The Visakhapatnam Bench of Income Tax Appellate Tribunal ( ITAT ) overturned the Assessing Officer ( AO )’s addition of Rs. 1.4 lakh under section 68 of the Income Tax Act,1961 validating the assessee’s accounting of cash and an insurance payment made on behalf of his partnership firm.
Aravind Reddy Devagiri, appellant-assessee, was a managing partner in M/s. A.R. Constructions, with a 75% profit share, and also held partnership interests in M/s. Lakshmi Cold Storage and M/s. Vigneswara Cold Storage. For the Assessment Year ( A.Y ) 2017-18, he filed his income tax return on March 8, 2018, reporting a total income of Rs. 7,54,800.
How to Compute Income from Salary with Tax Planning, Click Here
During the assessment process, the AO observed that while the assessee had disclosed a capital balance of Rs. 48,53,245 in M/s. A.R. Constructions, he had not accounted for capital introduced in M/s. Lakshmi Cold Storage and M/s. Vigneswara Cold Storage. Specifically, his investments amounted to Rs. 1,45,64,960 and Rs. 86,64,883, representing his 40% partnership shares in these firms.
Believing that income had escaped assessment under section 147, the AO issued a notice under section 148 on March 12, 2020, after receiving prior approval from the Joint Commissioner of Income Tax ( JCIT ). The assessee did not submit a revised return but responded to notices issued under section 142(1) of the Act.
Following an examination of these responses, the AO proceeded with additions, including Rs. 11,40,665 for cash introduced in the firm under section 68 read with section 115BBE, Rs. 24,50,000 for capital introduced, Rs. 1,94,99,178 for investments in the two firms, Rs. 1,40,000 as an additional investment, and Rs. 9,65,000 under section 56(2)(x) of the Act.
How to Compute Income from Salary with Tax Planning, Click Here
Challenging these additions, the appellant filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], reiterating the submissions made to the AO. However, the CIT(A) dismissed the appeal, upholding the AO’s additions in their entirety. Aggrieved by the decision of the CIT(A), the assessee appealed before the tribunal.
The assessee challenged an addition of Rs. 1,40,000 under section 68 of the Act. The assessee’s representative explained that this amount included a cash introduction of Rs. 20,000 and an insurance payment of Rs. 1,20,000, which was made on behalf of the firm and credited to the assessee’s capital account for reimbursement.
The Departmental Representative ( DR ) relied on the stance of the Revenue Authorities.
The two member bench comprising Duvvuru RL Reddy ( Judicial Member ) and S.Balakrishnan ( Accountant Member ) after reviewing the case, found that the AO did not provide sufficient justification for treating the Rs. 1,40,000 as unexplained.It determined that the assessee had properly accounted for the cash introduced and the insurance payment.
Therefore, it directed the AO to remove the addition of Rs. 1,40,000, allowing the assessee’s appeal on this issue.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
