TaxTMI 
TaxTMI 
2021 (3) TMI 397
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....On the facts and circumstances of the case the Ld. CIT(Appeals) has erred in having held that dissolved firm cannot extend loan to the appellant. 5. On the facts and circumstances of the case the Ld. CIT(Appeals) has erred in having held that explanation of source is immaterial in the present case. From the aforesaid grounds it would be clear that the only grievance of the assessee relates to the sustenance of addition of Rs. 14,50,000/- under section 68 of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). 3.Facts of the case in brief are that the assessee filed its return of income on 03/04/2014 declaring total income of Rs. 64,92,640/-, later on, the case was selected for scrutiny. During the course of assessment proceedings, the A.O. noticed that the assessee had received an amount of Rs. 40,93,524/- as a loan from M/s Vastech Solutions, which was stated to be a partnership firm where Shri Nitendera Tewari and Smt. Asha Phagna were partners. He also observed that Shri Nitendra Tewari was the director of the assessee company and that the firm M/s Vastech Solutions was stated to be upgraded to M/s Virtuoso Netsoft Pvt. Ltd. i.e. the assessee. The ....
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....of assessee company. Copy of bank statement of M/s Vastech Solutions in ICICI Bank for the financial year 2012-13 relevant for the AY 2013-14 and copy of balance sheet of M/s Vastech Solution as on 31.03.2012 along with list of sundry debtors. 3. In this regard, it is submitted that as per the deed of dissolution dated 20-Jan- 2011, copy of which was submitted by the assessee M/s virtuoso Netsoft (P) Ltd, during the course of assessment proceedings, the partnership firm so far carried on under the name and style of M/s Vastech Solutions was dissolved with effect from 20.01.2011 (copy enclosed) and the partnership firm had been upgraded to new company M/s Virtuoso Netwoft (P) Ltd. 4. Now, the assessee has submitted the ledger accounts with M/s Vastech Solutions and bank statements of M/s Vastech Solutions for the F.Y. 2012-13 to indicate that M/s Vastech Solutions has advanced money to the assessee company during the FY 2012-13. It is a notable fact that M/s Vastech Solutions has been dissolved on 20.01.2011 and upgraded to the assessee company M/s virtuoso Netsoft (P) Ltd with effect from 20.01.2011. Hence the veracity of these documents are doubtful as it is clea....
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.... the firm was dissolved in January, 2011. The assessee itself is accepting that the firm had been dissolved hence a dissolved entity could not advance money to anyone and the identity of the source itself and genuinenity of the transactions is under doubt in these circumstances. Further, the assets and liabilities of the dissolved firm had become a part of the assessee company by virtue of the dissolution, the submission of the assessee is nothing but an afterthought hence the submission of the assessee should not be accepted and reliance of the assessee on the documents submitted should not be permitted." 4.1 The Ld. CIT(A) provided the copy of the remand report to the assessee and in the rejoinder the assessee submitted as under: "Sir, For the sake of convenience I beg to make the following written submissions which may kindly be considered while disposing of the appeal noted in the subject. 1. The relevant facts in brief are that the assessee is a service provider and is engaged in the business of making application of android phones and related software. The company also provided software development Server solutions and e-business solutions. The revised re....
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....edger account of M/s Vastech Solutions and Bank statement of M/s Vastech Solutions, it is clear that all credit entries in the ledger account of M/s Vastech Solutions in the books of assessee company, are directly linked with debit entries (withdrawal side) in the bank statement of M/s Vastech Sollutions. Now coming to source of credit entries in bank statement of M/s Vastech Solutions, it is respectfully submitted that as per balance sheet of M/s Vastech Solutions, an aggregate amount of Rs. 15,94,258/- was recoverable as on 31.03.2012 from two parties i.e. M/s Cain Technology and M/s Triotech Solutions (pages 4 and 8 of additional evidence). It is evident from the narration of credit entries (deposit side) of bank statement of M/s Vastech Solutions (pages 2-3 of additional evidence), that there was opening balance of Rs. 5,47,719/- and further deposits were on account of bank transfers from the above said two parties shown in the balance sheet as sundry debtors of M/s Vastech Solutions. Therefore, source of the amount in the hand of M/s Vastech Solutions stood fully explained. The identity of M/s Vastech Solutions is not doubt as it was a regular assessee till A.Y. 2013-14 and ge....
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....specific comments on the documents attached with application for additional evidence which are self explanatory and have direct link to decide the point at issue. It is, therefore, prayed that the additional evidence may kindly be admitted and adjudicated upon. 4. It is prayed that addition of Rs. 12,20,510/- made by the Ld. AO u/s 68 of the Income Tax Act, may kindly be deleted keeping in view the above submissions." 4.2 The Ld. CIT(A) after considering the remand report of the A.O. and the rejoinder to the remand report by the assessee admitted the additional evidence under Rule 46A of Income Tax Rules 1962 by observing in para 5.2.4 to 5.2.7 of the impugned order as under: 5.2.4. In the decision rendered in the case of Smt. Prabhavati S. Shah vs. CIT reported at 231 ITR 1, the Hon'ble Bombay High Court, categorically pointed out that with the avowed object of ensuring that evidence is primarily led before the Assessing Officer, Rule 46A(1) puts fetters on the right of the appellant to produce before the Commissioner of Income-tax (Appeals) any additional evidence, not previously raised before the Assessing Officer. Putting fetters on the right of appella....
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....e AAC under sub-section (4) of section 250. The purpose of rule 46A appears to be to ensure that evidence is primarily led before the ITO. 5. We are supported in our above conclusion by the decision of the Orissa High Court in B.L. Choudhury v. CIT [1976] 105ITR 371 in which it was held: "Wide provision has, thus, been made conferring jurisdiction on the first appellate authority to make such inquiry as he deems fit. The provision seems to have been based on the fact that before the Appellate Assistant Commissioner there is generally no opposite party. The appellate authority himself is the departmental authority representing the revenue. Therefore, he has been invested with the power of making further inquiry. He does not exceed his jurisdiction if he asks or allows the assessee to produce or file additional papers or additional evidence in the matter he thinks fit. . . ."(p. 376) It was further held that-- ". . . In fact, receiving new material by the Appellate Assistant Commissioner cannot be equated with receipt of additional evidence as contemplated in Order 41, rule 27 of the Code of Civil Procedure or even at the stage of second appeal by ....
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.... these documents before the Assessing Officer and these were relevant to the ground of appeal, these documents are admitted under Rule 46A. 4.3 The Ld. CIT(A) further observed that as per the bank statement submitted as additional evidence the amount extended to the assessee by M/s Vastech Solutions was Rs. 14,50,000/- the relevant observations are given in para 5.3.1 to 5.3.2 which read as under: 5.3.1. Section 39 of the Indian Partnership Act 1932 states that the dissolution of partnership firm leads to cease of the existence of the organization. After this, the partnership firm cannot enter into any transaction with anybody. It can only sell the assets to realize the amount, pay the liabilities of the firm and discharge the claims of the partners. Now if we see the accounting treatment on dissolution, the books of the firm are to be closed. Dissolution process starts by opening the following accounts in the firm's books: Realisation Account, Partner's Loan Account, Partners' Capital Accounts, Bank or Cash Account. The object of preparing of Realisation Account is to close the books of accounts of the dissolved firm and to determine profit or loss on the R....