COMMISSIONER OF INCOME TAX vs. NATIONAL HARDWAR STORE

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order of the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as “the Tribunal”) passed in ITA No. 980 (ASR)/1993 on 27.10.2009 for the assessment year 1978-79 proposing to raise the following substantial questions of law:- “1. Whether, on the facts and in the circumstances of the case the Ld. ITAT was justified in law in dismissing the appeal of the Revenue whereby sustaining the findings of the Ld. DCIT (A) deleting the penalty of Rs.9,018/- imposed by the A.O. u/s 271 (1)(c) of the Income-tax Act, 1961 on account of unexplained and ingenuine credits introduced in the capital accounts of the -2- partners and appearing in the account books of the assessee in the asstt. year 1978-79 holding that in case there was unexplained credit in the capital account of the partner, the only legal course available with the Department was to make addition in his personal income?

Whether, on the facts and in the circumstances of the case the Ld. ITAT was justified in law in holding that the addition could have been made only in the case of the partners regarding accreditation in their capital accounts and if the addition could not be legally made in the case of the firm, there was no question of imposing penalty on such addition irrespective of the fact that the assessee had not agitated this issue before the authorities below?”

Facts necessary for adjudicating the appeal may be noticed. The assessee is a partnership firm. It was following the financial year as its previous year and for the previous year relevant to the assessment year 1978-79, the assessee filed return declaring total income of Rs.59,850/-. During the course of assessment, the Assessing Officer vide order dated 16.3.1985 made addition of Rs.49,070/- to the declared income on account of unexplained cash credits. According to the assessee, the cash credit entries were deposits by the partners which plea was not accepted by the Assessing Officer. However, on appeal, the CIT (A) reduced the addition of Rs.49,070/- to Rs.15,000/- -3- on account of unexplained cash credits and held that the quantum of unexplained cash credit was liable to be taxed. The said order of the CIT (A) was upheld by the Tribunal. As regards penalty, the Assessing Officer levied penalty amounting to Rs.9018/-, i.e. 100% of tax on concealed income. This was challenged by the assessee by filing an appeal which was allowed by the CIT (A) by accepting the explanation of the assessee that the credits in the capital account of the partners do not belong to the firm. The identity of the partners was held established and as such the firm was absolved from any further liability. Learned counsel for the assessee had placed reliance on the following judgments:- (i) Indo-European Machinery Co. Vs. CIT (1955) 28 ITR 493 (Punjab) (iii) firm nor penalty could be imposed on that account. The addition could -4- only be made to the income of the partners and similarly action for penalty could be taken only against the partners.

In view of the concurrent findings recorded by the CIT (A) and the Tribunal, the questions of law proposed could not be held to be substantial questions of law.

The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE July 20, 2010 (AJAY KUMAR MITTAL) gbs JUDGE