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Facts
The assessee, an LLP, invested in immovable properties. The Assessing Officer added Rs. 2,92,82,500/- to the assessee's income as unexplained investment, disbelieving the source of funds from two partners, Tarun Malhotra and Rakesh Dham, for property purchase. The CIT(A) allowed the assessee's appeal and deleted the addition.
Held
The Income Tax Appellate Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order. It held that the assessee had discharged its onus by explaining the source of funds for the investment, supported by documentary evidence and the established creditworthiness of the partners. The Tribunal reiterated that if the AO had doubts about the partners' creditworthiness, measures should be taken against the partners individually, not the firm.
Key Issues
Whether the addition for unexplained investment in property, sourced from partners, could be sustained in the hands of the LLP when the partners' identity, genuineness of transactions, and creditworthiness were established.
Sections Cited
143(2), 271AAC, 115BBE, 68
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Income Tax Appellate Tribunal, DELHI ‘B’ BENCH,
Before: SHRI CHALLA NAGENDRA PRASAD, & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-
This appeal by the Revenue is preferred against the order of the ld. CIT(A), Delhi dated 11.09.2023 pertaining to A.Y 2018-19.
The grievances of the Revenue read as under:
“1. Ld. CIT(A) has erred in law and facts by deleting the addition of Rs. 2,92,82,500/- on account of unexplained investment despite the fact that the assessee could not bring anything on record to establish that this unexplained investment was from known source of income.
2. Ld. CIT(A) has erred in law and facts by accepting the same reasons of unexplained investment which were rejected by the Assessing Officer in absence of documentary evidence.
3. Ld. CIT(A) has erred in law and facts by observing that this unexplained investment was out of preceding and current year withdrawals without any reconciliation through accounts.
4. Ld. CIT(A) has erred in not providing an opportunity to AO under Rule 46A to give comments/counter the issues raised.
5. Ld. CIT(A) has erred in law and facts by observing that the AO has disbelieved that the averment of the assessee on the basis of suspicion whereas assessee had failed to explain the source of investment with valid evidences.”
Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules.
Brief facts of the case are that the assessee is a LLP partnership firm and has e-filed the return of income for the A.Y 2018-19 on 26.09.2018 declaring total income at Rs 28,23,806/-. The case was selected under CASS scrutiny and notice u/s 143(2) of the Act was issued online on 22.09.2019 for verification of issues of investment in immovable property and introduction of share capital/other capital.
The assessee is a limited liability partnership firm having four partners Mr Amarjeet, Mr TarunMalhotra, Mr Rakesh Dham and Mr Hardeep Singh. The firm is engaged in investment in real estate and earning rent thereof if any. During the year the assessee firm has made investment in two immovable properties, one at Jaipur of Rs 5,90,26,000/- as long term investment and one at Goa of Rs 4,65,54,230/- under the head inventory. The assessee firm was requested to submit details of payments and their source. The assessee firm has submitted the details of property purchase as follows:
Description of Date of Purchase Source of funds Amount Property purchase consideration Jaipur 26/07/17 5,90,26,000 Amarjeet Singh 1,95,19,708 Hardeep Singh 97,62,791 Tarun Malhotra 1,46,41,250 Rakesh Dham 1,46,41,250 Amarjeet Singh 5,30,000 Goa 22/09/17 4,65,54,230 Sunil Dhara 50,00,000 Shri Balaji 4,25,00,000 TradeLinks
The Assessing Officer accepted the funds from the partners Amarjeet Singh and Hardeep Singh, Sunil Dhara and Shri Balaji Tradelinks. The AO however, disbelieved the funds received from Tarun Malhotra and Rakesh Dham. Accordingly, an amount of Rs 2,92,82,500/- i.e., the payment of Rs. 1,46,41,250/- made by Shri Tarun Malhotra and payment of Rs 1,46,41,250/- from Shri Rakesh Dham for purchase of property, is added back to the income of the assessee firm as unexplained investment. Penalty proceedings were also initiated u/s 271AAC of the Act taxed as per section 115BBE of the Act.
Aggrieved the assessee went in appeal before the ld. CIT(A) and submitted that these funds were sourced through unsecured/secured loans from various sources. The CIT(A) allowed the appeal and deleted the addition.
The aggrieved Revenue is now before us.
Before us, the ld. counsel for the assessee reiterated what has been stated before the lower authorities. With respect to the funds from Tarun Malhotra and Rakesh Dham, the ld AR submitted that they have enough goodwill and creditworthiness to raise the amount to fund the LLP project. The ld AR vehemently argued that the assessee has discharged its onus of furnishing the explanation for the source of funds used for the purchase of property. It is the say of the ld. counsel for the assessee that if the identity of the payer has been established, the transactions are genuine, the amount may not be added in the hands of the partnership LLP. It was argued by the ld AR that if the AO had any doubts on the creditworthiness of the partners, the AO was free to take appropriate measures against the partners in their individual capacities. The ld AR relied on : i) Kesharwani Sheetalya Sahson Vs. DCIT of 2007 order dated 24.04.2020 [Hon'ble Allahabad High Court] ii) CIT Vs. Pankaj Dyestuff Industries dated 06.07.2005 [Hon'ble Gujarat High Court ] iii) CIT Vs. Taj Borewell [2007] 291 ITR 232 [Madras High Court] iv) CIT Vs. M. Venkateswara Road & Others [Hon'ble Telangana & AP High Court] v) CIT Vs. Metal and Metals of India [2007] 208 CTR 457 [Hon'ble Punjab & Haryana High Court] vi) CIT Vs. Kewal Krishna & Partners [2009] 18 DTR 121 [Hon'ble Rajasthan High Court] vii) CIT Vs. Metachem Industries 245 ITR160 [Hon'ble Madhya Pradesh High Court] viii) M/s Ambika Enterprises order dated 21.07.2023
Per contra, the ld DR vehemently argued that with respect to funds from Tarun Malhotra, the explanation of funds provided to the assessee are from loan of 50 lakhs taken from Sachdeva Land and Finance Ltd and Rs 67 lakh from friend/relatives which do not match with the secured loan of Rs 31.89 lakhs and unsecured loan of 10.40 lakhs shown in balance sheet. It was argued that creditworthiness of the other partner Shri Rakesh Dham, was not established as the ITR submitted by him for AY 2018-19 shows gross total income of only Rs 9,52,449/-.
We have heard the rival submissions and have perused the relevant material on record. We find that the CIT(A) has examined the creditworthiness of the partners and deleted the additions made by observing the following :
“Income Tax Returns of all the entities/persons alongwith their confirmations, personal balance sheets/income and expenditure statements and bank statements have been filed and the loans have been sourced through banking channels. The audited balance sheet and personal income and expenditure account of Sh. Tarun Malhotra has been perused. From the balance sheet of Sh. Tarun Malhotra for relevant assessment year, it is seen that a sum of Rs. 1,65,88,982/- is available in his capital account. Further, he has earned a profit of Rs. 44,40,938/- from business and profession and a share of profit of Rs. 10,20,952/- from the appellant LLP. Sh. Tarun Malhotra also has fixed assets in form of a non-agriculture land valued at Rs. 1,78,50,000/-, Hence, Sh. Tarun Malhotra had net worth to seek both secured and unsecured loans and substantial surplus funds and sources at his disposal to advance loan to the assessee.
The Assessing Officer has highlighted certain discrepancies in the balance sheet of Sh. Tarun Malhotra. However, the Assessing Officer in this matter should have distinguished between the personal affairs and balance sheet of the assessee LLP. In respect of any discrepancy, the Assessing Officer was free to reject the books of account and recast the results thereon. However, the same have not been rejected by the Assessing Officer.
Further, the Assessing Officer has not controverted the cash credits in the accounts of Sh.Tarun Malhotra with any cogent inquiries or reasoning thereof. It can be held that shri Tarun Malhotra discharged the onus of proving the creditworthiness in respect of loans advanced to the appellant company. In view of the facts and circumstance, the addition of Rs. 1,46,41,250/- was deleted and grounds of appeal were allowed.
In this respect Income Tax Returns of all the entities/persons alongwith their confirmations, personal balance sheets/income and expenditure statements and bank statements have been filed. All the loans have been sourced through banking channels. Sh. Rakesh Dham has various sources of income including from business and profession and house property. It is seen that bulk of the money advanced by him i.e. Rs.95,44,077/- has been taken as secured loan from Cholamandalam Investment and Finance Co. Ltd. The creditworthiness of sh Rakesh Dham must have been verified by the said NBFC before granting him this loan. As per the return of income for the relevant assessment year the gross total income of Shri Rakesh Dham has been Rs21,58,132/- and he is a regular income tax payee. The comments of the AO that computation of income does not inspire confidence in his ability to get genuine business loan is merely based on surmises and assumptions.
Further the AO has not controverted the cash credits in the account of Rakesh Dham including the transfers from his wife with any cogent enquiries or reasonings thereof. It can be held that Sh Rakesh Dam discharged the onus of proving the credit in respect of loans advanced by it to the appellant LLP.”
From the facts and circumstances of the case, we are inclined to agree with the decision of the CIT(A). We also find force in the contention of the ld. counsel for the assessee that where the assessee furnishes a valid explanation for the investment made, the onus cast upon it is discharged. We are of the considered opinion that the decision of the co-ordinate bench in the case of M/s Ambika order dated 21.07.2023, relied upon by the assessee, squarely applies. It was held, on the issue of addition of share capital u/s68 of the Act, that where there is no ambiguity about the identity of the partner and capital introduced from him, in such circumstances, if the Assessing Officer was of the opinion that the amount is not proved in the hands of the partner, he should have considered it in his individual hands and not in the hands of the firm.
We also find that this view is supported by the decision of the Hon'ble Madhya Pradesh High Court in the case of CIT Vs. Metachem Industries 245 ITR 160. We notice that the Tribunal while coming to the conclusion in the case of Ambika Enterprises [supra], has cited the decisions relied upon by the ld. counsel for the assessee as above.
In that view of the matter, we find no infirmity in the order of the ld. CIT(A). Accordingly, we dismiss the appeal of Revenue.
In the result, the appeal of the Revenue in is dismissed.
The order is pronounced in the open court on 11.09.2024.