SHRI NIRANJAN LAL GUPTA,BHARATPUR vs. INCOME TAX OFFICER, WARD-2, BHARATPUR

During the course of hearing, the ld. AR has submitted that the assessee is a partner in M/s Suraj Mal Niranjan Lal Industries along with his brother, Shri Naresh Chand Bansal and son, Shri Shrikant Gupta. He filed his return of income on 28.03.2012 declaring income of Rs. 1,60,610/-. During the course of assessment proceedings in case of M/s Suraj Mal Niranjan Lal Industries, the AO observed that the assessee has introduced capital of Rs. 5,40,000/- in the firm. The assessee could not furnish the explanation in this regard. Thereafter, the AO completed the assessment of the firm u/s 143(3) vide order dated 26.03.2014 by accepting the capital of the partners but issued notice u/s 148 on 06.05.2014 to the assessee partner. As no one attended the hearing, the AO completed assessment proceedings u/s 144 of the Act by making addition of Rs. 5,40,000/- as unexplained cash deposits u/s 68 of the Act.

It was submitted by the ld AR that reopening of assessment in the hands of the assessee is bad in law in as much as if the AO was not satisfied about the explanation of the assessee as to the source of capital introduced in the firm, addition can be made only in the hands of the firm u/s 68 of the Act. Therefore, the reopening of the case of the assessee is illegal and bad in law.

It was further submitted that so far as merit of the addition is concerned, the assessee during the appellate proceedings explained that the amount so contributed as capital in his partnership firm was out of the surplus of cash balance available with him and loans taken from various persons. The details of persons from whom loan was taken along with the date of repayment and affidavits of these persons were submitted before the ld. CIT(A) as additional evidence.

It was submitted that the ld. CIT(A) called for a remand report. The AO in his remand report dated 13.03.2018 stated that he had issued notices u/s 131 of the Act on 15.01.2018 to nine persons out of which six persons had appeared on 08.02.2018 and their statements were recorded in oath. These persons affirmed that they had given loan to the assessee. He also stated that the assessee had cash balance of Rs. 2,51,260/- as on 31.03.2010 and had collected an amount of Rs. 5,40,000/- from various persons. The assessee repaid an amount of Rs.4,40,000/- during the same year. All these facts are evidenced from the affidavits and the statements on oath taken during the remand proceedings. Thus, in light of the evidences, statements, affidavits and other circumstances, the AO held that the capital contributed by the assessee is genuine and justified.

It was further submitted that the ld. CIT(A) at Para 5.6 of his order stated that the AO has not been able to verify whether the creditors are income tax assesses or not and whether they have the means to advance the amount. He further stated that mere admission of having advanced the loan is not enough to discharge the onus and

It was further submitted that the AO in his remand report after considering the affidavits and the statement of various persons has accepted that the loan raised by the assessee are genuine, the Ld. CIT(A) without bringing any adverse material on record cannot ignore the remand report and confirm the addition. The judgment of Hon'ble Supreme Court of Lovely Export Pvt. Ltd. relied by the Ld. CIT(A) is only on the issue that in case of a company where any share capital is introduced by a shareholder, the same cannot be considered in the hands of the company but only in the hands of the shareholder. Thus, this judgment is not on the issue of the satisfaction of the ingredients of Section 68 of the Act.

The ld. DR is heard who has relied on the findings of the ld. CIT(A).

We have heard the rival contentions and perused the material available on record. So far as the first ground of appeal is concerned, we are unable to accept the contention so advanced by the ld. AR. While completing the assessment in the hands of the partnership firm M/s Suraj Mal Niranjan Lal Industries, the AO found out that the assessee has deposited cash amounting to Rs. 5,40,000/- in his capital account and basis the said information, the assessment proceedings U/s 147 of the Act were initiated in the hands of the assessee being the partner in the firm and notice was issued U/s 148 of the Act.

Regarding ground no. 2 on merits of the case, it is noted that during the course of appellate proceedings, the ld. CIT(A) has called for remand report from the Assessing Officer and in his remand report, the Assessing Officer after due examination has given a finding that the deposit of Rs. 5.40 lacs introduced as capital during the year under reference by the assessee has been found genuine and justified. The relevant findings of the AO in his remand report are reproduced as under:-

In light of above, we are unable to appreciate the contentions raised by the ld. CIT(A) in terms of not accepting the finding of the Assessing Officer during the course of remand proceeding. Given that the Assessing Officer has carried out the necessary verification/examination and where the ld. CIT(A) is of the opinion that the said examination is not satisfactory, then it is incumbent on the part of the ld. CIT(A) to give a conclusive finding as to why he feel that the examination so conducted by the AO is not acceptable, however, in the instant case we do not find any such finding which has been recorded by the ld. CIT(A). Therefore, in light of the facts that the AO examined the source of deposit and has found the same as genuine and justified, the findings which remained uncontroverted before us, we set aside the order of the ld. CIT(A). In the result, the ground No. 2 of the assessee’s appeal is allowed.