TaxTMI 
TaxTMI 
2013 (7) TMI 612
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..... 3. The facts of the case are that the assessee is a partnership firm constituted by the family members of the late Sh. Khushi Ram and carrying on business since 1970. From time to time there were changes in the constitution of the partnership firm and the last change in the constitution was made in the year 2000 vide partnership deed dated 1st August, 2000 with effect from 1st April, 2000 when the old partners Shri Ramesh Chand, Shri Krishan Kumar and Shri Rajeev Bansal - Karta of Shiv Kumar and Sons (HUF) retired from the partnership. 3.1 That owing to some disputes amongst the family members of various branches of the group, the settlement of the accounts of the retiring partners could not be made and the same remained outstanding....
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....ssee explained to the Assessing Officer that after the entries so passed in the books of account, the existing partners had become personally indebted to the old partners. As far as the application of principle laid down by the Hon'ble Supreme Court in the case of T.V. Sundaram Iyengar & Sons Ltd. was concerned, the same was also not applicable because old partners / loans were not the trading liability but were on capital field. However, the Assessing Officer did not agree wit the contention of the assessee and made the addition in respect of the amount so transferred. The Assessing Officer in his conclusive paragraph observed as under:- "In view of the above facts and discussion made above, it has already been proved that the written o....
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....n law it does not materially affect because under the law it is the partners who are personally liable to any debt. Even before the transferring of the amount, the existing partners were personally liable to the old partners as well as to the creditors. After the entries so made by the assessee in the books of accounts, now it has become more clear that the existing partners in whose account the amount has been transferred is personally indebted to the respective account holders and the firm as such may not be liable for that though overall liability in the books of accounts remains same. As regards the applicability of the provision of Section 41(1) of I.T. Act is concerned, the provision of Section 41(1) is not applicable to the facts ....
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....n appeal before us. 6. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that in this case Assessing Officer has made the addition on the ground that transfer of amount from the account of old partners account/loan account to the other partners accounts amounts to cessation of liability. We find that this view is not sustainable. The old partners balances have been taken over by the new partners. Hence by no stretch of imagination, it can be said that there has been cessation of liability. Moreover, as held by the Hon'ble Delhi High Court in the case of C.I.T. vs. Auto Kashyap India Pvt. Ltd. (supra), the transfer of amount from one account to another which ultimately remained with t....