MR. ABHIJIT SUBHASH GAIKWAD,PUNE vs. DY. CIT, CENTRAL CIRCLE 2(1), PUNE

This bunch of appeals relating to the same assessee on similar issues were heard together and are being disposed of by this consolidated order for the sake of convenience. First, we take up the appeal in ITA No.921/PUN/2013, relating to assessment year 2004-05.

The assessee in ITA No.921/PUN/2013, relating to assessment year 2004-05 has raised the following grounds of appeal:- 1. Though the assessee, to have peace of mind and to avoid any further disputes and penalty proceedings, has admitted the sundry creditors of Rs.45,60,000/- as his income and agree to pay the income tax accordingly in spite of the fact that the liability of Rs.45,60,000/- is still to be paid, the learned AO has erred in making the addition of Rs.64,000/- on account of withdrawal from partnership firm M/s.Gaikwad Developers ignoring the submissions made during the course of hearing. 2. Looking to the facts and circumstances of the case, the addition of Rs.64,000/- wrongly made by the A.O. may please be deleted. 3. The appellant prays to be allowed to add, amend, delete, modify, rectify any grounds of appeal during the course of hearing.”

Briefly, in the facts of the case, search and seizure action under section 132 of the Act was conducted at the assessee‟s premises at Aundh. Thereafter, notice under section 153A of the Act was issued to the assessee. The assessee in response, furnished return of income declaring total income of ₹ 95,231/-. The Assessing Officer as per the Balance Sheet noted that the assessee had shown outstanding sundry creditors at ₹ 45,60,000/-. The Assessing Officer noted that creditors had not been paid even as on 31.03.2010. The year under appeal is assessment year 2004-05. The assessee thus, was asked to file details of sundry creditors. In response, the assessee submitted that it had purchased TDR from the family members for his partnership firm M/s. Gaikwad Developers. The said TDR was purchased for 15200 sq.ft. @ ₹ 300/- from Mr. Subhash S. Gaikwad, Mr. Nanasaheb S. Gaikwad, Mrs. Kousalya D. Paygude, Mrs. Bebi A Shitole & Mrs. Lata S. Pawar for total consideration of ₹ 45,60,000/-. The assessee failed to furnish confirmation from the said creditors. According to the assessee, he owed money to Mr. Subhash S. Gaikwad and Mr. Nanasaheb S. Gaikwad. The Assessing Officer noted that both Mr. Subhash S. Gaikwad and Mr. Nanasaheb S. Gaikwad were assessed in the said Circle but such receivable on account of

The second issue which was taken up was the receipts from the firm M/s. Gaikwad Developers / unexplained credits in the books of account. The Assessing Officer noted that M/s. Gaikwad Developers was a partnership firm with two partners i.e. Abhijit Gaikwad – assessee and Shri Kedar Gaikwad, both of them had 50% share in the profits of said firm. The firm had developed a plot of land belonging to the family and after development of the building had sold all the flats and some shops. The dispute arose between the two partners and both claimed that the books of account were with the other person. The Assessing Officer noted that the firm had not paid any taxes on account of construction of building on plot belonging to the family of partners and also the capital gains on account of sale of land to firm were not paid by the owners i.e. family of the partners. The assessee claimed that on account of this, he had to pay ₹ 45,60,000/- to the family members. The liability was held to be non- existing and was taxed in the hands of assessee. The Assessing Officer noted that the assessee had withdrawn ₹ 25,000/- and sum of ₹ 54,96,875/- over a period of three years from the said firm. Since the said firm had not paid any taxes nor filed any return of income, then as per the Assessing Officer, the source for withdrawal by the partners was unproved. He observed that the profit of firm was distributed by the partners without paying taxes of the firm. In this regard, show cause notice was issued to the assessee with regard to receipts from the firm M/s. Gaikwad Developers i.e. firm which was not assessed to tax. The Assessing Officer proposed to tax receipts from the said firm. The sources for the receipts were not proved. The assessee again filed an explanation that the firm M/s. Gaikwad Developers had purchased FSI from four different parties for total consideration of ₹ 45,60,000/-, against which it was mutually decided between the partners that the assessee shall bring in his contribution to the firm by paying liability against the above said purchase of FSI. Therefore, the

The CIT(A) upheld the order of Assessing Officer and hence, the assessee is in appeal against the said order of CIT(A).

The learned Authorized Representative for the assessee pointed out that various explanations were given by the assessee before the authorities below. However, in the final analysis, sum of ₹ 45,60,000/- was offered to tax which was the alleged transaction with the partnership firm M/s. Gaikwad Developers.

The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer and with special reference to the deliberations at page 2 onwards and para 3 at page 7 i.e. show cause notice to the assessee. The learned Departmental Representative for the Revenue pointed out that the assessee has failed to explain the source of amounts received and hence, the same is to be added in the hands of assessee.

We have heard the rival contentions and perused the record. The assessee during the year under consideration had shown liability of ₹ 45,60,000/- being sundry creditors. Show cause notice was issued to the

The claim of assessee was that it had purchased FSI from the family members and transferred the same to the partnership firm M/s. Gaikwad Developers. However, the assessee showed the same as its liability by showing creditors at ₹ 45,60,000/- and on the other hand, showing investment in partnership firm M/s. Gaikwad Developers as his contribution. The dues were outstanding as on the close of the year. Because of dispute between the partners of M/s. Gaikwad Developers, the books of account could not be produced. Further, the said firm had also not filed any return of income nor compiled its details i.e. no Balance Sheet, no Profit and Loss Account. The assessee in this scenario, in order to buy peace of mind, declared additional income of ₹ 45,60,000/- i.e. the amount which the assessee claims that it had invested in the partnership firm M/s. Gaikwad Developers; on the ground that the source of said amount is not explained. So, the assessee has shown his

Now, the second aspect of the said contribution is that against the same, the assessee from year to year has withdrawn the amount from said firm through cheques. The assessee claims that once it has paid taxes on his capital contribution, then withdrawals made from the said amount cannot be again taxed in his hands as that would lead to double taxation. We find merit in the plea of assessee. The start of investment in the hands of assessee was the sundry creditors of ₹ 45,60,000/- shown by the assessee, which the assessee claimed was his capital contribution to the firm M/s. Gaikwad Developers on account of purchase of TDR. However, in the absence of complete evidence available with the assessee, the said plea could not be explained and hence, the assessee offered the source of ₹ 45,60,000/- as his additional income. Once the source has been explained in the hands of assessee, may be through additional income, but it stands established that the assessee had source for making investment in M/s. Gaikwad Developers. In addition, the assessee had also made contribution of ₹ 25,000/- to the capital accounts which has been accepted by the Assessing Officer.

Now, the second aspect of the same is withdrawals made by the assessee from year to year which were as under:-

Out of ₹ 54,96,875/-, source to the extent of ₹ 45,60,000/- stands explained in the hands of assessee and hence, there is no merit in making any addition on this account in the hands of assessee. The Balance sum of ₹ 7,86,875/- is out of salary from the partnership firm due to the assessee which has been withdrawn in assessment year 2005-06 at ₹ 3 lakhs and in assessment year 2006-07 at ₹ 4,86,875/-. The said amount has been shown by the assessee as part of its returned income and the same has been adopted by the Assessing Officer. In other words, the assessee has explained withdrawals to the extent of ₹ 7,86,875/- also. Accordingly, we accept the explanation of assessee to the extent of ₹ 45,60,000/- which was offered by the assessee as its additional income and ₹ 7,86,875/- as the salary drawn from partnership firm and ₹ 25,000/- as initial contribution to the partnership firm. The Assessing Officer accordingly, shall compute the balance addition, if any, in the hands of assessee in the respective years, after affording reasonable opportunity of hearing to the assessee.

Now, coming to the last ground of appeal raised in assessment year 2007-08 against the addition of ₹ 4,25,000/-. The assessee in this regard explained that it had introduced capital in cash of ₹ 7,50,000/-, out of which sum of ₹ 4,25,000/- was treated as unexplained. The assessee has withdrawn ₹ 45,60,000/- and ₹ 7,86,875/- from M/s. Gaikwad Developers. However, whether any amount was available with the assessee against cash deposit of ₹ 7,50,000/- which was his capital contribution in the firm M/s. AG Construction needs verification and in case the assessee can establish the source of cash, then withdrawals out of said contribution to the extent of ₹ 4,25,000/- stands explained. Accordingly, we direct the Assessing Officer to verify the plea of

The grounds of appeal No.1 and 2 are linked to withdrawal from the partnership firm M/s.Gaikwad Developers for which, we have directed the Assessing Officer to compute balance addition, if any, in the hands of assessee. Accordingly, the same is allowed for statistical purposes.

In the result, appeals of assessee for assessment years 2004-05 to 2006- 07 are partly allowed and appeal for assessment year 2007-08 is allowed for statistical purpose.