2021 (4) TMI 1351

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.... both the appeals of the assessee is that the ld. CIT(A) erred in upholding the addition of Rs..8,26,531/- in the hands of both the assessees as undisclosed income. 2. Brief facts relating to the addition of undisclosed income, both the assessees are partner of the firm M/s. ESS ENN Exports with 50% share. During the year, the net profit as per profit and loss account of ESS ENN Exports was Rs..1,47,87,173/- out of which, each assessees share amounting to Rs..73,93,586/- (50%) was claimed as exempt income under section 10(2A) of the Income Tax Act, 1961. This was credited into the partner's current account in the firm. While working out the taxable income as per the Act in the computation statement, the profit was determined at Rs..1,31,34....

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....ratio of 50%, each partner would be entitled to received Rs..65,67,055/- as an exempted income, whereas, the assessees have claimed the exempt income at Rs..73,93,586/- and thus, the Assessing Officer taxed the excess claim of Rs..8,26,531/- which was credited into the partners' capital account. While confirming the above addition of Rs..8,26,531/-, the ld. CIT(A) has observed that the taxable payable by the firm was worked out from the total income arrived at after adjusting the eligible depreciation as per the Act. If this total income is distributed to the partners as per their profit sharing ratio of 50%, each partner would be entitled to receive only Rs..65,67,055/- as an exempted income. Further, the profits are credited to a partner'....

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....e individual hands of the partners, even if the taxable income of the firm is NIL in the hands of the firm and prayed for deleting the addition made in both the assessees case. 6. We have gone through the provisions of section 10(2A) of the Act, which runs as under: (2A) In the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm. Explanation.-For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the ....