TaxTMI 
TaxTMI 
2020 (1) TMI 395
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.... the lower authority erred in making addition of Rs. 2,59,33,030/- by applying section 68 of the Income Tax Act. 2. That the Learned CIT(Appeal) has also erred in confirming the said addition as per his appeal order dated 21-03-2017, para 5.8 and onwards. It is prayed that the finding given by the CIT(Appeal) in para 5.8 is perverse and factually incorrect and therefore, the decision given by the CIT(Appeal) may please be reversed and addition made may please be deleted. 3. The Learned Assessing Officer has also erred in not appreciating the various written submissions made before him and therefore, the assesse has moved application dated 19-04-2017 which has not been disposed off as on today. Therefore, it is prayed that the addition made ought to have been deleted after due consideration of facts and submissions. 4. In not appreciating the fact that even section 68 is not applicable to the facts of the case and therefore, the action of the Assessing Officer is itself bad in law and void and liable to be quashed. The appellant craves leave to add/delete/alter and/or amend any of grounds as aforesaid as and when necessary. The solitary issue r....
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....iv N Shah 9587 17. Rupal D Shah 2451 18. Share GEN Co-operative Bank 625000 19. Share MAC Laboratories 625000 20. Shreeji Pharma 350000 21. Shruti N Shah 5105 22. Suryaben C Shah 8528 23. Surya Enterprise 14952 24. TDS By Other 14235 25. Vishnu D Desai 34000 26. Share Suryachandra Laboratories 500 27. JL Shah Co. 3000 28. PJ Shah 3000 29. Income Tax Exp.2010 3810 Total 13935033 2.2 The assessee in the year under consideration has credited and debited the partners capital account namely Chandrakant N Shah by the amount of aforesaid loan taken from the parties and advances provided to the parties as on 1st April, 2011 in its books of accounts. The detail of adjustment of such loans take and the advances provided as discussed above is reproduced as under: 5. During the course of assessment proceedings, verification of balance sheet and profit & loss account was carried out. In the balance sheet attached with audited accounts filed, it was seen that the partners capital accounts were mentioned as under: Particulars Opening Addition....
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....he books of the assessee. (iv) The submission made in respect of addition to the capital account of 2 partners is not satisfactory as the unsecured loan is added as capital of the partner. The submissions made by the AR of the assessee were considered carefully and as the same were not found satisfactory, an addition of Rs. 2,59,33,030/- is made to the total income of the assessee u/s. 68 of the Act. (Penal proceedings u/s. 271(l)(c) are initiated separately.) 4. Aggrieved assessee preferred an appeal to the ld. CIT-A. The assessee before the learned CIT (A) among other things submitted that the impugned loans were taken in the earlier years which were duly disclosed and accepted in the assessment framed under section 143(3) of the Act for the assessment year 2007-08. As such there was no new loan taken in the year under consideration. 4.1 The AO has treated the credit entries appeared in the partners' capital account as income under section 68 of the Act without giving the benefit of the advances given to the parties which has been duly disclosed in the financial statement. 4.2 The amount of Rs. 2,59,33,030/- on account of the addition in the capital acc....
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....ude the remission or cessation of any liability by any unilateral act. Having there no doubt on the cessation of liability and consequent benefit arising to the retiring partner, the amount is clearly attracted for taxation under the provisions of section 41 of the Act. In view of the above discussion, addition of Rs. 2,59,33,030/- is confirmed u/s. 41(l) of the IT Act. Penalty; proceeding u/s 271(l)(c) of the Income Tax Act 1961 for concealment of income by way of furnishing the inaccurate particular of income is initiated separately. This ground of appeal is accordingly dismissed. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 6. The learned AR before us filed a paper book running from pages 1 to 418 which is reproduced as below: 1. The AO has passed the order dated 27.03,2015, wherein, he has made addition in reference to credit entry appeared in two partners' account viz. (i) Chandrakant Shah, Rs. 2,51,29,079/- and (ii) Nimesh C Shah, Rs. 8,03,951/- making total addition of Rs. 2,59,33,030/- by applying Section 68 of the Income Tax Act. Before the AO the assessee vide submission dated 23.02.2015 (PB Page No.84), has ....
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....sessee dated 23.03.2015 (PB Page No.86] has been stated to be considered. The AO has stated that the assessee has not discharged the onus lies him regarding the aforesaid credit appeared in capital Account of partners. 1.2 The assessee has submitted completed audited account for AY 2012-13 with ITR as per page Nos.l to 15 and Balance Sheet at page Nos. 16 to 21. The details of loans and advances transferred to partners account is as per chart at page Nos.22 and 23 and trial balance as per 2011-12 is at page Nos.24 to 27. The copy of Balance Sheet, audit report etc. with groupings for the AY ZOOS-06 is as per PB Page No.201 to 217 and details of unsecured loan as outstanding on 31.03.2005 for Rs. 2,62,45,733/- is as per page No.213 in reference to the similar parties whose accounts are transferred to the account of Chandrakant N. Shah. The copy of complete audited account for AY 2007-08 is as per page Nos.218 to 235 and details of unsecured loan outstanding is as per page No.230 for the figure of Rs. 2,67,65,330/-. Similarly, for the AY 2008-09 the complete annual accounts are as per page Nos. 230 to 252 and details of unsecured loan is as per page No.248 for the figure of ....
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....ed his mistake as per his order dated 28.09.2017 at page No.259, 260. The various case laws relied upon before C1T(A) in reference to Section 68 regarding credit partners account is as per page Nos.363 to 418 and more particularly Ahmedabad ITAT at page Nos.398 to 411 and Gujarat High Court at page Nos.415 to 418. 3. The CIT(A) in appeal order, has given finding in para 5.8 regarding noncompliance, however, thereafter the same has been rectified by him by order dated 27.09.2017 at page Nos. 259, 260. In para 5.8, there is some finding regarding GP which has no relevance since it pertains to AY 2012-13 and at present the dispute is in reference to Section 68 and / or 41(1). In reference to para 5.14, wherein, the CIT(A) has stated that the assessee was required to submit the various partnership deeds and capital accounts etc. and in para 5.16 it has been stated that no details have been filed as asked for. This finding is factually incorrect as can be verified from para 1.2 and para 1.3 referred hereinabove. In para 5.19, there is mentioning of unsecured loan in the books of the firm by MAC Laboratories Ltd. and Gajjar Standard Chemical Works Ltd. as well as Pharma Distribu....
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.... addition sought to be made in the case of the appellant i.e. registered firm. Gujarat High Court in Dattatray Poultry, 104 Taxmann.com 366 dated 29-01- 2019. Identical finding wherein, it is held that, when the genuineness of sundry creditors has been doubted, of respective years then sec. 68 would be applicable in respective years but not sec. 41(1). In this case, there was inquiry under 133(6] has also been made and therefore, genuineness has been doubted. In para 14 of this judgment, it has been held that there is no material brought on record to say that there was cessation or remission of the liability since the genuineness has also been doubted. The decision of Bhogilal Ramjibhai Atara has been referred in para 19 of the judgment. In our case, CIT(A) in our case has also doubted the genuineness of the credit entry appeared in partner's accounts by referring of pastS years assessment order even though assessee has discharged the onus in respective years. Delhi High Court in 96 ITR 438 wherein, it is held that the onus is on department to prove that, there is cessation of the liability. In our case, CIT(A) has doubted the existence of liability in past ye....
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....earned DR before us vehemently supported the order of the authorities below. 8. We have heard the rival contentions of both the parties and perused the materials available on record. The assessee being a partnership firm has transferred certain loans and advances, borrowed and provided in the earlier years, to the capital account of the partners by way of passing adjustments entries dated 1st April, 2011. The AO treated such loans of the firm transferred to the partner account as unexplained cash credit under section 68 of the Act and accordingly made the addition. 8.1 However, the learned CIT (A) treated such liabilities as trading liabilities which ceased to exist in the books of accounts and accordingly invoked the provisions of section 41(1) of the Act for making the addition to the total income of the assessee. 8.2 Admittedly, all these loans were taken in the earlier years which were disclosed in all the financial statements effective from assessment year 2005- 06. This fact can be verified from the financial statements for the assessment years 2005-06 which are placed on pages 201 to 217 of the paper book. Thus, it is clear that the same cannot be added in the year ....
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....on 68 of the Act in the year under consideration in the books of account of the assessee, therefore, we are of the view that no such addition is warranted under section 68 of the Act. As such, the amount was credited in the account of the partner, thus even if it is assumed that the provisions of section 68 are attracted then it would be applied in the hands of the partner of the assessee. It is because the amount was credited in the account of the partner by way of adjustment entry. As such, the assessee is outside the purview of the provisions of section 68 of the Act. 8.5 Coming to the allegations of the learned CIT (A) for invoking the provisions of section 41(1) of the Act, we find important to refer the provisions of section 41(1) of the Act which reads as under: Profits chargeable to tax. 41. ^14[ ^15(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained 16, whether in cash or in any other manner whats....
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....e Court in the case of M/s Malabar Fisheries Co. Vs. CIT reported in 2 taxman 409 wherein it was held as under: 2. It is clear that a partnership firm, under the Indian Partnership Act, 1932, is not a distinct legal entity, apart from the partners constituting it, and equally, in law, the firm, as such, has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets, all that is meant is property or assets in which all partners have a joint or common interest. If that be the position, it is difficult to accord the contention that upon dissolution the firm's rights in the partnership assets are extinguished. The firm, as such, has no separate rights of its own in the partnership assets but it is the partners who own jointly in common its assets and, therefore, the consequence of the distribution, division or allotment of assets to the partnership, which flows upon dissolution after discharge of liabilities, is nothing but a mutual adjustment of rights between the partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within....