Itta/571/2015 Of The Pr.commissioner Of Income-Tax-6 v. M/S. R.k.and Company

THE HON’BLE SRI JUSTICE RAMESH RANGANATHANANDTHE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHY I.T.T.A.No.571 of 2015 JUDGMENT:(per Hon’ble Sri Justice Ramesh Ranganathan) This appeal, under Section 260-A of the Income Tax Act, 1961(for short “the Act”), is preferred against the order passed by theIncome Tax Appellate Tribunal in I.T.A.No.1765 of 2012 dated17.04.2015 for the assessment year 2006-07. The assessee, a partnership firm, filed its returns of income forthe assessment year 2006-07 declaring a loss of Rs.24,11,385/-. Anassessment order was passed, under Section 143(3) of the Act on31.12.2008, assessing the income of the firm as Rs.82,24,116/-. TheIncome Tax Appellate Tribunal, by its order in I.T.A.No.705 of 2010dated 07.01.2011, set aside the assessment order and remanded thematter to the Assessing Authority. Thereafter, the Assessing Authorityexamined the balance sheet and found that a sum of Rs.90,46,903/-was credited to the capital account of Sri Ch.Rajendra Kumar, apartner of the assessee-partnership firm, during the year underconsideration. The assessee-firm was called upon to furnish certaininformation regarding the capital introduced in the name of the partnerSri Ch.Rajendra Kumar. The Assessing Authority observed that,despite giving numerous opportunities, the assessee had neitherresponded nor had they furnished the source for the amountsdeposited into the bank accounts of the partner; they had furnished asketchy reply; the plea taken by the assessee that the partner had, infact, introduced the amounts was not acceptable, as he had failed toexplain the known sources of the funds or as to how the funds wereavailable to the said partner, to induce the same as capital in the firm;and since the assessee was unable to furnish any evidence,explaining the sources, the said amount of Rs.90,46,903/- should beadded under Section 68 of the Act as they did not fulfil the ingredients to substantiate the cash credits. Aggrieved thereby, the assesseecarried the matter in appeal to the Commissioner of Income Tax(Appeals) who dismissed the appeal holding that the total deposits inthe bank account were much more than even the gross receipts of SriCh.Rajendra Kumar in both his individual and HUF capacity; and,therefore, the claim of the appellant could not be accepted without aproper explanation of the proximate deposits for the credits to thepartner’s capital account which the appellant-firm had failed toprovide. Aggrieved thereby, the assessee-firm carried the matter inappeal to the Tribunal. In the order under appeal, the Tribunal referred to the earlierorder of the Commissioner of Income Tax (Appeals), and thenobserved that since the matter was restored to the Assessing Officerfor the reason of fulfilling the conditions of Rule 46-A, there was noscope to make addition in the hands of the firm; what the AssessingOfficer was asking the firm to prove was the source in the hands of SriChaitanya Kumar, which could only be done in his assessment whichwas accepted as such; as far as the partnership firm is concerned, ithad discharged its onus, and could not be expected to provide thesource of funds of a third person; and in view thereof, the genuinenessof the credits were accepted, and the additions made were deleted. Before us, Sri J.V.Prasad, learned Senior Standing Counsel forthe Income Tax Department, would reiterate the very samesubmissions urged before the Tribunal. Learned counsel wouldsubmit that Sri Ch.Rajendra Kumar has not satisfactorily explained thesource of funds from which the unexplained cash credits ofRs.90,46,903/- was introduced into his capital account with theassessee-firm and, consequently, the Assessing Authority wasjustified in adding these unexplained cash credits to the income of thefirm. Section 68 of the Act stipulates that, where any sum is foundcredited in the books of an assessee maintained for any previous year Before us, Sri J.V.Prasad, learned Senior Standing Counsel forthe Income Tax Department, would reiterate the very samesubmissions urged before the Tribunal. Learned counsel wouldsubmit that Sri Ch.Rajendra Kumar has not satisfactorily explained thesource of funds from which the unexplained cash credits ofRs.90,46,903/- was introduced into his capital account with theassessee-firm and, consequently, the Assessing Authority wasjustified in adding these unexplained cash credits to the income of thefirm. Section 68 of the Act stipulates that, where any sum is foundcredited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and sourcethereof or the explanation offered by him is not, in the opinion of theAssessing Officer, satisfactory, the sum so credited may be charged toincome tax as the income of the assessee of that previous year. In the present case, the assesee is a partnership firm. The cashcredits of Rs.94,46,903/- have been explained by the firm as capitalintroduced by Sri Ch.Rajendra Kumar. If Sri Ch.Rajendra Kumar wasunable to explain the source of funds, for his investment as capital inthe partnership firm, the Assessing Officer would have been justified inadding these unexplained cash credits to the income of SriCh.Rajendra Kumar in his individual assessment. That, however, didnot justify adding these cash credits of Rs.90,46,903/- to the income ofthe firm as these credits have been explained by the firm as havingbeen introduced as capital by Sri Ch.Rajendra Kumar, a partner. We find no legal infirmity in the order of the Tribunal, much less asubstantial question of law, justifying interference in appeal underSection 260-A of the Act. The appeal fails and is, accordingly, dismissed. Themiscellaneous petitions pending, if any, shall also stand dismissed.There shall be no order as to costs. _____________________________ RAMESH RANGANATHAN, J Date: 06.01.2016JSU ___________________________________ M. SATYANARAYANA MURTHY, J THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN AND THE HON’BLE SRI JUSTICE M.SATYANARAYANA MURTHY JSU I.T.T.A.No.571 of 2015 Date: 06.01.2016