TMI Blog2020 (1) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. As such, it was noticed that the assessee out of such loan and liabilities has advanced a sum of ₹ 1,39,35,033/- to its group concerned and this fact has not been doubted by the authorities below. Therefore, in the absence of documentary evidence it cannot be assumed that there was trading liability which has ceased to exist in the books of accounts. Indeed the liabilities in the books of accounts of the firm have ceased to exist as the same was transferred to the account of the partner. But, it does not mean that the trade creditors have waived their rights for the amount receivable from the assessee. As such, now the partner was liable for the payment of such amount as it was transferred to his individual account by the assessee. It is also a fact on records that, the partners are liable for the liabilities of the partnership firm. Thus, the liability of the partnership firm is not limited unlike the body corporate. Thus, we are of the view that the liability has not ceased to exist in true sense in the given facts and circumstances as it has shifted to the partner of the firm who was always otherwise liable for such liability in his personal capacity being pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the fact that even section 68 is not applicable to the facts of the case and therefore, the action of the Assessing Officer is itself bad in law and void and liable to be quashed. The appellant craves leave to add/delete/alter and/or amend any of grounds as aforesaid as and when necessary. The solitary issue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by sustaining the addition of ₹ 2,59,33,030/- under section 68 of the Act. 2. The facts in brief are that the assessee in the present case is a partnership firm, comprising two partners namely Chandrakant N Shah and Nimesh C Shah. The assessee is engaged in the activity of trading of petroleum products. The assessee (the partnership firm) was established as partnership firm sometime in the year 1977. The assessee has carried forward the loan since assessment year 2005-06 from various parties aggregating to ₹ 2,51,29,079/- in its balance sheet as on 31 March 2012. The details of such loan stand as under: List of persons whose amount is credited to Capital Account of Chandrakant N Shah Sr.No. Name of the Party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Dharmatar Pharma 993 8. Gopal Nivas Hotel Pvt Ltd 80000 9. Janki Associates-Ahmedabad 848139 10. Janki Associates-Delhi 7040000 11. Janki Associates-Pune 74970 12. Janki D Shah 9587 14. Mukesh G Parikh 6444 15. NSC for Foods Control 6000 16. Parthiv N Shah 9587 17. Rupal D Shah 2451 18. Share GEN Co-operative Bank 625000 19. Share MAC Laboratories 625000 20. Shreeji Pharma 350000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d adjustments in the capital account of the partners by submitting that these loans and advances were representing the transactions with the group concerns (in which partners or relatives of partners were interested) made in the earlier years which were duly disclosed in the balance sheets of the respective years. However, the assessee was expressed its inability to file the confirmation from the respective parties as there was dispute among the parties as discussed above. 2.4 The assessee further claimed that the transactions were merely internal adjustments as there was no flow of any funds in the books in the year under consideration. 2.5 The assessee also claimed that these changes were made in the books of accounts to satisfy the conditions imposed by the prospective partners namely Subhash N Desai and Kalpesh Guilder who agreed to enter into the partnership firm (assessee) as partners with effect from assessment year 2013- 2014. 2.6 The assessee during the assessment proceedings admitted the fact that the partners of the firm have not filed the income tax return for the year under consideration. Rather it was submitted that one of the partner namely Shri Chandrakant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fective from assessment year 2013-14 wherein two new partners were admitted. Subsequently, the credit balance in the account of the partner namely Shri Chandrakant N Shah amounting to ₹ 7,76,053.00 was withdrawn by the wife of the partner upon his (Shri Chandrakant N Shah) death. 5. However, the learned CIT (A) inter-alia observed that the partnership deed was made only on ₹ 500 non-judicial stamp paper but without any witness. The confirmation from all the loan parties was not furnished by the assessee during the assessment as well as appellate proceedings. 5.1 The acceptance of the loan amount in the earlier years does not mean that it has become the genuine loan/transaction. As such the assessee by transferring the loan of the firm in the partner capital account is trying to shift the bogus transaction from the books of the firm. 5.2 The Ld. CIT-A also noted that the assessee itself has admitted that such liability has ceased to exist in its books of accounts by way of making such adjustment entries in the books of accounts which are representing trading liabilities. As such, these trading liabilities have ceased to exist in the books of accounts and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 09.03.2015 (PB Page No.85] as well as dated 20.02.2015 (PB Page No.83), 23.03.2015 (PB Page No.86), 05.11.2014 (PB Page No.82] and 09.05.2014 (PB Page Nos. 80 and 81). Another submission dated 30.03.2015 has not been accepted by AO as per PB page Nos. 86A to 91 and, therefore, it has been sent through RPAD. The partner viz. Chandrakant N. Shah has been expired on 17.07.2013 as per death certificate at PB Page No.96 and, therefore, the affidavit of the widow is at PB Page Nos.97 and 98. The copy of account of Chandrakant N. Shah for FY 2011-12 is at PB Page Nos. 99 and 100 and the nature of credit entry transferred to Chandrakant N. Shah for ₹ 2,51,29,079/- is at PB Page No.101 and debit entry transferred to his account is at PB Page 102 for ₹ 1,39,35,033/-. The AO has only considered the credit entry by applying Section 68. The detailed chart is as per PB Page No.92 also regarding crediting Chandrakant N. Shah and the major amount is in reference to MAC Laboratories, ₹ 1,64,96,860/- and Gajjar Standard Chemical, ₹ 36,50,000/- and copy of the confirmation from these two parties is from PB Page Nos.93 to 96, as well as in reference to MAC Laboratories, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for AY 2011-12 is as per page No.270 to 287 and the detailed grouping of unsecured loan appeared for ₹ 2,51,32,521/- is at page No.284.The assessee has also submitted two partners' capital account from AY 2005-06 to FY 2012-13 which is as per page Nos.310 to 335 which includes the ledger account from FY 2005-06 of two partners as well as latest account of two incoming partners. 1.3 The detailed submission made before the AO is as per page No.290 and the reasons why the balance has been transferred to the partners account is as per page Nos. 291 to 294 alongwith the details regarding partnership deed enclosed with various dates is as per page No.294 for chart and the deeds mentioned therein at page 295 to 309. Therefore, the finding given by CIT(A) in his appeal order page No. 15, para 5.15 that no details filed is factually incorrect in reference to past years audited accounts as well as partnership deeds. Based on this so-called perverse finding, he has applied Section 41(1) which is not applicable to the facts of the case. 1.4 The copy of the confirmation from various parties is as per page Nos. I, ] 33 to 49, 50 to 79, 340; 341. The complete facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as applied the aforesaid Section. In para 5.20, it is held that the assessee has not established genuineness on the unsecured loans even though stated by the assessee that the unsecured loans carried forward from AY 2007-08 under Section 143(3) and ITO ward 10(2) has accepted this unsecured loan which has been subsequently credited to the account of Chandrakant N. Shah. After making observation regarding genuineness of unsecured loans in para 5.20, he applied Section 41(1) in para 5.26. In any case, if there is unsecured loan pertaining to AY 2007-08 and earlier year, there is no justification to apply Section 68/41(1) of the Income Tax Act. In para 5.21, 5.22, page 18, CIT(A) has given factual aspect regarding introduction of two new partners namely Subhash Desai and Kalpesh Gilder. In para 5.24, he admits that sec. 68 is not applicable. Thereafter, in para 5.25, he applied sec. 41(1) after making reliance upon 114 ITR 853(Kar), 62 ITR 34 (Bom) and 55 CTR 218 (Cal). In para 5.26, he referred sec. 41(1) to the whole amount of ₹ 2,59,33,030/-. It is strongly stated that in view of the following judgments, sec. 41(1) is not applicable to the facts as narrated herein above. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding allowance or deduction in past year, no addition can be made referring to judgment of 325 ITR 593 (P H) Sitadevi Juneja, 325 ITR52 (P H) G P International, 254 ITR 434 (SC) Kesariya Tea as well as 78 ITR 55 (SC) Terunelveli Motor Bus as well as Gujarat High Court in Bharat Iron 199 ITR 67. Attention is drawn to 14 ITR 355 (Madras) in N.Rudrappa wherein it is held that where the retiring partner share in loss of the firm is forgive by the firm then Section 41(1) is not applicable. Therefore, based on the aforesaid submission, we hereby submit as under: (a) That, no onus discharged by CIT(A) as lies upon him in reference to Section 41(1) before giving the finding in his appeal order page No.19, para 5.25 and 5.26. (b) In any case, the amount credited to respective partners' account cannot be considered as loss expenditure trading liability and even cannot be termed as successor in a business , therefore, the provision of 41(1) cannot be applicable to the facts of the case. (c) That no evidence brought on record that the amount carried forward from the AY 2005-06 and onwards has been claimed by way of various terms as referred in par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: 8.3 From the plain reading of the aforesaid provision it reveals that, there cannot be any addition on account of such opening balance of loans carried forward from the earlier years. In this regard we find support and guidance from the judgment of Hon ble Delhi Court in the case of CIT v/s Usha Stud Agricultural Farms Ltd reported in 301 ITR 384 where the head note reads as under: Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment year 1999-2000 - During assessment proceedings, Assessing Officer noticed that assessee had shown certain amount as advance from one 'B' - As assessee failed to file confirmation from B, Assessing Officer made addition of that amount under section 68 - On appeal, Commissioner (Appeals) deleted addition on ground that said cash credit was appearing in books of assessee over past four to five years and, thus, it was not fresh credit entry pertaining to relevant assessment year - Tribunal dismissed appeal filed by revenue - Whether finding reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained 16, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof 16, the amount obtained 16 by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. 8.6 A plain reading of the aforesaid provisions reveals that it is applicable with respect to the trading liabilities and there is no information available on record suggesting that the impugned liabilities were representing the trading liabilities. As such, it was noticed that the assessee out of such loan and liabilities has advanced a sum of ₹ 1,39,35,033/- to its group concerned and this fact has not been doubted by the authorities below. Therefore, in the absence of documentary e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... always otherwise liable for such liability in his personal capacity being partner. Without prejudice to the above, we are also conscious to the fact that the ld. CIT-A has clearly held that the impugned loans are not genuine as reproduced under: 5.20 The appellant was specifically asked to prove the genuineness of the above transactions and also asked to explain the status/payment/receipt of the unsecured loan and advances given after transferring the same to the retiring partners whether the same is still outstanding in the partner's account. However in spite of specific request, the appellant could not establish the genuineness of the unsecured creditors and advances given to the debtors. The appellant merely submitted that the loans were examined in AY 2007-08 and same has been found genuine by the AO in assessment u/s 143(3). The appellant fled the questionnaire issued by the AO, ITO, Ward 10(2), Ahmedabad where the details of unsecured loans of ₹ 2,67,65,330/- was called for. However while making the assessment the AO has not commented on the genuineness of the loans outstanding and accepted the return of income. It is observed that the assessment passed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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