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Facts
The assessee, engaged in the liquor business, introduced an amount of Rs. 1,08,46,742/- as capital in the firm. The Assessing Officer (AO) added this amount to the assessee's income, considering it unexplained capital under section 68 r.w.s. 155BBE of the Income Tax Act, 1961. The assessee's appeal before the CIT(A) was dismissed.
Held
The Tribunal held that the CIT(A) failed to consider complete submissions of the assessee and did not discuss the merits of the capital introduction for four out of five partners. It also noted the assessee's legal plea that unexplained capital introduction should be taxed in the hands of the individual partners, not the firm. The Tribunal further observed that the CIT(A) did not provide an opportunity for a personal or video conference hearing.
Key Issues
Whether the CIT(A) erred in dismissing the appeal without a proper hearing and without considering all grounds, and whether the addition made by the AO was rightly sustained in the hands of the firm.
Sections Cited
143(3), 144B, 68, 155BBE, Income Tax Act, 1961
AI-generated summary — verify with the full judgment below
Date of Hearing 02.04.2025 Date of Pronouncement 19.05.2025 ORDER, PER BRAJESH KUMAR SINGH, AM,
This appeal filed by the assessee is directed against an ex-parte order dated 06.05.2024 of National Faceless Appeal Centre (NFAC)/Ld. CIT(A), Delhi, relating to Assessment Year 2020-21 arising out of order u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to ‘the Act’) dated 22.09.2022 passed by Assessment Unit, Delhi.
None appeared on behalf of the assessee. However, the assessee had filed an adjournment petition, which was rejected and the appeal is being decided after hearing the ld. Sr. DR and on the basis of materials available on record.
Brief facts of the case:- The assessee during the year had income from liquor business. The Assessing Officer noted in para 3.6 of the order that on perusal of the balance sheet of the assessee, that an amount of Rs.1,08,46,742/- was introduced as addition in the capital account of the partners in the assessee firm, the details of which are as under:-
S. No. Name of the partners Addition in Capital account 1 Sunil Singh 38,74,705/- 2 Naresh Singh 39,30,534/- 3 Joginder Singh 28,91,502/- 4 Urmila Devi 50,000/- 5 Devendra Singh 1,00,000/- Total 1,08,46,742/- 3.1. The Assessing Officer did not accept the explanation of the assessee regarding the source of introduction of capital by the respective partners and added a sum of Rs.1,08,46,742/- under provisions of sections 68 r.w.s.
155BBE of the Act.
4. Aggrieved with the said order, the assessee filed an appeal before the Ld. CIT(A). The ld. CIT(A) dismissed the appeal of the assessee. The relevant discussion is made by the Ld. CIT(A) in para 6.2 of the order wherein, he discussed the capital introduced account by Shri Sunil Singh one of the partner of the firm amounting to Rs.38,74,705/-. Further, the ld. CIT(A) did not discuss about balance capital introduced in the name of four other partners and observed that in the same way as in the case of Shri Sunil Singh, the capital introduced from the other partners was also not explained. The relevant finding of the ld. CIT(A) in para 6.2 is reproduced as under:-
“6.2. In order to understand the case, we can discuss the introduction of capital in case of Shri Sunil Singh. As per the balance sheet, capital introduced in the book of Firm by Shri Sunil Singh is Rs.38,74,705/-. Appellant is claiming that appellant has made cash as well as cheque payment to supplier, paid licence fee. form Fee, security deposit with excise Dept, made transfer to Laxmi Traders Canara Bank account no 10633 amounting to Rs.35.49.705/ Including the above a cheque issued but dis-honored amounting to Rs.3,25,000/-, has been shown as capital introduced by Shri Sunil Singh. Regarding the source of the said expense made by Shri Sunil Singh, appellant states that appellant was holding the cash sales of the Firm amounting to Rs.27,14,000/- which was deposited in his personal bank account. Accordingly the same was utilized for the above payments. Appellant has not filed any documentary evidence regarding the purchased made by the partner. Further, appellant its self is stating that the cash deposited in personal account of the appellant was out of the cash sales of the Firm. Appellant has neither stated nor produced any documentary evidence to show that the said cash sales have been accounted into the books of the Firm. If the cash sales which were in possession of the partner and deposited in their personal account of the partner, utilized by the partner for the purchases made on behalf of the firm were already accounted as sale of the firm, then why the expense made by the partner were not accounted for in the books of the Firm. Secondly, if the sales were not accounted for in the books of the Firm and the same were utilized by the partners of the Firm of making the expenses, then it can be said that the expenses have been made out of the income of the Firm and not the partner. Accordingly the expense cannot be claimed by the partners from the Firm. Mere filing an affidavit that cash sales of the firm have been deposited in the personal account of the partner is not sufficient enough. Appellant has not submitted anything regarding the treatment of the cash sales of the Firm which has been deposited in the personal bank account of the partner. Notice dated 18.12.2023 was issued to the appellant to explain the entries regarding the cash sale made by partner and entries of those transaction in the books of the partner and books of the firm. Further, appellant was requested to submit the cash book of all the partner of the firm, as well as cash book of the Firm. However, appellant did not file the same. On the contrary appellant in its submission dated 26.12.2023 stated the law is clearly established that the source of capital introduced by the partners is not satisfactorily explained than also no additions can be done in the hands of the firm. Hence it is very much clear that appellant is not able to explain the source of the said introduction to capital. Looking at the circumstance of the case, it is clear that the appellant has reintroduced its own cash sales in the guise of capital introduced by the partner. Appellant has failed to prove that the cash sales made by the partners have been included in the books of the firm. The same has been introduced into the books of account in the form of capital introduced by the partner. Hence, I do not find any infirmity in the order of the Assessing Officer.”
Against the said order, the assessee is in appeal before us. The relevant grounds of appeal no.3, 4 and 5 are reproduced hereunder:-
“3. That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in not considering complete replies and submissions furnished by the appellant.
That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in not appreciating that even if partner's capital introduction remains unexplained the same cannot be taxed in firm's hand.
5. That the National Faceless Appeal Centre (NFAC), Delhi has erred in law and on facts in not giving the opportunity of video conference/ personal hearing.”
The ld. Sr. DR supported the orders of the authorities below.
We have heard the ld. DR and perused the materials available on record. On perusal of the above grounds of appeal, it is found that the assessee is correct in stating that the complete replies and submissions furnished by the assessee were not considered by the Ld. CIT(A) because as discussed above, the Ld. CIT(A) did not discuss about the merits of the introduction of the capital in respect of four other partners other than Shri Sunil Singh. Further, the legal plea of the assessee that in case the explanation about the source of capital introduced by the respective partners was not found to be satisfactory, then if at all any addition was required to be made, it was to be made in the hands of the individual partners and not in the hands of the firm. It is also submitted that the Ld. CIT(A) did not give any opportunity of video conferencing/personal hearing.
In view of the above facts, we are of the considered view that the order of the ld. CIT(A) cannot be sustained. Therefore, we set-aside the order of the order of the ld. CIT(A) and restore the matter to the file of the Ld. CIT(A) for afresh adjudication after giving a reasonable opportunity of being heard to the assessee. Further, the assessee is also directed to appear before the Ld. CIT(A). Accordingly, grounds of appeal raised by the assessee are allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open court on 19th May, 2025.