The Income Tax Appellate Tribunal (ITAT) Mumbai Bench held that no income tax on partners for share in profit of partnership firm. Therefore the bench deleted the addition made under Section 68 of Income Tax Act, 1961.
Jayesh Tokershi Shah, the taxpayer was a partner in partnership firms and for the year under consideration filed a return of income declaring total income of Rs.11,42,500/-. In the scrutiny proceedings, the Assessing Officer (AO) observed the assessee claimed exemption for share profit received from his partnership firm .
Assessee submitted that during the course of survey stated that the said firm declared an income of Rs. 12,33,67,010/- under Income Declaration Scheme (IDS), 2016 and amount of Rs.6,16,83,505/- was assessee’s share as partner was credited out of declared profit.
The Assessing Officer observed that said firm did not pay due taxes income under IDS-2016 and no reversal of share of profit was done by the assessee in the capital account. Therefore, the AO found that assessee did not revised his income
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeal) {CIT(A)}, who upheld the order of the CPC. Accordingly, against the order the assessee filed an appeal before the tribunal.
During the proceedings Akshay Jain, the counsel for the assessee submitted that the share profit credited cannot be taxed as unexplained cash credit under Section 68 of the Income Tax Act.
Further, the share profit from partnership firms is taxable in the hands of the partnership firm and not in the hands of the partners.
Prakash Choughule, Counsel for Revenue, submitted that the assessee has not explained as to how the amount of Rs.6,16,83,505/- was credited in his capital account even though no corresponding profit was shown by the partnership firm.
It was observed by the tribunal that under provisions of section 10(2A) of the Income Tax Act, said that any share of profit of the partnership firm is exempted from the tax in hand of the partner. The said share cannot become unexplained in the hands of the assessee partner merely for the reason that no tax was paid by the partnership firm.
The tribunal after reviewing the facts and submissions of the both parties the two member bench of Om Prakash Kant, (Accountant Member) and Kavitha Rajagopal, (Judicial Member) deleted the addition and held that share of profit from the partnership firm was always exempt in the hands of the partners irrespective of payment taxes by the partnership firm.
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