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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI G.D. AGRAWALG.D. AGRAWAL & AND BEFORE SHRI G.D. AGRAWALG.D. AGRAWAL & AND SHRI CHANDRA MOHAN GARG SHRI CHANDRA MOHAN GARGSHRI CHANDRA MOHAN GARG SHRI CHANDRA MOHAN GARG
PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP :- PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP This appeal by the Revenue for the assessment year 2007-08 is directed against the order of learned CIT(A), Ghaziabad dated 27th October, 2010.
The first ground of Revenue’s appeal reads as under:-
“That the Ld.CIT(A) has erred in law and on facts by deleting the addition of Rs.38.60 lacs made u/s 68 of the Income Tax Act without properly appreciating the facts of the case as well the reasons given by the A.O. in his order.”
At the time of hearing before us, it is submitted by the learned DR that there was credit in the account of the assessee from large number of persons. In the bank account of the creditor, there was cash deposit immediately before issue of cheque to the assessee. That no satisfactory explanation was given by the assessee for cash deposit
2 ITA-36/Del/2011 in the bank account of the creditor and the creditor was not produced for examination before the Assessing Officer. Therefore, the Assessing Officer was fully justified in treating the credit to be unexplained cash credit u/s 68 of the Income-tax Act, 1961. Learned CIT(A) deleted the addition without properly appreciating the facts of the case. She, therefore, submitted that the order of learned CIT(A) should be reversed and that of the Assessing Officer may be restored.
Learned counsel for the assessee, on the other hand, relied upon the order of learned CIT(A). He stated that all the creditors are assessed to income tax. Their confirmations along with the balance sheet, statement of account and acknowledgement of filing of the return were duly submitted. Thus, the assessee has duly discharged the onus which lay upon it to prove the cash credit. In support of this contention, he relied upon the decision of Hon'ble Supreme Court in the case of CIT, Orissa Vs. Orissa Corporation P.Ltd. – [1986] 159 ITR 78.
We have carefully considered the rival contentions and have perused the relevant material placed before us. Learned CIT(A), while deleting the addition, has recorded the following finding:-
“5.1 Regarding ground No.1, I find that all the partners/family members, who have either contributed in their capital account or have given unsecured loans to the assessee firm, are not only assessed to tax and not only the transactions are through banking channels and thus these transactions can be treated to be genuine; but also they have sufficient creditworthiness in so much so that they have huge capital balances and have furnished explanation regarding sources of funds in their hands while giving their confirmations in respect of the loan/credit entries. Various case laws, as cited by the appellant, including that of Banarsi Prashad vs. CIT 304 ITR 239 (All.) clearly take the issue in favour of the appellant.
3 ITA-36/Del/2011
5.1(a) The AO's objections as listed on page 10 & 11 of the assessment order are either irrelevant or very weak in the given facts and circumstances of the case. Once the evidence of their being assessed to tax along with copies of I.T. returns and confirmations are furnished; the nature of source of income in their hands can very well be ascertained. Some ladies were not produced on religious grounds but even then the appellant’s counsel had offered that, if necessary, they would be produced and that, preferably an Inspector can go to their residence and record their statements. The Assessing Officer could have favourably acceded to assessee’s request to that extent. The appellant has offered to produce these creditors before me; but on the face of more than satisfactory details, documents and evidence already on record, I do not find any necessity for getting them examined. I am of the view that their creditworthiness is more than established.
5.1(b) It is true that some of the cash deposits in the bank accounts of these partners/relatives have only remote nexus with cash withdrawals, as those withdrawals were made months earlier; but that observation, per se, is not strong enough to hold that the appellant failed in its duty of meeting the requirements as laid down in section 68 of the Act. What the AO could have been done or can still do is to take/cause to take remedial action in the hands of those partners/creditors where source of certain deposits made in their bank account is, according to the AO, not free from doubt. But the moot point here is that the appellant has fully discharged its onus of furnishing confirmations, explanation that transactions were genuine and also laying down evidences so as to indicate sufficient creditworthiness of the creditors.
5.1(c) In view of above discussion, the addition of Rs.38,60,000/- is deleted.”
From the above finding of learned CIT(A), it is evident that all the creditors are assessed to tax and have given the money to the assessee through banking channel. After analyzing their balance sheets, learned CIT(A) has also recorded the finding that they have sufficient creditworthiness because they have huge capital balances. On the facts of this case, in our opinion, the decision of Hon’ble Apex Court in the case of Orissa Corporation P.Ltd. (supra) would be 4 ITA-36/Del/2011 squarely applicable. In the said case, there was credit balance in the account of the assessee in the name of three parties. The assessee gave confirmation of all the three creditors who were assessed to tax. Their general index numbers with the Department were also given. The Assessing Officer issued summons u/s 131 of the Act to the creditors which were returned unserved with the remark ‘left’.
Thereafter, the Assessing Officer made the addition of `1,50,000/- as unexplained cash credit. The ITAT deleted the addition holding that merely because the assessee could not produce the parties, an adverse inference should not be drawn that the amount represented undisclosed income of the respondent-assessee. On appeal to the Supreme Court, Hon’ble Apex Court held :-
“that in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case.”
That the facts of the assessee’s case are even better than the facts in the above mentioned case before Hon’ble Apex Court. In the case under appeal before us, the assessee not only gave the confirmation but also furnished the balance sheet of the creditors and also the acknowledgement of the filing of income tax return by the 5 ITA-36/Del/2011 creditors. Therefore, if the Revenue was not satisfied about the creditworthiness of the creditors, it could have examined the creditors as they were assessed to income tax and all particulars relating to them were with the Assessing Officer. In view of the above, in our opinion, the above decision of Hon’ble Apex Court would be squarely applicable to the facts of the assessee’s case and, respectfully following the same, we do not find any justification to interfere with the order of learned CIT(A). The same is upheld and ground No.1 of the Revenue’s appeal is rejected.
Ground No.2 of the Revenue’s appeal reads as under:-
“That the ld.CIT(A) has erred in law and on facts by deleting the addition of Rs.36.93 lacs on account of long term capital gain and not properly appreciating the facts that the assessee’s case is covered u/s 45(4) of the IT Act.”
The facts relating to this ground as recorded by the Assessing Officer at page 13 paragraph 7 read as under:-
“During the year, the firm is reconstituted on 01/06/2006 with the retirement of three partners viz. Smt. Khushnuma D/o Shri Mohd. Yamin, Smt. Nazrin W/o Shri Mohd. Yamin and Shri Noor Mohammad S/o Shri Mohd. Musifullah and induction of a new partner Shri Mohd. Shahnawaz S/o Shri Mohd. Yamin. Since the firm stands reconstituted, the provisions of Sec. 45(4) of the Income Tax Act, 1961, are applicable in its case. However, the assessee has not worked out the Capital Gains on the asset transferred i.e. land shown at Rs.60 lacs in its balance sheet by taking the fair market value thereof as on 01.06.2006.”
From the above, it is evident that during the accounting year relevant to assessment year under consideration, there was change in the constitution of the partnership firm from which three partners retired and one new partner joined. On these facts, the Assessing
6 ITA-36/Del/2011 Officer is of the opinion that provision of Section 45(4) of the Act is applicable.
We have heard the arguments of both the sides and have perused relevant material placed before us. Section 45(4) of the Act reads as under:-
“45 (4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purpose of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.”
Section 45(4) of the Act would be applicable if there is transfer of capital asset by way of distribution of capital asset on dissolution of firm or otherwise. Such profit and gain would be chargeable to tax as income of the firm in the previous year in which said transfer took place and, for the purpose of Section 48, the fair market value of the asset on the date of such transfer shall be deemed to be full value of the consideration received or accrued as a result of such transfer. However, the sine qua non of the applicability of this Section is the transfer of capital asset by way of distribution of capital asset. In the case under appeal before us, it has not been pointed out by the Assessing Officer or the learned DR whether there was any distribution of capital asset. The Assessing Officer levied the capital gain tax in respect of land but the land was owned by the partnership firm before and after the change in the constitution of the firm. Admittedly, land was not distributed amongst the three partners who retired from the partnership firm. When there was no distribution of the capital asset viz., land, Section 45(4) would not be applicable. Though both the 7 ITA-36/Del/2011 parties have relied upon some judicial pronouncements in support of their arguments but, in our opinion, when the basic facts with regard to transfer of capital asset by way of distribution of capital asset is not fulfilled, Section 45(4) is not applicable. In view of the above, we do not find any justification to interfere with the order of learned CIT(A). The same is sustained and ground No.2 of the Revenue’s appeal is rejected.
In the result, the appeal of the Revenue is dismissed. Decision pronounced in the open Court on 19.02.2016.