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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
ORDER Per:Anikesh Banerjee, JM: The instant appeal of the assesseewas filed against the order of the ld. Commissioner of Income Tax (Appeals)-1, Ludhiana[in brevity the ‘CIT (A)’], order passed u/s 250(6)of the Income Tax Act 1961, [in brevity ‘the Act’] for A.Y. 2011-12. The impugned order was emanated from the order of the ld. Deputy Commissioner of income Tax, Circle-, Jammu, [in brevity ‘the AO’] order passed u/s 143(3) of the Act.
The assessee has filed the appeal with the delay of 122 days. The assessee filed the petition for condonation of delay and explained that one of the partners who is dealing the legal matter was busy in medical emergency of his wife. The wife of the partner was cancer patient. The requisite the medical documents are before the bench. The ld. DR has not made any objection for condonation of delay. Accordingly the delay for 122 days is condoned and appeal is taken for adjudication.
The assessee has taken the following grounds: - “
1. That the Worthy Commissioner of Income Tax (Appeals)- lLudhianaand Deputy Commissioner of Income Tax Circle I Jammu have erred in law and facts of the case. In any case they have not applied their mind to the actual facts circumstances and legal propositions of the case.
2. That the Worthy Commissioner of Income Tax appeals has erred in confirming the additions of capital amounting to Rs. 1950000/- introduced by the partners in the firm, arbitrarily, illegally and without any justification though the partners have sufficient evidence to prove the same as justified and genuine.
3. That the Worthy Commissioner of Income Tax (Appeals) -l Ludhiana has erred in confirming the impugned addition of Rs. 1950000/- made by the Ld. Deputy Commissioner Circle I Jammu, u/s 68 of the Income Tax Act, 1961 arbitrarily,illegally and without any justification, when the appellant was assessed at a specific % of the gross receipts, the addition is deemed to be sustained with the income assessed on specific rate.”
4. The brief fact of the case is that in assessment the addition was confirmed in different heads. Being aggrieved the assesssee filed appeal before the ld. CIT(A). The appeal was partly allowed. Only the introduction of capital by partners in assessee-firm amount to Rs. 19,50,000/- was added in the hands of assessee U/s 68 of the Act which was duly upheld by the ld. CIT(A) for non- submission of creditworthiness and source of investment of partners. Being dissatisfied in the appeal order the assesssee filed the appeal before us.
The ld. AR for assessee has filed the written submission which are kept in record. The ld. AR argued that the identity of partners has no question. The source of investment of partners should be investigated in the hands of the partners not in the hands of assessee-firm. 5.1. The ld AR respectfully relied on the catena of judgments which are as follows: - 5.1.1. Commissioner of Income-taxv.M. Venkateswara Rao, [2015] 57 taxmann.com 373 (AndhraPradesh and Telangana). “10. Therefore, the view taken by the Assessing Officer that the partnership firm must explain the source of income for the partners regarding the amount contributed by them towards capital of the firm cannot be sustained in law.” 5.1.2.Commissioner of Income-tax, Kottayamv.Sree Ganesh Trading Company, [2019] 107 taxmann.com 130 (Kerala) “11. Considering the rival submissions made by the Revenue and the assessee, we are of the opinion that the assessee firm has been able to point out the persons, from whom the firm had received credits. With respect to M.A.
Unneeri Kutty, (supra) it has to be noticed that the decision is an authority for the proposition that the assessee has to prove the identity of the creditor as also his creditworthiness and the genuineness of the transactions. Here, the creditors, as pointed out by the assessee firm, were the three partners. The three partners had also produced credible material to show their source of income for the specific advances made to the firm. If at all the source of the donor/ creditor is doubted, then there could be an assessment made only on that donor or creditor and not on the firm, who has proved the identity and creditworthiness of their creditor. To that end is the various decisions placed on record by the learned Amicus Curiae.” 5.1.3. Commissioner of Income-tax, Rajkot -IIv.Odedara Construction, [2014] 45 taxmann.com 65 (Gujarat), Held “Section 68 of the Income-tax Act, 1961 - Cash credit (In case firm partners) - Assessment year 2007-08 - Assessing Officer made certain addition under section 68 on account of capital introduced by partners, as also deposits made by partners in firm on ground that it represent unaccounted cash credit of firm - However, Assessing Officer did not bring any material to show that said amount represent unaccounted income of firm and that partners had no capacity to make such investment - Whether impugned amount could not be assessed in hands of firms - Held, yes”
The ld. DR vehemently argued and relied on the order of the ld. CIT(A). The ld. DR invited our attention in specific paragraph of appeal order which is extracted as below: - “During the assessment proceedings, when the AO called upon the appellant firm to explain the credit worthiness of the partners, it was submitted that the said details would be made available after consulting with the Chartered Accountant. However, no such details were furnished either before the AO in the assessment proceedings or during the present appellate proceedings. In the event, though the identity of the partners are known, the credit worthiness and the genuineness of the transaction of capital introduction remains unexplained in the absence of the discharge of onus of the appellant firm qua the disputed capital introduction. The impugned addition of Rs.19,50,000/- is, thus, sustained. It is ordered accordingly.”
We heard the rival submission and consider the documents available in the record.Considering the investment amount of Rs. 19,50,000/- by the partners. the revenue authorities had added back u/s 68 due to the non- satisfactory explanation by the assessee. But the investment of the partners should be examined in the hands of the partners. The addition cannot be accepted in the hands of the firm.
7.1 We respectfully relied on the order of M. Venkateswara Rao and Odedara Construction(supra).We respectfully also relied on the order of Hon’ble Supreme Court of Indiain the case of Principal Commissioner of Income-tax v. Vaishno Devi Refoils&Solvex, [2018] 96 taxmann.com 469 (SC) and the relevant portion is reproduced below: "Section 68 of the Income-tax Act, 1961 - Cash credit (Firm/partner, in case of) - Assessment year 2010-11 - For relevant year, Assessing Officer made addition to income of assessee-firm under section 68 on account of capital introduction by one partner of firm - He was of view that creditworthiness of partner who introduced capital had not been proved - High Court in impugned order noted that amount received by assessee-firm had been duly reflected in books of account maintained by concerned partner and that assessee had furnished retails with regard to source of capital introduced in firm and concerned partner had also confirmed such contribution and concluded that assessee had duly discharged onus cast upon it. Further, court noted that if Assessing Officer was not convinced about creditworthiness of partner who had made capital contribution, inquiry had to be made at end of partner and not against firm - Whether SLP against said decision was to be dismissed- Held, yes [Para 2] [In favour of assessee]" 7.2 The factual findings rendered by the ld. AO as confirmed by the ld. CIT (A) as is liable for set aside. The ld. DR had not placed any contrary judgment during the hearing. Considering the above discussion, the addition amount of Rs. 19,50,000/- is quashed. Accordingly, the grounds of the appeal of assessee are allowed.
In the result, the appeal of the assessee bearing is allowed.