2023 (3) TMI 1437 - AT - Income Tax

Partners cannot be held liable for partnership firm's seized documents under section 153A without direct evidence

ITAT Delhi allowed appeals challenging unexplained investment additions of Rs. 6.50 crores in cash under section 153A assessment. The tribunal held that ... Assessment u/s 153A - unexplained investment being cash payment - seized document being “Receipt in full discharge of claim against Farm House at Gadaipur” and receipt against payment of Farm House - first receipt was found from the business premises of the partnership firm and present assessee is a partner of the said firm - bone of contention is that the alleged payment of Rs. 6.50 crores in cash, with the two payments made by cheques were found to be reflected in the bank statement and the Assessing Officer/ld. CIT(A) presumed that the payment of Rs. 6.50 crores in cash was also made by the assessee for effecting the relinquishment of 50% of shares in the Farm House HELD THAT:- It would be imperative to understand the legal status of a ‘partnership firm’ and a ‘partner’ - it is clear that in so far as Income tax assessments are concerned, a ‘partnership firm’ and a ‘partner’ are distinct entities, which means that any document found from the business premises of a partnership firm cannot, ipso facto, mean that the same was found from the possession of a partner. There is no dispute that the impugned document, around which the quarrel revolves, was found from the business premises of the partnership firm.The above document is unsigned and it can be seen that there are four legal heirs of the deceased Late assessee. Most surprisingly, none of the legal heirs have been examined by the Assessing Officer in respect of the alleged receipt of Rs. 6.50 crores by them for the alleged relinquishment of shares in the said Farm House. We have given thoughtful consideration to the assessment order but fail to find any reference to any partnership deed of the firm in which the deceased Late Shri Kulbir Singh Punihani was a partner alongwith his brothers. We do not know what the relevant clauses of the partnership deed are relating to the demise of any working partner. Therefore, we are not in a position to understand what would be the fate of a partnership firm on the demise of a partner. It is clear that capital account of Late Shri Kulbir Singh Punihani was transferred to loan account of Smt. Saloni Punihani and which was subsequently paid by the firm over a period of time. It is also clear from the afore-stated affidavit that cheque payments found in the alleged receipt was loan amount given by Shri Tarlok Singh and Shri Narinder Singh to Smt. Saloni Punihani in their individual capacity. There is a categorical mention that neither Shri Tarlok Singh nor Shri Narinder Singh advanced any sum in cash. There is not even a whisper about these affirmations made by Smt Saloni Punihani in the assessment order. We are of the considered view that the entire assessment and order of the first appellate authority have been made only on presumptions, surmises and conjectures, there being no supportive/conclusive evidence to justify the impugned addition. As per the balance sheet which is drawn after the death of Shri Kulbir Singh Punihani has capital account in the name of Shri Tarlok Singh Punihani, Narinder Singh Punihani and Shri Amarjeet Singh Punihani and capital account of Shri Kulbir Singh Punihani was transferred to Smt. Saloni Punihani, wife of the assessee, and is reflected under the head “unsecured loan”, which means that all that the firm owes to the erstwhile partner is the unsecured loan which was repaid subsequently by the partnership firm. In light of these facts, the impugned additions do not have any legs to stand on. The undisputed fact is that the alleged documents were found from the business premises of the partnership firm M/s Punihani International. Assessments of the assessee are unabated assessments on the date of search, which means that the ratio laid down by the Hon'ble Delhi High Court in the case of Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] and Meeta Gutgutia Prop. M/s. Ferns N Petals [2017 (5) TMI 1224 - DELHI HIGH COURT]squarely apply - Thus we do not find any merit in the impugned additions and, therefore, we direct the Assessing Officer to delete the impugned additions from the hands of both the appellants under consideration. Issues Involved:1. Validity of assessment order under section 153A.2. Legality of additions based on a 'dumb document.'3. Justification of addition under section 69 for unexplained investment.4. Validity of invoking section 115BBE.5. Proper approval under section 153D for passing the assessment order.Summary:1. Validity of Assessment Order under Section 153A:The appellants challenged the assessment order under section 153A read with section 143(3), arguing that the absence of any incriminating material rendered the notice and consequential assessment illegal and void-ab-initio. The Tribunal noted that the search did not yield any incriminating material directly from the appellant's premises but rather from the premises of the firm, M/s Punihani International. Citing the Supreme Court's ruling in CIT Vs. A.W Figgies & Co., the Tribunal emphasized that a partnership firm and its partners are distinct entities for income tax purposes. Therefore, documents found at the firm's premises cannot be automatically attributed to the partner.2. Legality of Additions Based on a 'Dumb Document':The Tribunal examined the seized document titled 'Receipt in full discharge of claim against Farm House at Gadaipur,' which was unsigned and lacked evidentiary value. The Tribunal observed that the Assessing Officer failed to examine any of the legal heirs of the deceased partner, Late Shri Kulbir Singh Punihani, or provide documentary evidence to substantiate the alleged cash payment of Rs. 6.50 crores. The Tribunal found the assessment and the first appellate authority's order to be based on presumptions, surmises, and conjectures without supportive evidence.3. Justification of Addition under Section 69 for Unexplained Investment:The Tribunal scrutinized the addition of Rs. 6.50 crores under section 69, which was based on the unsigned document. The Tribunal noted that the balance sheet after the death of Shri Kulbir Singh Punihani showed the farm house as an asset of the firm, and the capital account of the deceased partner was transferred to an unsecured loan account for his wife, Smt. Saloni Punihani. The Tribunal found no rationale for the appellants to pay Rs. 12.75 crores in cash for an asset already owned by the partnership firm. The Tribunal concluded that the impugned additions lacked a factual basis and were not sustainable.4. Validity of Invoking Section 115BBE:The Tribunal did not specifically address the invocation of section 115BBE but implied its invalidity by directing the deletion of the impugned additions.5. Proper Approval under Section 153D for Passing the Assessment Order:The appellants also contended that the assessment order was passed without proper approval under section 153D. However, this ground was not seriously contested by the appellants' counsel and was dismissed as not pressed.Conclusion:The Tribunal directed the Assessing Officer to delete the impugned additions for both appellants, finding no merit in the additions made. The appeals were partly allowed, and the order was pronounced on 10.03.2023.