TMI Blog2011 (7) TMI 798X X X X Extracts X X X X X X X X Extracts X X X X ..... ed sources of the firm. 2. That the learned CIT (Appeals) has erred in law and on facts in failing to appreciate (while confirming the addition mentioned in ground No. 1), that all the three partners were having their independent sources of income before joining the firm and the gifts received through bank drafts in their individual bank accounts and later on cash from those bank accounts were withdrawn on subsequent dates and introduced the same as their share capital in the books of account of the firm. 3. That the learned CIT ( Appeals) has erred in law and on facts in ignoring the decisions of the jurisdictional Hon'ble ITAT the Hon'ble High Court of judicature of Allahabad which have been quoted in the written submission. 4. That without prejudice to the averment in aforementioned grounds of appeal Nos. 1, 2 3, it is submitted that the learned CIT (Appeals) has erred in law and on facts in sustaining the aforesaid addition of Rs. 10,00,000/- because he has failed to appreciate that- (i) the source of the cash deposits amounting to Rs. 3,00,000/- have been duly proved as withdrawn from the bank account of Shri Amit Kumar Agarwal, partner of the firm. (ii) the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in detail in the assessment order, which has been summarized by the learned CIT(A) in para 3.1 of the impugned order, which reads as under: "(i) The notices sent to Mrs. Rani Agarwal and Suman Agarwal were received back unserved. All the six donors from Kolkata are not being assessed to tax. The donors do not have income chargeable to tax and their sources of income as shown are not verifiable; (ii) As regards gifts shown to be given by Smt. Kalawati Devi Bhagat, Smt. Manju Devi Bhagat and Smt. Suman Devi Bhagat, the drafts have been prepared on account of the amount transferred from one single bank account No. 12382 to the donors accounts. All other drafts made as gifts have been purchased in cash; (iii) No relationship between the donors and the donees were established. Thus, it is amply clear that all the six donors do not have any capacity for giving gifts. All these gifts can in no way be said to be genuine because of the reasons firstly that a person who does not have taxable income of Rs. 50,000/- in any year, then how he/she can make gift in lakh to any person with whom he/she does not have any near relationship, and secondly it appears that the gift of Rs. 8,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities. Even if the explanations in respect of the source of initial investment of the partners are not considered as satisfactory, no addition in the case of the firm is justifiable; (vi) The entire capital contribution of all the three partners of the firm is evident from the copies of their capital accounts show that the partners have deposited cash in their capital accounts which was withdrawn from their bank accounts. For purpose of assessment the partners are separate entity. The appellant firm has proved even the source of the sources and the Assessing Officer is not justified for making the addition of Rs. 10,00,000/-, (vii) Hence, the impugned addition is liable to be deleted." 4.1 The learned CIT(A), after considering the submissions of the assessee, confirmed the action of the Assessing Officer by observing as under: "3.3 I have gone through the contentions of appellant and also the facts of the case. At the outset, from the perusal of the capital account of the partners from the period 02/04/2003 to 31/03/2004 with M/s G. L Foods, it is noticed that the partners S/Shri Ratan Kumar Agrawal, Anoop Kumar Agrawal and Amit Kumar Agarwal have introduced capital in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm received the capital contribution from the partners before starting the business, so there was no occasion to earn the income from undisclosed sources before starting the business. It was further stated that no addition could have been made in the hands of the firm on account of initial capital contributed by the partners. Reliance was placed on the following case laws: (i) CIT v. Jaiswal Motor Finance [1983] 141 ITR 706 (All.) (ii) In the case of Sapna Automobiles v. ITO [I.T. Appeal No. 848 (Luck.) of 2004 order dated 11/5/2005] (iii) India Rice Mills v. CIT [1996] 85 Taxman 227 (All.) (iv) CIT v. Metachem Industries [2000] 245 ITR 160/[2001] 116 Taxman 572 (MP). (v) CIT v. Burma Electro Corpn. [2001] 252 ITR 344/[2003] 126 Taxman 533 (Punj. Har.). 6. In his rival submissions the learned D. R. strongly supported the orders of the authorities below. 7. We have considered the rival submissions and carefully gone through the materials available on the record. In the present case, it is not in dispute that the assessee firm received the capital contribution by the partners before starting its business, therefore, it cannot be said that the capital contributed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income-tax." 7.5 On a similar issue the Hon'ble Punjab Haryana High Court in the case of Burma Electro Corpn. (supra) affirmed the view of the Tribunal by holding that:- "The Tribunal deleted the addition in the ground that though there was no evidence to show that on the date of investment, the partners had sufficient funds in their possession to prove that the investments were made from that amount in the capital account, since these partners admitted to have made these investments in the assessee-firm and since there was no material to indicate that the cash credits were the profit of the firm, they could not be assessed as the firm's income and that the unexplained investments could be assessed in the individual hands of the partners under section 69 of the Income-tax Act, if that was permissible." 8. In the present case also the amount in question was deposited by the partners as their initial capital before s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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