TaxTMI 
TaxTMI 
2024 (7) TMI 1420
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.... 2. On the facts and circumstances of the case and in law, the enhancement of income of Rs. 39,48,50,000/- towards unexplained money u/s 69A of the Act by the Ld. CIT(A) is against to the decision of the Hon'ble ITAT in ITA No. 92/Hyd/ 2022 dt 31.01.2023 against the order u/s 263 of the Pr. CIT (Central), Hyderabad, which is in violation of the orders of the ITAT. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not considering that the appellant has retracted from the statement recorded u/s 132(4) of the Act and ought to have considered that no enhancement of income is needed. 4. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in considering the statements given by the other partner Sri Syed Mohammed Fayaz and the statements of Smt. Jugenee Bhai and D. Murali, the vendees, wherein that no amounts in cash were received from the appellant and, thus, the additions made by the AO as well as by the enhancement made by the Ld. CIT(A) are not sustainable. 5. On the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have considered that the property-in-question was not in the pos....
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....irector of Survey and other circumstantial evidences basing on presumption. 13. Without prejudice to the above grounds, the Ld. CIT(A) has failed in fairly appreciating the fact that as per the report of the District Collector, the land in question under transfer is not identifiable in Revenue records and that therefore, there arose business loss, which needs to be given set off. 14. The Ld. CIT(A) ought to have fairly and judiciously considered that there arose loss of an asset which is the land in question under transfer and set off ought to have been allowed. 15. Without prejudice, the Ld. CIT(A) ought to have fairly and judiciously allowed the set off of loss incurred by the appellant, as mentioned in the grounds above, against the enhanced income. 16. The assessee may add, alter, or modify or substitute any other points to the grounds of appeal at any time before or at the time of hearing of the appeal". 3. The brief of the case is that the assessee, M/s. GRR Holdings is a firm was incorporated on 31.01.2014 with two partners Shri Gaddam Shyam Prasad Reddy & Shri Syed Fayaz Mohammed. The main objective of the partnership firm is to carry ....
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....with relevant facts and evidences and claimed that although the property was registered in the name of appellant M/s. GRR Holdings but no consideration was paid to seller of the property and the same has been confirmed by Smt. Jugenee Bhai and Shri D. Murali, since both of them does not have any right or title over the property and also the possession of the property was not under their control. 5. The Assessing Officer after considering the relevant evidences including the copies of sale deed dated 11.02.2014 for purchase of 11.33 acres in favour of the assessee firm coupled with the statement recorded from partners of the appellant firm and also taken into account the retraction statement filed by the partner opined that there is no dispute with regard to the fact that the land has been registered in the name of GRR Holdings as per the registered sale deed. Further, it is also a fact on record that heavy stamp duty and other charges have been paid on various dates to register these lands in favour of the firm. Therefore, considering consideration paid for purchase of property by cheque and cash and stamp duty paid for registration of the documents, has made addition of Rs. 42.....
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....stment, therefore, the addition has to be regarding the money which has been paid for this investment would fall u/s 68 of the I.T. Act, 1961 for Rs. 17.00 lakhs and Rs. 25.00 lakhs u/s 69A of the I.T. Act, 1961. Therefore, the addition made by the Assessing Officer of Rs. 42.00 lakhs is confirmed out of which Rs. 17.00 lakhs is confirmed as cash credit u/s 68 and Rs. 25.00 lakhs is confirmed as unexplained money u/s 69A of the Act. 7. In so far as the A.Y 2015-16 & 2017-18 are concerned, the learned CIT (A) for the reasons record in the appellate order observed that since the assessment has been enhanced towards the total consideration paid for purchase of the property for the A.Y 2014-15, has directed the Assessing Officer to delete the addition made towards cash consideration paid for purchase of property in the A.Y 2015-16 and 2017-18, however, sustained addition of Rs. 2,25,21,320/- for A.Y 2015-16 and Rs. 1,10,35,625/- for the A.Y 2017-18 towards stamp duty and other charges paid to the SRO for registration of the property u/s 68 of the I.T. Act, 1961 on the ground that although the appellant claimed that the stamp duty and other charges has been paid out of amount receive....
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....22 submitted that the PCIT (Central) Hyderabad passed an order u/s 263 dated 16.03.2022 holding that the assessment order for A.Y 2014-15 is prejudicial to the interest of the Revenue and set aside the order to the file of the Assessing Officer for limited purpose of brining to tax the entire investment in cash as recorded as paid in all the above mentioned 3 sale deeds in the A.Y 2014-15 itself. The appellant has challenged the order passed by the learned PCIT u/s 263 of the I.T. Act, 1961 before the ITAT and the ITAT Hyderabad Bench has quashed the 263-order passed by the learned PCIT and discussed the issue in detail on amount invested by the assessee for purchase of the property and held that once investment in purchase of property was assessed in the hands of the individual partners as their income then, the same cannot be assessed in the hands of the partnership firm. From the above, it is clear that the learned PCIT has considered the very same issue of consideration paid for purchase of property and the same has been deleted by the second appellate authority i.e. the ITAT and quashed the assessment order. Therefore, when the matter has already been considered and examined b....
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....arned CIT (A) and proved that the stamp duty and other charges have been paid by the partners through proper banking channels and thus once the amount has been paid by the Partners, the question of making addition towards the capital contribution or amount received from partner u/s 68 of the I.T. Act, 1961 does not arise, because the identity of the partners was established and genuineness of the transaction was also provided. Therefore, he submitted that the addition sustained by the learned CIT (A) for the A.Y 2015-16 and 2017-18 should be deleted. 12. The learned DR, on the other hand, supporting the order of the learned CIT (A) submitted that the documents found during search on 20.09.2017 and subsequent statement recorded from the partner of the appellant during post survey inquiry clearly shows unexplained investment on the property. Further, the partner of the appellant firm Shri Gaddam Shyama Prasad Reddy in his statement recorded u/s 132(4) clearly stated that the consideration has been paid in cash for purchase of the property and the same has been contributed by himself and another partner. He further stated that he could not explain the source for investment in purch....
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.... also carefully considered the relevant case law cited by both the party's considering facts brought on record by the Assessing Officer and the learned CIT (A). There is no dispute with regard to the fact that during the course of search, a statement was recorded from Shri Gaddam Shyama Prasad Reddy and confronted with certain documents including copies of 3 sale deeds for purchase of land admeasuring 11.33 acres. In the statement recorded u/s 132(4) of the I.T. Act, 1961, the partners of the appellant firm stated that the land admeasuring 11.33 acres was purchased for the appellant firm M/s. GRR Holdings vide registered sale deed dated 11.12.2014 and consideration paid for purchase of property was contributed by two partners. Further, the partners of the appellant firm made it very clear that the consideration paid in cash was contributed by himself to the extent of Rs. 34.5 crores and the balance was contributed by the other Partner Shri Syed Fayaz Mohd. It was further stated that the amount invested in the purchase of the property in the name of the partnership firm was earned out of the real estate business and agreed to disclose income for the A.Y 2014-15 in his individual cap....
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....ssessment order passed by the Assessing Officer u/s 144 r.w.s. 153A of the I.T. Act, 1961 on 12/12/2019 by exercising powers conferred under section 263 of the I.T. Act, 1961 and set aside the assessment order passed by the Assessing Officer with a direction to reconsider the issue of additions made towards the consideration paid for purchase of property u/s 69 of the Act for the A.Y 2014-15. The appellant has challenged the 263 order passed by the learned PCIT before the ITAT Hyderabad Benches and the ITAT in ITA No.92/Hyd/2022 order dated 31.01.2023 set aside the order passed by the learned PCIT and held that when the Assessing Officer has taxed the amount invested for purchase of property in the hands of the partners in their individual capacity, the fact not disputed by the learned PCIT, then the learned PCIT is erred in invoking the jurisdiction u/s 263 of the I.T. Act, 1961 and set aside the assessment order. In other words, the issue of consideration paid for purchase of property and assessment in the hands of the firm for the A.Y 2014-15 was subject matter of revision proceedings by the PCIT and the same has been held to be invalid by the ITAT. 16. In light of above fact....
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....are scrutinized by the higher appellate forum, then the CIT (A) does not have any power to review the decision rendered by the higher appellate authorities. Therefore, the powers exercised by the CIT (A) u/s 251(1) of the Act to enhance the assessment towards consideration paid for purchase of property in the hands of the assessee for the A.Y 2015-16 is beyond the scope of the powers of the CIT(A) and thus cannot be upheld. Therefore, in our considered view the learned CIT (A) having noticed that the very same issue was the subject matter to revision proceedings u/s 263 by the PCIT (Central) Hyderabad and the same has been scrutinized by the Tribunal in appellate proceedings, the learned CIT (A) ought not to have ventured into to enhance the assessment for the impugned A.Y. Therefore, on this count itself, the enhancement of assessment made by the learned CIT (A) cannot be sustained. 17. Be that as it may, coming back to another aspect of the matter. Admittedly, the sale deeds for transfer of property shows consideration paid in cash. Further, the partners of the appellant firm had also in their statement recorded during post search investigation confirmed that cash has been pai....
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....produced the balance sheet of the appellant for the year ending 31-03-2014 and as per said balance sheet the appellant claims to have received amount from partners. The CIT(A) having noticed the fact that amount received from partners is recorded in the books of firm as creditors, then ought not to have made addition in the hands of the assessee. Therefore, in our considered view, once the investment is recorded in the books of account and further the nature and source of acquisition of investment was explained by the assessee, then in our considered opinion, the Assessing Officer/learned CIT (A) ought not to have invoked the provisions of section 69A of the I.T. Act, 1961. 18. In so far as arguments of the ld. DR in light of statements recorded from the partner of the appellant and subsequent retraction statement, that the appellant and its partners are taking contradictory stand on the issue of assessment of investments in purchase of property in the name of the assessee and partners, we find that the AO has committed a gross error in considering the issue. In our considered view, assessment of income is purely based on evidence, but not based on statements of any person or hi....
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....nst the theory of human probability. Therefore, in our considered opinion, the Assessing Officer, having noticed that the entire contribution for purchase of property had come from two partners erred in making additions towards investment in the hands of the appellant firm. We further note that once the source of investment in the hands of the partnership is explained out of capital contribution from partners and further the identity of the partners was not in doubt, then the addition cannot be made in the hands of the partnership firm towards investment as unexplained money u/s 69 of the I.T. Act, 1961. In this regard, it is pertinent to refer to the decision of the Hon'ble Allahabad High Court in the case of Kesharwani Sheetalaya Sahsaon vs. CIT reported in (2020) 116 Taxmann.com 382 (All.HC) where under identical set of facts, the Hon'ble Allahabad High Court held that once the assessee firm shown credit of some amount from its partners, since the partners of assessee were all identifiable and separately assessed to tax and they had shown sufficient income in their personal returns of past years which had been accepted by the Department as such, source of investment by t....
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....Officer must be satisfied that the explanation offered by the assessee is genuine, but it is also provided that in the absence of a satisfactory explanation, the unexplained cash credit "may" be charged to income tax - therefore, the unsatisfactoriness of the explanation would not automatically result in deeming the amount credited in the books as income of the assessee. 16. A similar view was taken in the case of Deputy Commissioner of Income Tax v Rohini Builders2, wherein referring to the judgment of the Supreme Court in the case of Commissioner of Income Tax v Smt. P.K. Noorjahan3, rendered in the context of Section 69 of the Act, it was held as follows:- "The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words "shall be charged to income-tax as the income of the assessee of that previous year". The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phrase....
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....credit in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessee offers no explanation about the nature and source of such credit; or the explanation offered by the assessee is not, in the opinion of the assessing authority, satisfactory, then the sum so credited may be charged to tax as income of the assessee of that previous year. The apex court in the case of CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570 has laid down that the word "may" indicated the intention of the Legislature that a discretion was conferred on the Assessing Officer in the matter of treating the source of investment/credit which had not been satisfactorily explained as income of an assessee, but it was not obligatory to treat such source as income in every case where the explanation offered was found to be not satisfactory." 19. The nature and scope of Section 68 of the Act fell for consideration before the Supreme Court in Commissioner of Income Tax v P. Mohanakala [2007] 291 ITR 278 (SC), and it was held as follows:- "16. The question is what is the true nature and scope of section 68 of the Act? When and in what circumstances section....
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....w:- "In that case, the entries were alleged to have been made a week before the end of the accounting period. In the present case, the entries were made about three weeks prior to the end of the accounting period. Identical amounts were entered as deposited in the name of each partner. Different explanations were given by the assessee at different stages of the proceedings. They were disbelieved. In this view of the matter, the Tribunal was not justified in treating the amount as the income of the individual partner in view of the finding that the assessee had failed to establish that the partners have actually deposited the money and that the entries were not fictitious. Accordingly, we answer the question referred to us by holding that the cash credit entries standing in the names of the partners in the account books of the firm could validly be treated as the income of the firm from undisclosed sources. As no one appeared on behalf of the assessee, there will be no order as to costs." 22. The question as to whether in a case where there are cash credit entries in the books of the assessee firm in which accounts of individual partners exist and it is fo....
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....before it started its business. Therefore, the onus was on the partners to explain the source in the case on hand and if they failed, the amount could have been added in their hands only and not in the hands of the assessee-firm." 24. The question as to whether in a case where there was credit in the capital account of partners in books of the firm, addition thereof could be made in the hands of the firm or the same had to be considered in the hands of the partners, came up in a reference under Section 256(1) of the Act in Commissioner of Income Tax v Metachem Industries [2000] 245 ITR 160 (MP), and it was held that according to Section 68 the burden was on the assessee to satisfactorily explain the credit entry in the books of account of the previous year and in a case where satisfactory explanation had been given by establishing that the amount had been invested by a particular person, be he a partner or any individual then the burden of the assessee firm is discharged and the credit entry could not be treated to be income of the firm for the purposes of income tax. The relevant observations made in the judgment are as follows:- "...Section 68 of the Act of 1961....
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....st the person who has not been able to explain the investment..." 25. A similar question was considered in Commissioner of Income Tax v Burma Electro Corporation [2001] 252 ITR 344 (P&H) wherein the deletion of the addition made by the Tribunal, on the ground that though there was no evidence on record to show availability of funds with partners at the time of investment with the assessee firm the concerned partners having admitted to have made those investments and there being no material to indicate that those investments were profits of the assessee firm, the sum so credited could not be assessed as income of the firm in terms of Section 68 but could be assessed in the hands of the individual partners, was upheld. 26. We may also refer to the decision in the case of Abhyudaya Pharmaceuticals v Commissioner of Income Tax [2013] 350 ITR 358 (All), wherein the earlier decision in the case of Jaiswal Motor Finance was followed on the point that if there are cash credit entries in the books of the assessee firm in which accounts of an individual partner exists, and it is found as a fact that the cash was received by the firm from its partners then in the absence of ....
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.... a fact that cash was received by the firm from its partners then in the absence of any material to indicate that they were profits of the firm, it could not be assessed in the hands of the firm. We are, therefore, of the opinion that the Tribunal did not commit any error of law and rightly held that the deposits shown in its accounts were satisfactorily explained." 16. At this stage, the learned standing counsel for the Department places reliance upon another Division Bench decision of this Court in the case of Kapur Brothers [1979] 118 ITR 741 (All). It is apt to examine the facts of the case of Kapur Brothers (supra). The Assessing Officer found a deposit of certain amount while making assessment of M/s. Kapoor Brothers. The amount was deposited in the name of its partners. The deposits were entered as on October 20, 1966. The accounting period for the assessment year 1967-68 ended on November 11, 1968. The explanation offered by the assessee was not found satisfactory. In this factual background, it was noticed that the entries were made about three weeks prior to the end of the accounting period. In this factual background the High Court held that cash credit entries ....
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....ying on its business. The firm was called upon to explain the source of the deposits. The explanation of the firm was that the deposits represented the sale proceeds of certain assets belonging to the partners. When no evidence was adduced to substantiate that explanation, the assessing authority added the amount as income of the partnership-firm. These facts are materially different from the fact of the instant case. Most striking feature of the case on hand is that all the deposits came to be made during the accounting year in the books of the assessee-firm before it started its business. Therefore, the onus was on the partners to explain the source in the case on hand and if they failed, the amount could have been added in their hands only and not in the hands of the assessee-firm." 19. On the facts and circumstances of this case, we are of the considered opinion that the authorities below have committed error as they have failed to take into account that this was the first year of the business of the assessee firm. The partnership firm was formed on July 5, 1990 and on July 7, 1990, Master Shishir Garg deposited Rs. 1,90,000 and Rs. 72,000 as capital money with the Fir....
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.... however absolve the responsibility of the Assessing Officer to prove that the cash credits constitute the income of the assessee. The onus on the assessee has to be understood with reference to the facts of each case and if the prima facie inference on the basis of facts is that the assessee's explanation is probable, the onus shifts to the Revenue. It has been consistently held that once the assessee has proved the identity of its creditors, the genuineness of the transactions and the creditworthiness of the creditors vis-a-vis the transactions which it had with the creditors, the burden stands discharged and the burden then shifts to the Revenue to show that the amount in question actually belong to, or was owned by the assessee himself. 29. The question as to whether in a case where money has come from a partner, addition, if any, has to be made in the hands of the partner or of the firm came up for consideration upon the reference under Section 256(1) of the Act in the case of Commissioner of Income Tax v Kishorilal Santoshilal13, and referring to the language used under Section 68 and various authorities on the point it was held that in this regard the following ....
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....ter and considering the facts and circumstances of the case and also by following the decision of the Hon'ble Allahabad High Court (Supra), we are of the considered view that once the assessee explained the source for purchase of property out of capital contribution from Partners, then the Assessing Officer cannot make addition towards investment in purchase of property in the hands of the appellant firm as unexplained money u/s 69A of the I.T. Act, 1961. The learned CIT (A) without appreciating the relevant facts and without any valid reasons enhanced the assessment and made addition towards the amount for purchase of property as unexplained money for the impugned asst. year. Thus, we reverse the findings of the learned CIT (A) and delete the enhancement to the extent of Rs. 39,48,00,000/- in the case of the assessee u/s 69A of the I.T. Act, 1961. 21. As regards the addition of Rs. 17.00 lakhs u/s 68 of the I.T. Act, 1961 towards the consideration paid for purchase of property by cheque and Rs. 25.00 lakhs towards stamp duty and registration charges for registration of the property, we are of the considered view that when the entire contribution has been received from the P....
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....ncome of the assessee of that previous year. To invoke section 68, there should be a credit in the books of account, if any, maintained by the assessee and further the assessee offers no explanation, or the explanation offered by the assessee is not in the opinion of the Assessing Officer not satisfactory. In the present case, there is no dispute about the fact that the appellant had explained the source of income and nature and source of credit and claimed that the entire amount has been received from partners and this fact is not disputed by the Assessing Officer which is evident from the assessment order passed in the hands of the individual partners. Therefore, once the credit is explained by the assessee, then in our considered opinion, the Assessing Officer/learned CIT (A) ought not to have invoked the provisions of section 68 of the I.T. Act, 1961. Further, as narrated by the Assessing Officer, the appellant firm was incorporated on 31.01.2014. The firm has acquired the property by way of 3 registered sale deeds on 11.2.2014. In other words, the firm has acquired the property within 15 days from the date of incorporation or came into existence. The Assessing Officer never di....