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Income Tax Officer, Ward-30 (1) , New Delhi Versus Sh. Vinod Chadha, C/o- Moti Mahal Restaurant and Vica-Versa

2016 (9) TMI 1069 - ITAT DELHI

Addition made on account of cash deposit in bank account u/s 69A - assessmnet of partners share in partnership firm - Held that:- We find that as far as source of the cash deposit in the saving bank account of the assessee is concerned, it is explained as the cash sales of the partnership firm, namely, M/s Moti Mahal Restaurant, in which the assessee is one of the partners. The objection of the Revenue is, however, that the section 19(2) of the Partnership Act, 1932 prohibits opening of an accou .....

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rity of the partner binds the firm against the acts of the firm. This restriction on the implied authority of the partner is subject to the usage or custom of the trade, therefore, in absence of evidences of usage or custom of the trade, we cannot say that there was any violation of section 19(2) of the Indian partnership Act, 1932. In our opinion, what is important is that in deposit of trading receipts of the firm in the bank account of the partner, the assessee has not violated any of the pro .....

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KANT, ACCOUNTANT MEMBER For The Department : Sh. Amit Jain, Sr.DR For The Assessee : Sh. Naresh Chandra Agarwal, CA ORDER PER O.P. KANT, A.M.: This appeal by the Revenue and the cross objection by the assessee are directed against the order dated 20/09/2013 of the ld. Commissioner of Incometax (Appeals)-XXV, New Delhi for assessment year 2009-10. The grounds of appeal raised by the Revenue are as under: 1. On the fact and circumstances of the case, ld. CIT(A) has erred in deleting addition of & .....

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in the assessee s individual name was not the Bank account of the firm M/s. Moti Mahal Restaurant, in which the assesse was a partner. 4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 2. The cross objection raised by the assessee are as under: 1. Whether the learned CIT(A) was justified in holding that the objections raised and filed by the appellant during the course of .....

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148 was issued. 2. Whether the assessing officer was required to dispose off the objections filed by the assessee against the reasons recorded by him before he start the assessment proceedings as per law separately by an speaking order. 3. Whether having acquiesced and participating in the assessment proceedings by the assessee, is too late for the appellant to argue that non disposal of the objections was a fatal flaw vitiating the order passed by assessing officer. 4. Whether the appeal filed .....

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ging to his partnership firm, namely, Moti Mahal Restaurant . The claim of the assessee was not verified in absence of any supporting evidence and the Assessing Officer after recording reasons that the income had escaped assessment, issued notice under section 148 of the Income Tax Act, 1961 (in short the Act ). In the counsel s letter dated 09/09/2012, the assessee requested for the reasons for issuance of notice under section 148 of the Act, which according to the Assessing Officer, were provi .....

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nged the reassessment proceedings on the ground that its objections to the re-assessment proceedings was not disposed off by the Assessing Officer as well as challenged the additions on merit. The Ld. Commissioner of Income-tax (Appeals), upheld the re-assessment proceedings in view of the judgment of the Hon ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers Private Limited, (2007) 291 ITR 500, however deleted the addition of ₹ 63,47,405/- on merit. Aggrieved, the Reve .....

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ve of the assessee submitted that for the purpose of depositing the daily sale proceeds of the partnership firm M/s Moti Mahal Restaurant, the assessee opened a saving account no. 08240100014118 in the Bank of Baroda, Daryaganj New Delhi, in which a sum of ₹ 63,47,405/- was found deposited by the Assessing Officer. Subsequently, balance from another account No. 8240100001772, which was in the joint name of the assessee and another partner of the firm, Smt. Kushal Deep was also deposited in .....

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e said bank accounts were shown in the balance sheet of the partnership firm. According to the ld. Authorized Representative, the cash deposits were the sales of the partnership firm and duly explained with the help of the sales receipts recorded in the books of accounts of the partnership firm and in view of these facts no addition was warranted in the case of the assessee. 6. We have heard the rival submission and perused the material on record. The Ld. Commissioner of Income-tax (Appeals) has .....

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od Chadha did not represent the deposits of his concealed/undisclosed income. During the course of appellate proceedings, it was successfully established that the said deposits were duly accounted for by the appellant's firm. The periodicity pertaining to the filing of the returns of income of the appellant's firm and the appellant individual also served as a strong and cogent evidence of the fact that prior to detection of deposits for ₹ 63,47,405/- lying in the SB accounts of the .....

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a partner acts as an agent on behalf of the others on the principles of mutuality. In other words, the partners have implied authorities to transact the business of the partnership firm in a bonafide manner and if any partner fails to conform to the standards laid down in the partnership deed, he becomes liable for action at the hands of the other partners. In the instant case, however, the appellant seemingly opened the savings bank account no. 08240100014118 without the consent of the other pa .....

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f the appellant Sh Vinod Chadha also went to prove that the other partners did not consider such an action of the appellant to be in violation of "Clause-12" otherwise they could have brought a suit against him. In this context Section 15 of the Indian Partnership Act also becomes relevant. The said section reads as under:- "Section-15:- Subject to contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the bus .....

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as no legal existence, the partnership, property will vest in all the partners and in that sense every partner has an legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership however no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain .....

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s of the partnership as belonging to him al one. " On a plain and simple reading of the fore referred section it would be clear that the appellant Sh Vinod Chadha did not act in congruence with the law on the subject when he opened an account to be operated independently by him for depositing the sales, receipts etc. of the firm M/s Moti Mahal Restaurant, the partnership firm in which he was a partner. To this extent the objection of the Ld. AO was fully justified but his overlooking the su .....

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010001772 & 08240100014118 were not taken away from the other partners in as much as the said bank accounts were revealed in the income tax return of the partnership firm for the relevant AY to which the deposits amounting to ₹ 63,47,405/- related. In other words none of the partners were deprived of the benefits of the sales transactions of the partnership firm M/s Moti Mahal Restaurant in breach of the contract of partnership. Even otherwise, the trail of money lying deposited in the .....

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allowed by deleting the addition of ₹ 63,47,405/-. 7. We find that as far as source of the cash deposit of ₹ 63,47,405/- in the saving bank account of the assessee is concerned, it is explained as the cash sales of the partnership firm, namely, M/s Moti Mahal Restaurant, in which the assessee is one of the partners. The objection of the Revenue is, however, that the section 19(2) of the Partnership Act, 1932 prohibits opening of an account by a partner in his own name on behalf of th .....

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of the firm. This restriction on the implied authority of the partner is subject to the usage or custom of the trade, therefore, in absence of evidences of usage or custom of the trade, we cannot say that there was any violation of section 19(2) of the Indian partnership Act, 1932. In our opinion, what is important is that in deposit of trading receipts of the firm in the bank account of the partner, the assessee has not violated any of the provisions of the Income Tax Act, even if it may be a .....

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by the Reserve Bank of India or the Central Government, and it was not any violation of the provisions of the Income Tax Act, 1961. The relevant paragraph of the judgment is reproduced as under: 15. Mr. Salve, learned counsel for the appellant, submitted that the High Court has wrongly addressed itself to the issue involved in the writ petitions on the question of interpreting the effect of the two letters. He said that it was not correct for the High Court to leave the decision to the ITO and t .....

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though proceeding for each assessment initiated by the ITO was under s. 147(a) of the Act but the High Court considered the same to be one under s. 147(b) of the Act without further examining the question if notices under s. 148 of the Act on that ground will be within the period of limitation. Again, we do not think that we need to delve into this field as we find the High Court erred in not exercising its jurisdiction when the facts were all there and law clear on the subject. Having examined .....

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47 of the Act in that were these two letters provided material for him to initiate the reassessment proceedings and did these constitute information to give him a reason to believe that income chargeable to tax had escaped assessment. We have seen above that these two letters have been issued under the provisions of FERA and deal with remittance of foreign exchange outside India. Any contravention of these letters would entail prosecution under s. 56 of 1973 Act and under s. 23 of 1947 Act. The .....

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foreign remittance to be made abroad by the appellant has nothing to do with the amount of disallowances under the IT Act. As already seen above, the letter dt. 6th Nov., 1974 allows remittances within the overall ceiling of 80 per cent of export earnings applicable to the remittances of the Indian branch of the appellant on all counts. The assessments for the years 1971-72 to 1973-74 were already complete before the issuance of this letter. If any remittance of foreign exchange having been mad .....

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