THE ITO, WARD-3(3)(2), AHMEDABAD vs. HARINEE SYSTEMS, AHMEDABAD

The Registry has marked the appeal as filed delayed by 107 days. We have noted that the date of communication of the order of the Ld.CIT(A) to the assessee is stated in Form No.36 to be 11-03- 2020 and accordingly the appeal was required to be filed within sixty days thereof by 10-05.2020 but was filed on 25-08-2020 and was accordingly delayed by 107 days. We have however noted that due to the pandemic of Covid-19, the limitation prescribed for filing appeals was extended till further orders’ by the Hon’ble Supreme Court vide its order dated 23/03/2020 in Suo Moto Writ Petition (Civil) No.(s) 3/2020.And the same was ultimately extended upto 28th February 2022 in M.A No.21 of 2022 dated 10th January 2022. Therefore, there is no delay as such in the filing of the appeal.

2. The Revenue, we find is primarily aggrieved by the deletion of addition by the Ld.CIT(A) of unexplained partners capital amounting to Rs.4,22,31,672/- and unexplained sundry creditors amounting to Rs.6,84,05,836/-,made by the AO u/s 68 of the Act. The grounds raised

We have gone through the orders of the authorities below and have noted that the AO made the impugned additions in the absence of any reply filed by the assessee to his show cause notice in relation to the said additions. That before the Ld.CIT(A) the assessee explained that no reply could be filed to the AO on account of the mother and grandfather of the partner of the assessee firm being sick for almost six months and both of them passing away subsequently. Further the capital and sundry creditor balances were explained as coming from the balances of the proprietorship concern of the partner on his converting his proprietorship concern to partnership concern. Balance sheet of both the concerns was filed as evidence. The same were admitted by the Ld.CIT(A) and forwarded to the AO for his comments. The AO submitted his report accepting the explanation of the assessee after due verification. The remand report of the AO is reproduced at para 3.3 of the Ld.CIT(A)’s order. Accordingly the Ld.CIT(A) on finding that the AO had verified and found the contentions of the assessee as correct deleted the additions made. The findings of the Ld.CIT(A) in this regard at para 3.5 of his order are as under: “3.5 I have carefully considered the facts of the case, assessment order, submission of the appellant, the report of the AO and the rejoinder filed by the appellant. The AO has made the addition of capital introduced during the year of Rs.4,22,31,672/- and sundry creditors of Rs.6,84,05,836/- under section 68 of the Act. The appellant has submitted that the business of the appellant firm was being carried out as a proprietary concern of Shri Yash Nirajkumar Parikh till 31.3.2015. The proprietary concern namely M/s.Harinee Systems was converted into partnership firm w.e.f. 01.04.2015 and the capital of proprietary concern of Rs.2,06,33,176/- of Yash N. Parikh was taken as opening balance of partners. Similarly, theloan of Rs.2,06,33,1786/- from Harnisha N. Parikh in the proprietary concern was also taken as capital contribution of other partner Harnisha Parikh. The appellant contended that the partnership capital is basically the opening balance of partnership concern, therefore, identity, creditworthiness and genuineness are explained and addition u/s.68 cannot be made. As regard to the addition of sundry creditors, the appellant has submitted that all the sundry creditors were opening sundry creditors of the partnership concern of Harinee Systems and there is no new sundry creditor during the year and therefore, addition u/s.68 of sundry creditors cannot be made. The remand report was called for form the AO and the AO has accepted the contention of the appellant regarding source of capital as well as sundry creditors. As the AO has accepted the explanation, the addition made by the AO cannot be sustained and therefore deleted. The ground of appeal is allowed.”

The Ld.DR was unable to controvert the findings of the Ld.CIT(A) more particularly that the AO himself had accepted the assesses explanation of the credits as being opening balances of the proprietorship concern of the partner on conversion to partnership concern.

The appeal of the Revenue is accordingly dismissed for the above reasons.