the immovable property during the year. The assessee had explained that the asset was purchased out of the fresh capital introduced by the partners, unsecured loans raised during the year and advance received from the customers. The AO had treated capital introduction to the extent of Rs. 26.40 lakhs from two partners as unexplained and accordingly made the addition in the hand of the assessee firm. The issue of addition in the hands of the firm vis-à-vis the capital introduced by the partners, is no longer res integra. The Hon’ble jurisdictional High Court in the case of Vaishnodevi Refoils & Solvex (Supra) had held that where assessee had furnished details regarding the source of capital introduced in the firm and the concerned partner had also confirmed such contribution, it could be concluded that the assessee had duly discharged the onus cast upon it. Further that if the Assessing Officer was not convinced about creditworthiness of the partner who had made capital contribution, inquiry had to be made at the end of the partner and not against the firm. The SLP filed by the Department against this decision of Hon’ble Gujarat High

The next ground pertains to addition of Rs. 14 lakh in respect of loan taken from two parties. The AO has given a finding that cash deposit was made prior to issue of cheque of Rs. 12 lakhs by Shri Vallabhbhai Dadhania. On the other hand, the contention of the assessee is that no such cash deposit was appearing in the account of Shri Vallabhbhai Dadhania. Similarly, the loan of Rs. 2 lakh taken from Dinesh Kumar Kardani was added by the AO for the reason that this entry was not found appearing in the bank statement. On the other hand, the assessee has contended that this amount was duly reflected in the bank statement of the assessee. The assessee has also submitted that the loans taken from the two parties were subsequently repaid along with interest. Considering the submissions of the assessee, we deem it proper to set aside this matter to the file of Jurisdictional AO with a direction to verify the submission of the assessee regarding entries in the bank account of the two loan creditors and also verify the contention of the assessee regarding repayment of the loan along with the interest and thereafter re-adjudicate the issue. The assessee is also directed to produce the evidences in support of its contentions before the AO in the course of set aside proceeding. In any case, if the loans were subsequently repaid, then no

In the result, the appeal of the assessee is allowed for statistical purpose.