THE INCOME TGAX OFFICER V. M/S CAITAL SALES

ITA/67/1999

AI Insights

The case revolves around the Income Tax Department's challenge to the orders of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, which had dismissed the revenue's appeal regarding the addition made on account of unexplained and ingenuine credits in the capital accounts of partners K.L. Taneja and Naveen Taneja of M/s Capital Sales Corporation. The revenue argued that the firm benefited from these receipts and thus should be liable for explaining them. However, the appellate authorities found that the firm had disclosed the source of the funds, which were contributions from the partners, and thus absolved the firm of any liability.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 676621 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 09-10-2013
• Assessment Year: misc
• Other Referred Cases: Narayandas Kedarnath vs. CIT, Sugar Chand Chandanmal vs. ITO, Indo-European Machinery Company vs. CIT, Balbhadra Chand Munna Lal vs. CIT
• Laws Referred To: Income-tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: AALOK MITTAL
• Assessee Lawyers: VIVEK SETHI
• Keywords: Appeal Dismissal; Capital accounts; Income Tax; Partners; Unexplained and ingenuine credits
• Section: 68

Judgement Text

"ITA No.67 of 1999 -: 1 :- IN THE HIGH COURT FOR THE STATES OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.67 of 1999 Date of decision: October 09, 2013. The Income-tax Officer, Ward 2, Phagwara ... Appellant v. M/s Capital Sales Corporation, Phagwara ... Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present: Shri Vivek Sethi, Advocate, for the appellant. Shri Aalok Mittal, Advocate for the respondent. Rajive Bhalla , J. (Oral): The revenue challenges, order dated 18.1.1999 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar and order dated 21.9.1992 passed by Commissioner of Income Tax (Appeals), Jalandhar, by alleging that following questions of law arise for adjudication:- “1. Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in law in dismissing the appeal of the revenue and upholding the action of the learned CIT(A) directing deletion of the addition made on account of unexplained and ingenuine credits appearing in the capital accounts of partners, S/Shri K.L. Taneja and Naveen Taneja in the account books of the assessee particularly when there was no occasion for making the alleged gifts nor even the credit worthiness or identity of the alleged donors was substantiated by the assessee? 2. Whether, on the facts and in the circumstances of the case, the Kadyan Vinod Kumar 2013.10.22 14:02 I attest to the accuracy and integrity of this document Chandigarh ITA No.67 of 1999 -: 2 :- learned ITAT was right in law in deleting the addition representing ingenuine credits in the capital accounts of S/Shri K.L. Taneja and Naveen Taneja, partners appearing in the account books of the assessee holding that such addition, if any, need be made in the respective hands of the partners and not in the case of the assessee?” Counsel for the revenue submits that Shri K.L. Taneja and Shri Naveen Taneja, partners of the firm received money from abroad and it was immediately transferred to the account of the firm. The Assessing Officer, therefore, rightly treated the aforesaid amount as income of the assessee firm. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal have erred in holding that as funds were invested by the partners, the Assessing Officer was required to proceed against the partners and not against the firm as source of the funds received by the firm was known to the Assessing Officer. It is argued that as the firm is the beneficiary of the aforesaid receipts, the mere fact that receipts have been attributed to the partners, is entirely irrelevant. Counsel for the respondent submits that the substantial question of laws framed by the revenue do not arise for consideration. It is submitted that the firm has revealed the source of money, i.e., its partners and, therefore, the impugned orders are legal and valid. We have heard counsel for the parties, perused the impugned orders and the substantial question of law. Admittedly, partners of the assessee firm received certain amounts which were transferred to the account of the assessee firm. The Kadyan Vinod Kumar 2013.10.22 14:02 I attest to the accuracy and integrity of this document Chandigarh ITA No.67 of 1999 -: 3 :- Assessing Officer, treated the transactions as received from unexplained and undisclosed sources and as such added them to the total income of the assessee-firm. The Commissioner of Income Tax (Appeals) reversed this order by holding as under:- “4.2 It was argued before me that it is well established and settled legal position that if it is found that the parnteres of a firm have brought in and contributes money towards capital accounts with the firm, the money introduced cannot be taxed in the hands of the firm. As per provisions of Section 68 of the Income-tax Act, the firm had to explain the nature and source of credits in the capital accounts of the partners. In the present case the explanation forwarding the copies of the Bank accounts of the partners from where the money was advanced to the firm was filed. Thus, the firm is absolved from its liability by furnishing the explanation of the partners. Since the credits in the capital accounts of the partners have been explained no addition was called for in the hands of the firm. The reliance is placed on the following decisions to support his contention:- i) Narayandas Kedarnath vs. CIT, (1952)22 ITR 15 (Bombay) ii) Sugar Chand Chandanmal vs. ITO, (1977) TaxLR 1046 (Cal) iii) Indo-European Machinery Company vs. CIT (1955)28 ITR 433 (Punjab) iv) Balbhadra Chand Munna Lal vs. CIT (1959)331 ITR 781 4.3 In the present case the identity of the partners is established. So far as the firm is concerned, it has given an explanation that the money had come from the partner. Therefore, the firm is absolved from any further liability. In my view, so far as the explanation of the appellant firm is concerned it should be accepted. The Assessing Officer, would, however be at liberty to examine the nature and source of cash credit in the hands of S/Shri K.L. Taneja and Naveeen Taneja, partners. Therefore, the additions of Rs.30,000/- and Rs.9,900/- are deleted.” Aggrieved by this order, the revenue filed an appeal which Kadyan Vinod Kumar 2013.10.22 14:02 I attest to the accuracy and integrity of this document Chandigarh ITA No.67 of 1999 -: 4 :- was dismissed by Income Tax Appellate Tribunal in terms of the order of Commissioner of Income Tax (Appeals). A due consideration of the impugned orders would reveal that the firm furnished explanation that it had received funds from its partners. The firm, having disclosed the source of funds, it was absolved of its liability, if any, to explain the source of funds. The onus to explain receipts of the money, lay upon the partners who should have been asked to disclose the source of funds. The findings recorded by the Commissioner of Income Tax (Appeals), affirmed by the Income Tax Appellate Tribunal that as the firm has explained the source of funds, the revenue is required to proceed against the partner, do not suffer from any error of law. The questions of law are, therefore, answered against the revenue and the appeal is dismissed. [ Rajive Bhalla ] Judge [Dr. Bharat Bhushan Parsoon] October 09, 2013. Judge kadyan Kadyan Vinod Kumar 2013.10.22 14:02 I attest to the accuracy and integrity of this document Chandigarh "