TMI Blog2013 (9) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... s need and the business purpose depends upon the circumstances of each case - Merely because the assessee had maintained cash balances at its several branches being in angadia business should not be a cause of disallowance of interest on borrowed funds - Above order of the hon'ble co-ordinate Bench was not available at the time when the impugned order was passed by the learned Commissioner of Income-tax (Appeals) – Matter remitted back to the file of the learned Commissioner of Income- tax (Appeals) to decide this issue afresh – Decided in favor of Assessee for statistical purpose. - - - - - Dated:- 9-11-2012 - Order The order of the Bench was delivered by Kul Bharat (Judicial Member).-This appeal of the assessee is directed against the order the learned Commissioner of Income-tax (Appeals)-III Ahmedabad, dated February 8, 2010 The assessee has raised following grounds of appeal : "1. On the facts and in the circumstances of the case, the Departmental authorities have erred in adding Rs. 20 lakhs for allegedly unexplained credits into the bank account of the assessee-firm which were introduced as fresh capital by the working partner of the firm, viz., Shri Kantilal R. Pat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dystuff Industries in I. T. Reference No.241 of 1993 and followed by the hon'ble co-ordinate Bench in I. T. A. No. 29/Ahd/2010. He submitted that the assessee is a partnership firm and one of the partners of the firm Sri Kantilal Patel introduced fresh capital of Rs. 20,00,000 into the assessee-firm. He also placed reliance on the statement of fact and synopsis enclosed along with the grounds of appeal. On the contrary, the learned senior Departmental representative relied on the orders of the authorities below. He submitted that the assessee-firm failed to justify the loan and gifts taken by the partner from various persons for introduction of capital in question. He submitted that, therefore, the Assessing Officer was justified in making additions and the learned Commissioner of Income-tax (Appeals) rightly confirmed the same. We have heard the rival submissions perused the material available on records and judgments cited. The issue for determination in this ground is whether the fresh capital of Rs. 20,00,000 introduced by one of the partners of the assessee-firm is liable to be taxed in the hand of the assessee-firm despite the fact that the partner who introduced the capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted March 20, 2009 which were furnished before the Commissioner of Income-tax (Appeals) cited many reported decisions they may be described somewhat as follows: "(1) CIT v. Metachem Industries [2000] 245 ITR 160 (MP) : Cash credits-Addition under section 68-Credits in capital accounts of partners of the firm-Once it is established that the amount was invested by a particular person, whether a partner or anybody else, the responsibility of assessee-firm is over and its burden is discharged concurrent finding of both, the Commissioner of Income-tax (Appeals) as well as of the Tribunal that the firm has satisfactorily explained the entries-Credit entry cannot be treated as income of the firm. (2) CIT v. Jaiswal Motor Finance [1983] 141 ITR 706 (All): Cash credit-Burden of proof-Deposits in partner's account Finding of Tribunal that deposits had been made by the partners as capital contribution onus placed on assessee firm under section 68, Therefore, stood discharged. (3) CIT v. Rameshwar Dass Suresh Pal Cheeka [2007] 208 CTR (P H) 459: "Once a partner of the firm has accepted, having advanced amount to the firm no addition could be made in the hands of firm under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eness of deposits (i) identity ; (ii) capacity ; and (iii) genuineness of transaction are to be applied vis-a-vis the said Shri Kantilal R. Patel. The position is as follows: (i) Identity of Shri Kantilal R. Patel is not even doubted by the Department. On the other hand, he has emphatically claimed that he has deposited these sums. (ii) Capacity-Even as per the books of the assessee-firm there is an opening credit balance of Rs. 21,64,769 in the ledger account of Shri Kantilal R. Patel. He is an income-tax assessee. Further as working partner of the assessee-firm he commands authority on substantial resources, as referred to in paragraph 1 above. So, the capacity of Shri Kantilal R. Patel to deposit Rs. 20 lakhs with the firm is more than established. (iii) Genuineness of the transaction is also not doubted and cannot be doubted because all the transactions are through bank accounts. It is, therefore, submitted that the assessee-firm as a separate tax payer has discharged its onus of proving the genuineness of the deposits received from Shri Kantilal R. Patel by proving, inter alia : (i) his identity; (ii) his capacity ; and genuineness of the transaction of receipt fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT in I. T. A. No. 594/Ahd/2003-refer paragraph 1.9 on pages 7 and 8 of the aforesaid statement of facts. 9. In addition thereto the assessee's reliance also on two other decisions of the hon'ble Rajasthan High Court which may be described as follows: (i) The decision of Rajasthan High Court dated January 25, 2007 in the case of Aravali Trading Co. v. ITO 8 DTR 199: "Income-Cash credit-Burden of proof-Once the existence of the creditors is proved and such persons own the credits which are found in the books of the assessee, the assessee's onus stands discharged and the latter is not further required to prove the source from which the creditors could have acquired the money deposited with him either in terms of section 68 or on general principle-Merely because the depositors' explanation about the sources of money was not acceptable to the Assessing Officer it cannot be presumed that the deposit made by the creditors is money belonging to assessee itself-If the creditors' explanation about the source of deposits is not found to be acceptable, the investment owned by such persons may be subjected to proceedings for inclusion of the amounts as their income from undisclosed sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, we are of the view that the onus that lay on the assessee to establish the creditworthiness of the donors and genuineness of the gifts has not been discharged. In paragraph 34, it is recorded as follows: "34 It is observed that two of the donors are employees of the father of the assessee. The story of gifts to the employers children from the employees can hardly be swallowed." In paragraph 42, it is recorded as follows: "42. The Assessing Officer had made an enquiry from the Syndicate Bank, Rajender Nagar and found that on March 21, 1986 when a cheque for Rs. 50,000 was issued to the assessee, there has been credit balance of Rs. 5271.60 only in the bank account of the donor. On March 25, 1986 a sum of Rs. 50,000 had been credited in that account by telegraphic transfer and the same amount was debited to this account in the name of the appellant. There was no information about the source of Rs. 50,000." In paragraph 43, it is recorded as follows : "43. From the evidence referred to above, it is evident that the financial capacity of the donor is not established nor is genuineness of the gift established. The finding in the case of D. C. Rastogi share in application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently changed by stating that aforesaid gifts were received from three persons, namely, K and two other persons-Assessing Officer insisted on personal attendance of all donors for examination but assessee failed to do so - He further found that all three donors were not so highly paid employees to make gift of such high amount .. Obviously factual matrix of this case is also distinguishable. 12. In the interest of completeness we may also have a look on the decisions cited by the Assessing Officer. They are as follows: (1) Jaspal Singh v. CIT [2007] 290 ITR 306 (P H) cited by the Assessing Officer on page 15 of assessment order : Actually in their decisions in paragraph 2 it is noticed that, that tax payer had claimed to have received various non-resident gifts aggregating to Rs. 15,69,000 for the assessment years 1997-98 to 2001-02. Paragraph 3 of that High Court order notices significant factual position in clause H as follows : "(H) The perusal of a copy of bank draft No. FRA 163292 dated December 10, 1997 of the State Bank of India, Frankfurt/Main Germany Branch relevant that donor had given her name as Sukhwinder Kaur giving her account No. K-5405 and had signed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, vide paragraph 8 above, the assessee has cited decisions (including that of the hon'ble Gujarat High Court) which support the assessee's case. Therefore, addition of Rs. 20 lakhs in the assessee's hands deserves to be deleted." We find merit into the submission of the assessee as the Revenue has not disputed fact is that one of the partners introduced fresh capital of Rs.20,00,000 into the assessee-firm. The learned Departmental representative could not demonstrate as to how the ratio laid in the judgment of the hon'ble jurisdictional High Court rendered in the case of CIT v. Pankaj Dystuff Industries is not applicable on the facts of the present case. The hon'ble High Court in the said case after examining the principles laid down in the judgment of the Allahabad High Court in the case of CIT v. Jaiswal Motor Finance [1983] 140 ITR 706 (All) answered the question referred to it in the affirmative, i.e., in favour of the assessee and against the Revenue. In this view of the matter, respectfully following the judgment of the hon'ble High Court of Gujarat rendered in the case of CIT v. Pankaj Dystuff the addition of Rs. 20,00,000 is hereby directed to be deleted. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st. CIT v. Patel Mathavlal Magnilal in I. T. A. No. 69 to 74/Ahd/2009. On the contrary, the learned senior Departmental representative placed reliance on the decisions of the authorities below. We have heard the rival submissions perused the material available on record and the judgments cited. We find that the Assessing Officer has observed that the assessee has debited interest of Rs. 28,188 on borrowings and Rs. 6,24,728 on partners total Rs. 6,52,932. On perusal of the balance sheet of the assessee it is noticed that the partner s capital are of Rs.69,39,072 and borrowings are of Rs. 2,90,238 (repayment in the year). Both these amounts totalling of Rs. 71,29,310 are interest bearing amounts. Against these source of funds, the assessee has fixed assets at Rs. 10,56,479, other deposits including loan and advances of Rs. 3,38,540 and cash on hand of Rs. 5,53,776. During the course of assessment proceedings, the assessee was asked to furnish monthly cash balances. The details filed by the assessee also show that the assessee maintained huge cash balance throughout the year. It is further observed by the Assessing Officer that since the business of the assessee is angadia wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not utilised wholly and exclusively for the purpose of business and he disallowed the proportionate interest at the rate of 76 per cent. of Rs. 4,96,231. We find on this issue the order of the learned Commissioner of Income-tax (Appeals) is cryptic. He has decided this issue in paragraph 9 of his order as under: "9. Similarly, in respect of the disallowance of interest of Rs.4,96,231 it is seen that the Assessing Officer had given cogent reasons and refuted the arguments of the assessee. No infirmity is seen in her action in making the proportionate disallowance. It is therefore confirmed and the related ground of appeal is rejected." The assessee-firm has placed reliance on the order of the hon'ble coordinate Bench in the case of Asst. CIT v. Patel Mathavlal Magnilal in I.T.A. Nos. 69 to 74/Ahd/2009 has held as under: "7.3. In all these cases, in the like manner, the Assessing Officer had found that there was huge cash balances. On one hand, the allegation was that those assessees have maintained idle cash balances, however, at the same time borrowed money and paid interest thereon. Therefore, in the same manner, it was alleged by the Revenue Department that the borrowed mo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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