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Facts
The assessee, Five Star Impex, filed its return of income reporting NIL income and a loss of Rs. 8,00,579/-. The case was selected for scrutiny, and the Assessing Officer (AO) made additions on account of capital contribution by partners, cash credits, and commission income. The CIT(A) set aside the assessment order for a fresh assessment. The assessee appealed this.
Held
The Tribunal held that the addition on account of commission income was not sustainable and liable to be deleted. Regarding capital introduction by partners and unsecured loans, the Tribunal observed that the CIT(A)'s action of setting aside the matter for de-novo assessment was an incorrect exercise of discretion. The Tribunal also held that introduction of capital by partners cannot be added back in the hands of the firm under Section 68.
Key Issues
Whether the CIT(A) was justified in setting aside the assessment order for de-novo assessment. Whether additions on account of capital contribution and unsecured loans made under Section 68 were sustainable.
Sections Cited
144, 143(2), 145, 68, 115BBE, 250, 271(1)(c), 28
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Income Tax Appellate Tribunal, JAIPUR BENCH “A”, JAIPUR
Before: Dr. S. SEETHALAKSHMI & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of NFAC, Delhi dated 23.11.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal: -
1. 1. That in the facts and circumstances of the case and in law the Ld. CIT (A) has erred in setting aside the assessment order to the Ld. AO for making a fresh assessment.
2. That in the facts and circumstances of the case and in law, the Ld. CIT(A) having admitted the additional grounds under section 250(5) was not justified to set aside the case specifically on the basis of additional grounds as the issues covered in the additional grounds were purely of legal nature and no additional evidence or new facts were involved
That in the facts and circumstances of the case and in law, the Ld. CIT (A) has unjustifiably set aside the assessment order and erroneously granted a second inning to the Ld. AO whereas the issues involved being purely of legal nature required to be decided by him
That in the facts and circumstances of the case and in law, the Ld. CIT (A) has wrongly observed that the issues raised in additional grounds were never raised before the Ld. AO, as there was no occasion to raise the issues before the Ld. AO as these have arisen consequent to passing of the assessment order by the Ld. AO
That in the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not deleting the additions agitated by the assessee in additional grounds as under -
(i) That in the facts and circumstances of the case and in law the Ld. AO has erred in making additions on account of
a. Capital contribution by partners Rs. 70, 42,450/- under section 68 of the Income Tax Act 1961, treating the same as unexplained. b. Cash credits of Rs, 3,36,32,043/- under section 68 of the Income tax Act 1961 treating the same as unexplained c. Commission income of Rs. 29,45,375/-whereas such additions were not called for after determination of income by way of rate application.
(ii) That in the facts and circumstances of the case and in law the Ld. AO has erred in making addition of Rs. 70,42,450/- on account of capital introduced by the partners under section 68 of the Income Tax Act 1961, whereas the same required to be considered in the individual hands of the partners. Whether in the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) is justified in confirming the order of the Assessing Authority in imposing penalty of Rs. 13,558/- under section 271(1)(c) of the Income Tax Act.
That the assessee craves permission to add, alter, amends or deletes any ground or grounds of appeal on or before the filing of this appeal.
2. The brief facts of the case are that the assessee partner-ship firm filed its return of income at Rs. NIL on 29.09.2015, current year loss was claimed at Rs. (-) 8,00,579/-. The case of the assessee was selected for complete scrutiny under CASS and relevant statutory notices were issued. The case of the assessee was assessed u/s. 144 r.w.s. 143(2) of the Act on the ground of non-production of books of accounts. Case of the assessee was assessed after applying the provisions of section 145 of the Act, accordingly G.P. rate was applied @.50 on turnover, i.e. Rs. 18,64,684/-, Commission income assessed separately amounting to Rs. 29,45,375/-, Introduction of capital by the partners amounting to Rs. 70,42,450/- u/s. 68 of the Act r.w.s. 115BBE of the Act and unsecured loans received during the year amounting to Rs. 3,36,32,043/- u/s. 68 of the Act r.w.s. 115BBE of the Act. The assessee being aggrieved with the same preferred an appeal before the Ld. CIT (A), who in turn set-aside the matter back to the file of the AO for making a fresh assessment and the appeal of the assessee was partly allowed for statistical purposes. The assessee being not satisfied with the adjudicating order of the Ld. CIT (A) preferred the present appeal before us.
3. We have gone through the order of the AO passed u/s. 144 r.w.s. 143(2) of the Act, order of the Ld. CIT(A) and submissions of the assessee alongwith grounds taken before us. It is observed that the addition of Rs. 18,64,684/- on account of G.P. and Commission income amounting to Rs. 29,45,375/- are part of the profit & loss account of the assessee and are chargeable to tax u/s. 28 of the Act. Here it is pertinent to mention that once the AO opted for applying the provisions of section 145 of the Act, i.e. applying G.P. rate on turnover, no separate addition can be made on any item being part of profit & loss account relied upon by the AO.
4. it’s a settled legal position and not under any challenge, hence addition of Rs. 29, 45,375/- on account of commission income is not sustainable and liable to be deleted. Accordingly, the AO is directed to delete the same. Before we proceed further on balance sheet items, i.e. fresh capital introduction by the partners amounting to Rs. 70, 42,450/- and unsecured loans amounting to Rs. 3, 36, 42,043/- taxed u/s. 68 of the Act, it is necessary to deal with the finding in this matter by the office of the Ld. CIT (A), wherein he has set-aside the matter back to the file of the AO for de-novo assessment. No doubt, there was a lack of cooperation and books of accounts before the AO hence were forced to determine the income u/s. 144 of the Act. But it is observed that all the relevant information were duly submitted before the Ld. CIT(A) on 11.02.2019 and the same were sent to the concerned AO by the office of Ld. CIT(A) for submission of the remand report on the facts of the case, issues involved and submissions/evidences adduced by the assessee.
5. On the same remand report, there was a rejoinder also filed by the assessee. In addition to the same the assessee further submitted its explanation/reply on 20.06.2024 and a detailed submission made on the e- proceedings portal in response to notice dated: 21.10.2024 (with paper book of 76 pages). Alongwith this latest submission, the assessee further filed an application for admission of two additional grounds, which were duly admitted by the Ld. CIT (A). We have gone through the additional grounds raised by the assessee as reproduced in para 2.1 of the Ld. CIT (A)’s order, page
3. It is observed that these additional grounds are in the nature of legal grounds raised by the assessee and to be adjudicated by the authority based on settled legal position, i.e. no further verification or evidences are required on these issues.
6. The position becomes vaguer in the light of facts, that the Ld. CIT (A) admitted the same as per the provisions of section 250(5) of the Act and after that setting aside the matter for de-novo assessment without pointing out any deficiency in the process of remand report received and replied by the assessee through rejoinder. Secondly, the additional grounds were in the nature of legal grounds needs no involvement/opportunity to the AO and rather the Ld. CIT (A), him-self was empowered and duty bound to adjudicate the same once admitted. This provision of setting aside the matter back was deleted from the statute way back w.e.f. 01.06.2001 and reintroduced w.e.f. 01.10.2024 only. But this change in law never intends where a complete process of de-novo examination has been carried out by the office of the Ld. CIT (A)in the form and substance of remand proceedings and there is no allegation on the assessee concerned about any lethargy, non-cooperation or non-submission of evidences/explanation, still he can set-aside the matter back to the file of the AO for de-novo assessment. As far as the issues involved in the ex-parte assessment, those have already been addressed by the assessee during the first appeal stage and rather there was a complete opportunity to the AO for his remarks and objections and thereafter the assessee also filed its rejoinder.
7. When a process of remand report has been initiated in absence of the provisions for setting-aside the matter, which actually re-introduced w.e.f. 01.10.2024 only and the same has reached to its conclusion based on the feed backs of both the sides, simply because provision for setting aside has been reintroduced w.e.f. 01.10.2024, the Ld. CIT(A) can’t escape his duty to adjudicate the matter dragging since long and has gone through the whole process of obtaining remand report and consequential actions by the stake holders. It will be an utter wastage of public money and of-course the resources, energy and the time of the assessee also. This reintroduction of provision of setting aside will certainly not applicable in the present case.
8. In view of the above, without hesitation, we hold that the decision of the Ld. CIT (A) is baseless, illogical and certainly not in conformity with public policy of taxation. Even on merits, we have gone through the paper book submitted before us [Same is already there on the file of the Ld. CIT (A)]. It is observed that the partner Mr. Ankit Agarwal sold a house property during the year for a consideration of Rs. 42.5 Lacs and appropriately declared the transaction in his computation while declaring capital gains of Rs. 4,58,589/-. This fact itself is enough to explain the source of capital introduction by the partner amounting to Rs. 42 Lacs in his capital account with the firm. Another partner Mr. Om Prakash Agarwal introduced Rs. 28,42,450/- and he also received Rs. 30,11,000/- as sale consideration of house property sale and the same is duly introduced in his ITR. Moreover, various coordinate benches and Hon’ble High Courts has already cleared the legal position on this aspect, that introduction of capital by the partner in the books maintained by the firm, can’t be added back in the hands of the firm u/s. 68 of the Act. If required, enquiry can be conducted in the case of contributory partner and addition if any should be made in the hands of the partner and not in the hands of the firm. Our view is being further fortified with the following judicial pronouncements as under:
[1996] 85 TAXMAN 227 (ALL.)India Rice Mills v. Commissioner of Income-tax [2015] 57 taxmann.com 373 (AP and Tel.) CIT v. M. Venkateswara Rao
9. In view of the above factual matrix, response of the assessee during remand proceedings and judicial pronouncements referred (supra), ground taken by the assessee is allowed and the AO is directed to delete the addition of Rs. 70,42,450/-.
As far as the last addition of Rs. 3,36,32,043/- made u/s. 68 of the Act is concerned, we have gone through the remand report of the AO and the submissions of the assessee before the Ld. CIT(A) and in compliance to the remand report issued by the AO. The assessee furnished the confirmations of the parties, PAN No., Bank statements (relevant extract) and ITRs. It is observed that on the one hand the AO made addition of Rs. 3, 36, 32,043/- u/s. 68 of the Act but consequential interest on the same has not been added back u/s. 68 of the Act. Certainly, the amount of interest can’t be added back in section 28 of the Act as G.P. rate has already been applied, but to strengthen his stand he is duty bound to add the amount of interest paid on cash creditors under consideration u/s. 68 of the Act. Without addition of amount of interest applicable on cash creditors under consideration, addition on account of basic amount will create an anomaly and will weaken the stand of the AO to make addition u/s. 68 of the Act on account of cash creditors under consideration. In legal parlance, it is to be taken as acceptance of cash creditors itself.
Moreover, in remand report dated 20.08.2019, the AO himself has accepted that other than two cash creditors amounting to Rs. 13.85 Lacs (Rs. 7.35 Lacs + Rs. 6.5 Lacs) rest of the creditor’s full information has been received and participated in all the proceedings before the Ld. CIT (A) and also participated in the remand report by controverting the same through filing of a rejoinder. In view of this, the action of the Ld. CIT(A) in restoring the matter back for de-novo assessment will tantamount to an extra judicial decision and misuse of discretion recently given to him. We are legally and on merits satisfied with the arguments of the assessee and allowed the relevant grounds with a rider that addition of Rs. 18,64,684/- on account of G.P. addition as business income and Rs. 13.85 u/s. 68 of the Act will sustain as the relevant documents as required by section 68 of the Act were not provided. The AO is directed to delete the addition made as business income and addition made u/s. 68 of the Act barring addition of Rs. 18,64,684/- on account of G.P. addition as business income and Rs. 13.85 u/s. 68 of the Act.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on24th day of March 2025. Sd/- Sd/- (Dr. S. SEETHALAKSHMI) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Jaipur, िदनांक/Dated: 24/03/2025 Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. आयकर आयु� CIT 3. 4. िवभागीय �ितिनिध, आय.अपी.अिध., Sr.DR., ITAT, 5. गाड� फाइल/Guard file.