R.K. & Company, Hyderabad vs Assessee

This is an assessee's appeal filed against the order of the Commissioner of Income Tax(Appeals)-IV, Hyderabad dated 25-10-2012 confirming the addition of Rs.84,26,903 as un-explained credit which was introduced by the partner in the firm.

2. Briefly stated, the Managing Partner Shri Chaitanya Ravi Kumar had introduced capital by way of bank transfers from his personal bank account amounting to Rs.90,46,903/-. Before the Assessing Officer (AO) assessee was not able to produce any evidence regarding the availability of funds with the partner, hence the same was treated as unexplained credit u/s. 68 of the Income Tax Act [Act]. However, before the CIT(A), I.T.A. No. 1765/Hyd/2012 :- 2 -: R.K. & Company

assessee has produced a copy of the bank account obtained from Union Bank of India, as such, the addition was deleted by the CIT(A). ITAT vide the order in ITA No.705/Hyd/2010 has set aside the issue to AO on the reason of not fulfilling the Rule 46A of additional evidence by CIT(A). In the revised proceeding, AO again rejected the assessee's contentions and CIT(A) confirmed the same.

3. Ld. Counsel referring to the facts of the case submitted that this was the first year of business of the firm and partner Sri Chaitanya Ravi Kumar has introduced his capital by way of cheques/bank transfer and he is an assessee in his individual capacity and HUF also. He has sources of funds and filed copies of assessment orders etc., to contend that :

i. Partner has creditworthiness;

ii. the moneys are introduced by way of bank through his personal A/c to firm's A/c and iii. Credit of partner cannot be considered as income of the firm in the first year of business;

4. Ld. DR however relied on the orders of the authorities.

5. We have considered the issue and examined the Paper Book placed on record. Apart from various principles on law, there is no dispute to the fact that the moneys were introduced by partner through bank and Sri Chaitanya Ravi Kumar is an assessee and in his personal capacity the investments in firm are accepted by the Revenue in the scrutiny assessments completed. In these circumstances, we are unable to confirm the same in the hands of Sri Chaitanya Ravi Kumar which can only be assessed in his hands. As far as the firm is concerned, the genuineness of credit, identity of creditor was established. We were I.T.A. No. 1765/Hyd/2012 :- 3 -: R.K. & Company

surprised that Ld. CIT(A) deferred from her predecessor without any reason. The order of Ld. CIT(A) in the first round of appeal was as under:

"2.1. I have considered submissions made by the appellant. With regard to the addition of Rs.90,46,903/- made u/s.68, the Assessing Officer has made this addition on the ground that copies of the bank accounts of the partner were not filed during the course of the assessment proceedings. From the copy of the ledger account filed before me it is seen that capital has been introduced mostly through transfers from United Bank of India. Copy of the bank statement was also filed to show these transfers made to the firm. It is seen that in most of these cases the narration clearly shows that the amounts are being transferred to the appellant firm. In any case, the appellant has also filed details to show that the Managing Partner has been regularly assessed to tax. Copies of the returns of income filed by the Managing Partner in his individual status and in the status of HUF were submitted before me. Copy of assessment order passed u/s.143(3) r.w.s.147 was also filed for the assessment year 2006-07 wherein it is seen that the Assessing Officer has accepted the income returned of Rs.5,85,750/-. Therefore considering the facts that -

(i) There is no question regarding the identity of the partner,

(ii) the partner has not disputed the introduction of the capital, (iii) the capital has been introduced through cheques and are reflected in the bank statements produced before me, (iv) the partner is regularly assessed to tax and has been filing returns with the Department, I hold that the genuineness and identity of the partner has been established. Since no adverse finding has been recorded by the Assessing Officer on completion of scrutiny assessment for the assessment year 2006-07 in the case of the partner it has to be held that there is no dispute with regard to his capacity either. In any case any such question regarding the source of the capital introduction will have to be considered in the hands of the partner and cannot be added in the case of the firm under such circumstances. I therefore held that the Assessing Officer erred in adding back this amount of Rs.90,46,903/- u/s.68 of the Act and delete the addition made".

6. Since the matter was restored to the AO on the reason of fulfilling the conditions of Rule 46A, we have no hesitation in holding that the I.T.A. No. 1765/Hyd/2012 :- 4 -: R.K. & Company

credits are genuine and there is no scope to make addition in the hands of the firm. What AO was asking the firm to prove is the source in the hands of Sri Chaitanya Kumar, which can only be done in his assessment and the same were accepted as such. As far as firm is concerned it discharged its onus and can not be expected to provide source of source in third person hands. In view of the above, we accept the genuineness of credits and delete the addition made. The grounds are allowed.

7. In the result, appeal is allowed.

Order pronounced in open Court on 17th April, 2015.

Sd/- Sd/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 17th April, 2015

TNMM

Copy to :

1. R.K & Company, C/o. M/s. Mahesh, Virender & Sriram, Chartered Accountants, 6-3-788/36 & 37A, Ameerpet, Hyderabad.

2. Income Tax Officer, Ward-6(3), Hyderabad

3. CIT(Appeals)-IV, Hyderabad

4. CIT-III, Hyderabad

5. D.R. ITAT, Hyderabad