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Facts
The assessee, a partnership firm engaged in real estate and construction, filed a return of income declaring Nil income for assessment year 2016-17. The Assessing Officer made an addition of Rs. 2,30,00,000/- on account of alleged unexplained capital introduced by partners under Section 68 of the Income Tax Act.
Held
The Tribunal held that it was proper to restore the issue to the Assessing Officer to grant a final opportunity to the assessee to substantiate its case by filing requisite details. The assessee was directed to make submissions without seeking any adjournment.
Key Issues
Whether the addition made by the Assessing Officer under Section 68 for unexplained capital introduced by partners is valid, and whether the assessee was given adequate opportunity to present its case.
Sections Cited
68, 143(2), 142(1)
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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R. K. PANDA & MS. ASTHA CHANDRA
This appeal filed by the assessee is directed against the order dated 29.01.2024 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2016-17.
There is a delay of 259 days in filing of this appeal before the Tribunal for which the assessee has filed a condonation application along with an affidavit explaining the reasons for such delay which is due to the fracture in the leg of the assessee. The assessee has also filed a medical certificate to this effect. After considering the contents of the condonation application filed along with the affidavit and after hearing the Ld. DR, the delay in filing of the appeal is condoned and the appeal is admitted for adjudication.
Although a number of grounds have been raised by the assessee, however, these all relate to the order of the Ld. CIT(A) / NFAC in confirming the addition of Rs.2,30,00,000/- made by the Assessing Officer u/s 68 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) being the capital introduced by the partners.
Facts of the case in brief, are that the assessee is a partnership firm engaged in business of purchase and sale of lands (real estate), besides carrying on construction business as builder and developer. It filed its return of income on 05.08.2016 declaring Nil income. The case was selected for scrutiny under CASS to verify whether the share capital is genuine and from disclosed sources. Accordingly, statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee, in response to which the assessee filed certain details. After considering the various submissions filed by the assessee, the Assessing Officer noted that the partners have introduced capital of Rs.2,30,05,000/-, the details of which are as under:
Sr. No. Name of the Partner Amount of Capital introduced 1 Manjula Satma Gudala Rs.83,00,000/- 2 Rahul Pokale Rs.5,000/- 3 Ramesh T Gudala Rs.65,00,000/- 4 Satam Vekati Gudala Rs.82,00,000/- TOTAL CAPITAL INTRODUCED Rs.2,30,05,000/- BY THE PARTNERS
He noted that the capital introduced has been advanced as loans as an amount of Rs.2,30,00,000/- has been shown as ‘Loans and Advances’ under the head ‘Assets’ side in the balance sheet. Rejecting the various explanations given by the assessee and observing that the assessee firm failed to substantiate the above amount received from the partners in terms of section 68, the Assessing Officer made the addition of Rs.2,30,00,000/- u/s 68 of the Act.
Since the assessee did not respond to the notices issued by the Ld. CIT(A) / NFAC, the Ld. CIT(A) / NFAC dismissed the appeal for want of prosecution.
Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal.
The Ld. Counsel for the assessee relying on various decisions submitted that the capital introduced by the partners of the assessee cannot be added in the hands of the assessee firm and addition, if any can only be made in the hands of the partners. He submitted that the Assessing Officer in the instant case invoking the provisions of section 68 of the Act has made the addition of Rs.2,30,00,000/- on flimsy ground i.e. the absence of the partnership deed and capacity of partners to give such amount. He submitted that the Ld. CIT(A) / NFAC without giving adequate opportunity has dismissed the appeal filed by the assessee. He submitted that the assessee has filed all the requisite details substantiating the creditworthiness of the partners. He accordingly submitted that the addition made by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC should be deleted. In his alternate contention, he submitted that the matter may be restored to the file of the Assessing Officer for verification of all these details and decide the issue as per fact and law.
The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer and the Ld. CIT(A) / NFAC. He submitted that despite number of opportunities granted by the Ld. CIT(A) / NFAC, the assessee did not make any submission for which the Ld. CIT(A) / NFAC has passed the ex-parte order dismissing the appeal of the assessee for want of prosecution. Further, the assessee failed to substantiate the creditworthiness of the partners before the Assessing Officer. Under these circumstances, the appeal filed by the assessee should be dismissed.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that due to non-substantiation of the creditworthiness of the partners for introduction of the capital to the extent of Rs.2,30,00,000/-, the Assessing Officer, invoking the provisions of section 68 of the Act, made the addition. While doing so, he further noted that the assessee failed to submit the partnership deed. We find the Ld. CIT(A) / NFAC dismissed the appeal filed by the assessee for want of prosecution. It is the submission of the Ld. Counsel for the assessee that the capital introduced by the partners cannot be added in the hands of the firm u/s 68 of the Act and addition, if any can only be made in the hands of the partners. It is also his submission that sufficient opportunity was not granted by the Ld. CIT(A) / NFAC, who dismissed the appeal for want of prosecution. It is also his submission that in the interest of justice, the assessee should be given an opportunity to substantiate its case by filing the requisite details before the Assessing Officer. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to grant one final opportunity to the assessee to substantiate its case by filing the requisite details and decide the issue as per fact and law. The assessee is also hereby directed to make its submissions, if any, before the Assessing Officer on the appointed date without seeking any adjournment under any pretext, failing which the Assessing Officer is at liberty to pass appropriate order as per law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 21st March, 2025.