Cash Deposit Of Firm Can't Be Added To Personal Income Of Partner Without Investigation: ITAT

The notice under section 148  of Income Tax Act was issued against the assessee on 15.03.2013. The assessee filed his return of income declaring the NIL income as there was no income and the assessee only purchased a property. The reasons were recorded by the AO.

The assessee explained the source of investment during the assessment proceedings. The assessee explained that the amount of Rs. 5,00,000 was received from his father, Sahib Dayal, from the sale of the brickkiln as per the agreement to sell. The copy of the agreement to sell was filed before the lower authorities. The total consideration of the brickkiln was stated at Rs. 14,18,000, out of which Rs. 5,00,000 was claimed to have been received as an advance. The rest of the amount, Rs. 1,53,750, was paid from the savings of the family. Thus, the assessee has totally explained the share of the assessee in the purchase of property and this was the only share in M/s. Real Estate.

The AO asked for details of the existence of the firm M/s. Real Estate, as the assessee was co-owner of the firm. The firm had deposited cash amounting to Rs. 25,67,950. Considering the cash as an undisclosed source, the assessee's share in the firm was 30%, i.e., an amount of Rs.7,70,000 related to the deposit in cash in the firm's account was added back to the total income of the assessee. However, the AO did not add any amounts from his recorded observations.

The grievance of the assessee is that the AO added back the deposit of cash of the firm, M/s. Real Estate, to the assessee's total income.

The assessee contended that the deposit of cash by the firm should not be added to the total income of the assessee, who is a partner in the firm. The separate assessment should be made in the firm account and, accordingly, the addition should be called for.

The ITAT held that AO committed a gross violation of natural justice. Without the assessment of the firm, how was the amount deposited in the account of the firm added back to the partner's hand. The AO has completely deviated from the recorded reason and the assessment addition.

Case Title: Srijal Gupta Versus Income Tax Officer of Income Tax Ward 6(3)

Citation: I.T.A. No. 420/ASR/2019

Dated: 14.07.2022

Counsel For Appellant: None

Counsel For Respondent: Sr. DR S.M. Surendranath

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