2024 (7) TMI 1420 - AT - Income Tax

ITAT deletes additions under sections 69A and 68 after assessee proves property purchase through legitimate partner contributions

GRR Holdings Hyderabad Versus Dy. C.I.T. Central Circle 3 (3) Hyderabad

GRR Holdings Hyderabad Versus Dy. C.I.T. Central Circle 3 (3) Hyderabad - TMI Issues Involved:1. Enhancement of income towards unexplained money under Section 69A of the IT Act, 1961.2. Validity of the CIT(A)'s enhancement powers.3. Consideration of retracted statements and their evidentiary value.4. Assessment of unexplained investment and cash credits.5. Treatment of partners' contributions in the firm's accounts.Detailed Analysis:Enhancement of Income Towards Unexplained Money Under Section 69A:The assessee contested the enhancement of income by Rs. 39,48,50,000/- towards unexplained money under Section 69A of the IT Act, 1961. The CIT(A) enhanced the assessment based on the sale deeds and statements recorded during the search, despite the assessee's retraction. The tribunal noted that the partners had admitted to the investment in their individual capacities and had recorded the same in their statements under Section 132(4). The tribunal found that the CIT(A) erred in enhancing the assessment without considering the partners' admissions and the retraction statements.Validity of the CIT(A)'s Enhancement Powers:The assessee argued that the CIT(A) overstepped his powers by enhancing the assessment under Section 69A, which was not considered by the Assessing Officer. The tribunal agreed, stating that the CIT(A) cannot introduce a new source of income not considered by the Assessing Officer. The tribunal emphasized that the CIT(A)'s powers are limited to issues arising out of the proceedings before the Assessing Officer and cannot extend to new sources of income.Consideration of Retracted Statements and Their Evidentiary Value:The tribunal examined the retracted statements and affidavits submitted by the assessee, which claimed that the initial statements were made under coercion. The tribunal found that the retraction was supported by evidence, including the sellers' statements denying receipt of any consideration. The tribunal held that the retraction statements had evidentiary value and should have been considered by the CIT(A).Assessment of Unexplained Investment and Cash Credits:The Assessing Officer had made additions under Section 69 for unexplained investments and under Section 68 for unexplained cash credits. The tribunal noted that the investments were recorded in the firm's books and explained as contributions from the partners. The tribunal held that once the source of investment was explained and recorded, the additions under Sections 68 and 69A were unwarranted. The tribunal referred to the decision of the Hon'ble Allahabad High Court in Kesharwani Sheetalaya Sahsaon vs. CIT, which held that once the source of investment by partners is explained, no addition can be made in the firm's hands.Treatment of Partners' Contributions in the Firm's Accounts:The tribunal emphasized that the contributions from the partners were recorded in the firm's books and the identity of the partners was established. The tribunal held that the Assessing Officer and CIT(A) erred in making additions towards the investment in the firm's hands when the source was explained as partners' contributions. The tribunal reiterated that the addition should be made in the hands of the partners if the source of their contributions is not satisfactory, not in the firm's hands.Conclusion:The tribunal allowed the appeals filed by the assessee, deleting the enhancements and additions made by the CIT(A) and the Assessing Officer. The tribunal emphasized the importance of considering retracted statements, the limitations of the CIT(A)'s enhancement powers, and the proper treatment of partners' contributions in the firm's accounts. The tribunal's decision was based on a thorough examination of the evidence and relevant legal precedents.