TaxTMI 
TaxTMI 
TaxTMI 
2026 (2) TMI 254
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....he Act. The case was selected for limited scrutiny under CASS on the issue of large increase in capital during the year. During the course of assessment proceedings, the Assessing Officer noticed a substantial increase in the capital account of the assessee during the relevant previous year. In response to notices issued under section 142(1), the assessee explained that no fresh capital was introduced during the year and the increase in capital was on account of prior period adjustment amounting to Rs. 8,38,44,023/-. It was explained that the adjustment arose from the assessee's capital account in a partnership firm, M/s Lotus Investment, in which the assessee held 34 percent share. It was further explained that the partnership firm had written back an old unsecured loan, and corresponding credit was given to the partners' capital accounts. 3. The assessee furnished details stating that M/s Lotus Investment had obtained an unsecured loan of Rs. 26,50,00,000/- from Swan Finance Management Pvt. Ltd. which had become time-barred under the Limitation Act and was written back unilaterally in the books of the firm during F.Y. 2016-17.The assessee's share of the loan written back was R....
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.... and allowed the assessee's appeal. 9. Aggrieved by the order of CIT(A), the Revenueis in appeal before us raising following grounds of appeal: 1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 8,38,44,023/- on account of unexplained credit in the form of unaccounted money in the books of partner of the firm Lotus Investment u/s 68 of the Income tax Act, 1961. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the assessee's appeal without appreciating the crucial fact that both the assessee and the firm failed to submit any details with respect to lender Swan Finance Management Pvt. Ltd. resulting into non-establishment of identity and credit worthiness of the lender and genuineness of the loan taken. 3. Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in allowing the Assessee's appeal overlooking the glaring facts pertaining to the assessee and the firm; i) No amount either principal amount or interest amount related to loan was paid. ii) No remuneration interest was paid to its partners ....
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....he books of the partnership firm and that section 68 could not be applied in the hands of the partner. 12. It was further submitted that the partnership firm had been subjected to assessments under section 143(3) of the Act for A.Ys. 2006-07, 2008-09, 2012-13 and 2014-15, and the loan in question stood accepted and assessed in the hands of the partnership firm by the Assessing Officer. According to the learned AR, once the transaction has been examined and accepted in the hands of the partnership firm, the same income cannot again be brought to tax in the hands of the assessee-partner. 13. The learned AR thus submitted that the Assessing Officer, despite having correctly recorded the assessee's submissions in the assessment order itself, erred in disregarding the settled legal position and in making the impugned addition under section 68 in the hands of the assessee. On these premises, it was submitted that the learned CIT(A) was fully justified in deleting the addition. 14. We have carefully considered the rival submissions, perused the orders of the lower authorities, and examined the material placed on record. The Revenue is aggrieved by the deletion of the addition of ....
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....ertaining to earlier years cannot be brought to tax under section 68 in a subsequent year. The CIT(A) has rightly relied on this settled principle and has correctly held that the impugned credit does not represent a fresh credit of the year under consideration. 20. The Revenue has not placed any material on record to controvert the factual finding that the credit in the assessee's capital account represents only the effect of prior period entries in the firm's books. 21. The Assessing Officer has heavily relied on the inability of the assessee and the firm to furnish current details such as PAN, address and email ID of the lender, Swan Finance Management Pvt. Ltd., to conclude that the loan never existed. We find merit in the finding of the CIT(A) that such reasoning is misplaced in the facts of the present case. 22. The transaction under consideration is not the borrowing of the loan during the year, but the write-back of an old, time-barred loan. The loan had existed in the books for more than a decade and had been accepted in earlier assessments of the firm. The assessee cannot be expected to produce complete particulars of a lender relating to a transaction undertaken ....