The ITO, Ward-4(2)(2), Ahmedabad V. Gajanand Developers, Ahmedabad

ITA 951/AHD/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0790 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-07-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 29-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Additional evidence
• Section: 68; 37(1)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before: Shri P.M. Jagtap, Vice President And Shri Siddhartha Nautiyal, Judicial Member Th e ITO, Ward-4(2 )(2), Ah medabad (Appellant) Vs Gajanand Developers, 1, Sidd hi Vinayak Society-2, R. C. Technical Ro ad, Gh atlodia, Ah med abad-3800 61 PAN: AALFG1 063C (Resp ondent) Asses see b y : Shri R. B. Ta nk, A. R. Revenue by : M s. Po oja Parekh, Sr. D. R. Date of hearing : 25-07 -2 022 Date of pronouncement : 14-10 -2 022 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This is an appeal filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-4, Ahmedabad in Appeal no. CIT(A)-4/10313/16-17 vide order dated 19/03/2019 passed for the assessment year 2013-14. ITA No. 951 /Ahd/2019 Assessment Year 2013-14 I.T.A No. 951/Ahd/2019 A.Y. 2013-14 Page No. ITO vs. Gajanand Developers 2 2. The Department has raised the following grounds of appeal:- “1) "that the Ld. CIT (A) has erred in law and on the facts in deleting the addition of Rs. 1,93,84,419/- on account of unexplained cash credit u/s. 68 of the Income Tax Act, 1961. " 2) "that the Ld CIT (A) has erred in law and on the facts in deleting the addition of Rs. 20,46,990/- on account of disallowance of interest as business expenditure u/s. 37(1) r.w.s. 36(1)(iii) of the Income Tax Act, 1961." 3. In this case, the assessee filed return of income on 01-10-2013 declaring total income of Rs. Nil. The assessee is a partnership firm mainly engaged in the business of a builder and contractor. During the course of assessment, the Assessing Officer observed that the assessee made certain additions to its capital. The assessee was asked to prove the identity, genuineness of the transaction and creditworthiness of the depositors /partners introducing the capital. Despite several opportunities, the assessee could not provide the details and vide letter dated 16-03-2016, the assessee expressed inability to provide even the confirmations of the Partners. Accordingly, the Assessing Officer held that the assessee comprehensively failed to furnish any positive evidences. The Assessing Officer held that the capital introduced by three partners amounting to Rs. 1,93,84,419/- is unexplained cash introduced as capital by the assessee and hence treated the same as unexplained income of the assessee firm u/s 68 of the Act. Further, the Assessing Officer held that the interest expenditure on such capital I.T.A No. 951/Ahd/2019 A.Y. 2013-14 Page No. ITO vs. Gajanand Developers 3 introduced should also be disallowed u/s 37(1) r.w.s. 36(1)(iii) of the Act. The Assessing Officer therefore disallowed an amount of Rs. 20,46,990/- out of the above interest expenditure. While making the additions, the Assessing Officer made the following observations:- “9.1 In view of the-above, it is proven that it is the onus of the assessee to provide identity, genuineness of the transaction and creditworthiness of the amount credited as capital through its partners. The recent amendment in provision of 68 enhances the onus on the promoters of the companies regarding directors capital and share premium introduced. Though the instant case is of Partnership Firm, the spirit of the amendment and the intent of legislature is equally applicable to the firm. The partners are jointly and severely liable for all the affairs of the firm. If the partners are not providing confirmations and bank statements means such partners are dummy partners and all the capital reflected in their name are either being paid outside the books or the undisclosed income of the firm is introduced in the name of dummy partners. 9.2 In view of the above, the following capital introduced by the partners is treated as unexplained cash credit represents the unexplained income of the assessee firm. As, the capital is proved the interest provided on unexplained cash credit is also disallowed as business expenditure u/s 37(1) rws 36(l)(iii) of the Act and added to the total income. As the amount of Rs. 1,93,84,419/- is proved as I.T.A No. 951/Ahd/2019 A.Y. 2013-14 Page No. ITO vs. Gajanand Developers 4 assessee's own undisclosed income and not partners capital, the interest allowable u/s 36(1) r.w.s. 40b is not allowed. Sr. No. Name of the Partner Share of Profit Capital added in Rs. Interest allowed in Rs. Max Amount Credited in Rs. 1 Shri Dharmeshbhai S Patel 5% 6461473 682330 7143803 2 Shri Pravin S Patel 5% 6461473 682330 7143803 3 Shri Umeshbhai R Panchal 5% 6461473 682330 7143803 TOTAL 19384419 2046990 21431409 9.3 The amount of Rs.1,93,84,419/- is added as unexplained cash credit introduced as capital in the name of Shri Dharmeshbhai S Patel, Shri Pravin S Patel and Shri Umeshbhai R Panchal. [Addition of Rs.1,93,84,419/-] 9.4 The assessee debited interest expenditure on its own unexplained fund and is not thus allowable. The amount of Rs. 20,46,990/- is disallowed out of interest expenditure in view ddiscussed made above. I.T.A No. 951/Ahd/2019 A.Y. 2013-14 Page No. ITO vs. Gajanand Developers 5 [Disallowance of Rs.20,46,990/-]” 4. In appeal, the assessee submitted that the partners have acquired land with an intention to develop the same by forming partnership firm amongst the partners. With this intention, an agricultural land was acquired in proportion to the share of profit in the firm by the partners. Since, the said land was agricultural land, the partnership firm cannot directly acquire the land in its own name as the Revenue Laws of the State of Gujarat does not permit developimg agricultural land by a Partnership Firm. Therefore, the land was acquired in the name of the Partners. As and when the permission to convert agricultural land into non-agricultural land from the concerned authority was to be received, the sale deed can be executed in the name of the partnership firm. The assessee filed a copy of the “agreement to sale” executed between the partners and the farmer/seller of the land. The assessee further submitted that capital contribution made to acquire the land was in tranches, however, the ld. Assessing Officer assumed that the entire consideration was paid during the year under consideration. The assessee further submitted before the CIT(A) that there was a dispute between the partners and owing to the same the assessee could not place on record details asked for by the Assessing Officer during the course of appellate proceedings. During the course of appellate proceedings before ld. CIT(A), the assessee furnished copy of the ledger accounts of the Partners, copy of the acknowledgment of return filed by the Partners and copy of bank statement reflecting the payment made by the respective partners as capital contribution. I.T.A No. 951/Ahd/2019 A.Y. 2013-14 Page No. ITO vs. Gajanand Developers 6 4.1 The CIT(A) granted relief to the assessee on the ground that the ledger account of each of the partners have been filed and on perusal of the bank accounts of such partners, it was observed that no cash was deposited before cheque/transfer of funds by the partners to the appellant. The assessee firm submitted name/PAN/copy of bank statement/acknowledgement of ITR and confirmation of the ledger accounts of the partners introducing capital in the firm. Accordingly, the CIT(A) held that the onus cast upon him has been discharged by the assessee. The assessee firm has filed confirmations of the creditors along-with their PAN Numbers and in case, the Assessing Officer has any doubt about the creditworthiness of the creditors, he can get the matter investigated through the Assessing Officer of the creditors. It is not the case of the Assessing Officer that the amount introduced in the Firm is the assessee’s own money generated out of books of accounts and that the same is introduced in its books of accounts through bogus creditors. While allowing the assessee’s appeal, the CIT(A) made the following observations:- “5. DECISION: I have carefully considered the assessment order and submissions made by the appellant. The remand report and rejoinder have been considered. The ground no.1 is addition of Rs. 1,93,84,419/- made u/s.68 as unexplained cash credits introduced by partners as capital contribution. The ground no.2 is disallowing the interest on the capital which was brought by the partners as for details in ground no.1. The issue remains the same, therefore both the grounds are taken together for decision. The appellant submitted that there was a dispute amongst partners as the project was not I.T.A No. 951/Ahd/2019 A.Y. 2013-14 Page No. ITO vs. Gajanand Developers 7 progressing due to legal hurdles so the minor stake holder i.e. 5% each of the three partners were not co-operating to file necessary documents in original assessment proceedings. However, the additional documents were acquired by the appellant and filed as additional evidences under rule 46A. The AO has disputed the case of the appellant for its admissibility for filing the additional evidences and has urged this office not to admit such evidences without mentioning any whisper on the merits of the case. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx The factual details from the facts on record emerge as under: Sr. No Name of partner Amount added u/s 68 of the Act : Amount Identity Creditworthines s Genuinen ess 1 PRAVINB HAI SHANTILA L PATEL 7143803/- Copy of Return (page- 01/PB) Bank Statement v (PP 2-7/PB) Confirma tion filed. (includes interest of Rs.6,82,330/-) I.T.A No. 951/Ahd/2019 A.Y. 2013-14 Page No. ITO vs. Gajanand Developers 8 2 UMESHB HAI RAMANBH Al PANCHAL 7143803/- (includes interest of Rs.6,82,330/-) Copy of Return (page- 10/PB) Bank Statement (PP 11-15/PB) Confirma tion filed. 3 DHARME NDRAB HAI SHANTIB HAI PATEL 7143803/- (includes interest of Rs.6,82,330/-) Copy of Return (page- 18/PB) Bank Statement (PP 19- 21/PB). Confirma tion filed. Total Rs.2,1 4,31 ,409/ Capital Amount Rs.1, 93,84,419 + Interest Rs.20,46,990/- The ledger account for each of the partner has been filed at page number 8-9/Pravin,16-17/Umesh and 22-23/Dharmendra of the paper book and contents therein have been examined vis-a-vis bank account copy for each of such partner filed and on record. There is no cash deposit before the cheque/transfer of funds by the partner to the appellant. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx I.T.A No. 951/Ahd/2019 A.Y. 2013-14 Page No. ITO vs. Gajanand Developers 9 The onus has been discharged by the appellant. The confirmations have been filed giving PAN No. of the creditors. The creditworthiness of the creditor(s) cannot be decided by the AO of the appellant. In fact, the AO of appellant can get the matter investigated through the AO of the creditors. The AO of appellant cannot become AO of the creditors. It is not the case of AO that the impugned amount is appellant's own money generated out of books of account and the same is introduced in its books of accounts through bogus creditors. If that is so, what evidences AO has collected to place it on record. Once confirmations have been filed, further action, if any, is required to be taken in case of creditor and not in case of appellant. Explanation about 'source of source' or 'origins of origin 1 cannot be asked from the appellant while making inquiry under section 68 as per ratio laid down in the case of DCIT v. Rohini Builders (2002) 256 ITR 360 (Guj): xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx I have also perused the case laws relied by the appellant. I am not inclined to accept the findings of the A.O. Appellant can't be punished for default, if any, of related party as it has been held in CIT Vs, CARBO IND HOLD LTD 244 ITR 0422 (Cal) such as "if share broker, even after issue of summons does not appear, for that reason, the claim of assessee should not be denied, especially in the cases when the existence of broker is not in dispute, nor the payment is in dispute. Merely because some broker failed to appear, assessee I.T.A No. 951/Ahd/2019 A.Y. 2013-14 Page No. ITO vs. Gajanand Developers 10 should not be punished for the default of a broker and on mere suspicion the claim of assessee should not be denied." The plethora of evidences subject to remand proceedings and are on record cannot be ignored. In view of facts of the case and the ratio laid down by case laws (Supra), the addition made by the AO of Rs.2,14,31,409/- u/s.68 of the IT. Act, 1961 is hereby deleted. The ground No.1 & 2 of appeal are accordingly allowed.” 5. Before us, the Departmental Representative invited our attention to page 8 of the CIT(A)’s order (Remand Report issued by the Assessing Officer) wherein the Assessing Officer has pointed out that on verification of bank statements of the partners’ bank accounts, it is noticed that there was immediate credit entries preceding the transfer entries to the firm as capital by the partners. Moreover, the bank statement also reveals that most of the time the bank balance is having minimum deposit and before transferring amount to assessee’s account immediately before that, nearly the same amount was credited by transfer in the bank accounts of the partners. Hence, genuineness of the transaction could not be established in totality. The Departmental Representative primarily relied upon the observations made by the ld. Assessing Officer in the assessment order. 5.1 In response, the counsel for the assessee drew our attention to findings of CIT(A) at page 17 of the CIT(A)’s order. The counsel for the assessee submitted that in the appeal proceedings all necessary documents were furnished and hence primary onus was discharged. Accordingly, the I.T.A No. 951/Ahd/2019 A.Y. 2013-14 Page No. ITO vs. Gajanand Developers 11 CIT(A) after due consideration to the details field by the assessee, gave relief to the assessee. The counsel for the assessee placed relied upon the finding of the CIT(A) in the appeal order. 6. We have heard the rival contentions and perused the material on record. In our view, the assessee has filed all requisite details at the time of hearing before ld. CIT(A). The assessee has filed copies of return of the partners who introduced capital, their respective bank statements were furnished and the confirmations of the three partners were also furnished before CIT(A). The CIT(A) made a specific noting that on examination of the bank account for each of the three partners, it is apparent that there was no cash deposit before the cheque/transfer of funds by the respective partners to the assessee firm. The CIT(A) has also made a nothing that the assessee firm has submitted name/address/bank statement/acknowledgement of ITR and also confirmation of ledger accounts of the respective partners. In the case of Principal Commissioner of Income-tax-4 v. Vaishnodevi Refoils & Solvex [2018] 89 taxmann.com 80 (Gujarat), the Hon'ble High Court held that where AO made addition to assessee-firm's income under sec. 68 in respect capital introduced by one partner of firm, in view of fact that amount received by assessee-firm had been duly reflected in books of account maintained by concerned partner and he had also confirmed such contribution, impugned addition was to be set aside. The brief facts of the case were that 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. The Assessing Officer was of view that credit worthiness of partner who introduced capital had not been proved. In appellate I.T.A No. 951/Ahd/2019 A.Y. 2013-14 Page No. ITO vs. Gajanand Developers 12 proceedings, Tribunal found that amount received by assessee-firm had been duly reflected in books of account maintained by concerned partner. The Tribunal thus deleted addition made by Assessing Officer. In appeal, High Court held that when assessee had furnished details with regard to source of capital introduced in firm and concerned partner had also confirmed such contribution, it could be concluded that assessee had duly discharged onus cast upon it. Therefore, 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. Notable, the SLP filed by the Department against the above order has also been dismissed by Hon'ble Supreme Court reported in [2018] 96 taxmann.com 469 (SC). In the case of Prayag Tendu Leaves Processing Co. v. CIT [2017] 88 taxmann.com 23 (Jharkhand), the High Court held that under section 68, Assessing Officer while assessing a Partnership Firm, can ask for source of income of partnership firm, 'source of source' cannot be shown by assessee. Again the High Court in the case of CIT v. M. Venkateswara Rao [2015] 57 taxmann.com 373 (Andhra Pradesh and Telangana), held that contribution made by partners to capital of assessee-firm would constitute very substratum for business of firm and it is difficult to treat pooling of such capital, as credit. The High Court held that it is only when entries are made during course of business that can be subjected to scrutiny under section 68. Therefore, partnership firm is not required to explain source of income for partners regarding amount contributed by them towards capital of firm. I.T.A No. 951/Ahd/2019 A.Y. 2013-14 Page No. ITO vs. Gajanand Developers 13 6.1 Thus, in view of the above discussion, the assessee has sufficiently charged the onus against upon him in the instant set of facts. Accordingly, we find no infirmity in the order of CIT(A) who has taken into consideration all the details filed by the assessee and thereby deleted the additions. 7. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 14-10-2022 Sd/- Sd/- (P.M. JAGTAP) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 14/10/2022 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/ आदेश से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद