2023 (11) TMI 337 - AT - Income Tax

Partnership firm investments should be added against firm not individual partners as separate entities

ITAT Bangalore held that additions for undisclosed partnership firm investments should be made against the firm, not individual partners, as firms are ... Undisclosed investment in partnership firm towards capital credit - Introduction of capital and loans advanced to Niyaz Sea Foods Exports[a firm in which the assessee and his family members are the partners - search proceedings was carried out in the residential premises of the assessee and survey was conducted in the partnership firm - HELD THAT:- We note that no addition has been made by the AO on the basis of searched material unearthed during the course of search. The addition is made only on the basis of documents found during the course of survey in the partnership firm in which debit and credit transactions were found in the capital account which is clear from the statement recorded u/s. 131. The document marked as capital and loan respectively. AO has observed that the cheque amount has been noted in the capital account and the cash transactions are not reflected in the books of account or the firm. Since the documents were found during the course of survey in the case of partnership firm, therefore, the addition should have been made in the partnership firm, not in the hands of the assessee. The partnership firm is a separate entity. The documents found can be utilized for the purpose of assessment under the other section of the I.T. Act. but not for the purpose of section 153A - assessee offered as income when the AO sought for explanation vide letter dated 21.11.2019. We further note that the AO has accepted the declaration made by the assessee without verification of revised computation and without giving reason by the AO. During the course of hearing the ld. AR has submitted that it was a running capital account and the cash is contributed and withdrawn as per the need of the assessee/partnership firm. We find substance in the submissions of the ld. AR. AR has also relied on the judgment of the Hon’ble Supreme Court in the case of Geotze India Ltd.[2006 (3) TMI 75 - SUPREME COURT] which supports to the case of the assessee. Undisclosed Commission received from Partnership firm - cash seized during search - Addition made made on loose sheets impounded - HELD THAT:- We note that during the course of search, document relating to commission earned under the head “UKB Commission” was impounded and not offered to tax in the return. The assessee has taken dual stand one before the AO that it is included in the turnover of the assessee and the other that he has requested before us that the net profit margin @ 1.51% may be adopted to arrive at the income from commission. If the amount is included in the turnover, taxing the same on net profit margin would amount to double taxation. Before the CIT(Appeals), the assessee did not comply with the notices and present his case. Thus we think it fit to send the matter to the AO for further verification. Cash seized during the course of search, the assessee has taken different stand that cash was withdrawn from the bank through employees by cheque and in the post-search enquiry, it is stated that Rs. 66 lakhs was part of cash in hand of M/s. Niyaz Sea Foods and that they had taken the said amount to their flat to secure the same at night time. The assessee has also raised a ground that the entire cash seized shall not be taxed and only the net profit margin element as prevailing in the fishing business may be taxed. AR submitted that the books of account were not updated at the time of search. Therefore, in the interest of justice, we think it fit to send the matter back to the AO for further verification as to who is the actual owner of the cash, M/s. Nayaz Sea Foods or the assessee. Thus, the above issues are remitted to the AO for fresh decision as per law after reasonable opportunity to the assessee. Issues Involved:1. Addition of Rs. 4,42,89,894 as undisclosed investment in AY 2016-17.2. Addition of Rs. 43,21,251 as undisclosed commission in AY 2018-19.3. Addition of Rs. 66,00,000 as unexplained money in AY 2018-19.Summary:Issue 1: Addition of Rs. 4,42,89,894 as undisclosed investment in AY 2016-17The assessee filed a return of income declaring Rs. 55,51,470. A search and seizure action led to the discovery of loose sheets indicating unrecorded cash investments in the partnership firm, Niyaz Sea Food Exports. The Assessing Officer (AO) added Rs. 4,42,89,894 as undisclosed income based on these documents and the assessee's admission during the assessment proceedings. The CIT(Appeals) upheld this addition. However, the Tribunal found that the documents were discovered during a survey at the partnership firm, not the assessee's premises, and thus the addition should have been made in the hands of the firm. The Tribunal also noted that the AO did not verify the revised computation of income and accepted the assessee's declaration without proper scrutiny. Consequently, the Tribunal deleted the addition of Rs. 4,42,89,894.Issue 2: Addition of Rs. 43,21,251 as undisclosed commission in AY 2018-19The AO added Rs. 43,21,251 as undisclosed commission based on documents found during a search, which the assessee claimed was included in the sales turnover. The CIT(Appeals) upheld this addition. The Tribunal noted that the assessee had taken inconsistent positions regarding the commission and decided to remit the matter back to the AO for further verification to determine if the commission was indeed included in the turnover or if only the net profit margin should be taxed.Issue 3: Addition of Rs. 66,00,000 as unexplained money in AY 2018-19During the search, Rs. 66,00,000 in cash was found, which the AO added as unexplained money. The assessee claimed that the cash was withdrawn from the bank for business purposes and not updated in the books. The CIT(Appeals) upheld the addition. The Tribunal remitted the matter back to the AO for further verification to determine the actual owner of the cash and whether the cash withdrawals were properly accounted for.Conclusion:For AY 2016-17, the appeal was allowed, and the addition of Rs. 4,42,89,894 was deleted. For AY 2018-19, the matters regarding the addition of Rs. 43,21,251 as undisclosed commission and Rs. 66,00,000 as unexplained money were remitted back to the AO for further verification. The appeal for AY 2018-19 was allowed for statistical purposes.