The Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that cash seized from a partner’s premises cannot be automatically deemed adjustable against the partnership firm’s tax liability.
Anand Sweets & Savouries,the appellant-assessee, appealed against the Commissioner of Income Tax(Appeals)[CIT(A)]’s decision regarding the assessment year( AY ) 2016-17, where the CIT(A) upheld the Assessing Officer( AO )’s denial of adjusting cash seized during a search of the partners’ premises. The key issue was whether the seized cash, which the partnership firm claimed belonged to it, could be adjusted against the firm’s tax liability.
Get a Copy of Bharat’s Income Tax Act, Click here
During the search proceedings, the revenue authorities seized cash from the premises of one of the partners. The partnership firm offered this cash as self-assessment tax, but the AO rejected this claim in the intimation issued under section 143(1) of the Income Tax Act.
The CIT(A) supported the AO’s decision, reasoning that under tax law, the partners and the partnership firm are distinct entities, and since the cash was found on the partners’ premises, it could not be adjusted against the firm’s liability.
In response, the assessee presented various documents, including a paper book and an affidavit signed by all the partners. The affidavit affirmed that the seized cash belonged to the partnership firm and was duly recorded in its books of accounts.
The partners also confirmed that none of them had used the cash to settle personal tax liabilities, and they had no objections to the cash being applied toward the firm’s tax dues. The assessee’s legal representative emphasized these points, arguing that the cash was rightfully part of the firm’s assets.
The tribunal reviewed the submissions and evidence, particularly the cash book entry showing the seized amount. It found that the close relationship between a partnership firm and its partners meant that the location of the cash at a partner’s premises did not automatically mean it belonged to the partner individually.
Get a Copy of Bharat’s Income Tax Act, Click here
The bench noted that the authorities had not proven that the cash was intended for the partners’ personal use, and the partners’ tax returns showed no such adjustment against their liabilities.
The appellate tribunal ruled that the lower authorities had based their conclusions on speculation without considering the firm’s clear evidence. It held that the seized cash belonged to the partnership firm and should be adjusted against the firm’s tax liability.
The two member bench comprising Keshav Dubey(Judicial Member) and Waseem Ahmed (Accountant Member) set aside the CIT(A)’s order and directed the AO to allow the adjustment of Rs.9,30,000 against the firm’s tax dues. The appeal was allowed in favor of the assessee.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
