Imprest account not necessarily part of partner capital account as held by ITAT was based merely on partner’s statement without properly analysing the evidence-High Court
ABCAUS Case Law Citation:
ABCAUS 1068 (2016) (11) HC
Brief Facts of the Case:
The responding assessee was a partnership fir. The return of the assessee was processed u/s 143(1). Thereafter the case was reopened by issue of notice u/s 148 of the Income Tax Act, 1961. The reassessment proceedings were initiated on the basis of a complaint received by the Assessing Officer that in a suit for specific performance, a partner of the assessee firm, had filed documentary evidence in the court of ACJ. As per the evidence filed the partner admitted to have withdrawn Rs.1,70,00,000/- in cash from the assessee-firm and for this purpose the partner had also filed copy of the capital account substantiating withdrawal of Rs.1,70,00,000/- in cash.
However, the capital account attached with the return of the assessee firm had no such entry therein. When the partner was confronted with this fact, it was submitted that he had received cash from the assessee firm under the imprest account and, therefore, this entry had not been reflected in the capital account of the assessee firm filed with the return.
A perusal of the cash book for the concerned period revealed receipt of cash of Rs. 20,000/- or less from a large number of people. The assessee had also shown receipt of cash amounting to Rs.1,40,00,000/- from one of its branch/division which had borrowed such money from public.
It was submitted that the money was paid to the partner to purchase land but since the deal did not mature this money was returned by him. Since the above transaction was through the imprest account of the partner and the money was returned within five days of its receipt, the same was not reflected in the capital account. It was also stated that on return of the money by partner, the same was then returned to the public by the branch/division of the assessee firm.
However, the AO was not satisfied on how the entry of withdrawal of Rs. 1,70,00,000/- appeared in the copy of the capital account as filed by him in the court. Also, there was no mention of any branch office in the audit report and no cash in hand was found in the account of the said division. In fact, the reported division was found in the list of sundry creditors instead of capital. The Assessing officer further found that the profit and loss account of the said division was not attached with the return of income.
The AO was of the view that if the partner had withdrawn money from the assessee firm for personal use, the same should have been reflected as drawings in the capital account. The AO, did not find the explanation of the assessee as genuine, re-assessed the income by making an addition of Rs.1,70,00,000/- in the hand of the partner and on a protective basis in the hand of the assessee firm.
The assessee challenged the re-assessment order before CIT(Appeals) contending that the money was borrowed from the public. The list of those persons was supplied and eleven of them, on a test check basis were summoned u/s 131 and examined by the AO. Considering the statements recorded and after analysing the same, CIT(A) held that in all the cases, the transactions have more or less been unequivocally confirmed. Coming to the conclusion that the source of Rs.1,70,00,000/- had been explained, CIT(A) ordered the deletion of the said amount.
The ITAT had also confirmed the order of the CIT(A).
Observations made by the High Court:
The High Court observed the findings recorded by the CIT(A) and found that both the statements recorded and the findings as vague, lacking details, incomplete with respect to crucial facts and not only self contradictory but against the record. The High Court opined that the order of the Commissioner lacked consideration of material and crucial facts.
The Court further observed that the order of the Tribunal did not mention anything with regard to the statements of the alleged creditors of the assessee-firm. In fact, mere placing reliance on the statement a partner of the assessee, the ITAT held that the imprest account “does not necessarily” form part of capital account without comparing the same with the statements of the alleged creditors.
The High Court opined that the Tribunal, which was the final fact finding authority, failed to properly analyse the evidence on record and without appropriate reasons confirmed the order of the Commissioner.
The order of the Tribunal was found to be perverse. The appeal was allowed setting aside the order of the Tribunal and the matter was remitted to the Tribunal for a fresh decision on merits.