Sale of land made by partnership firm can not be added in partner’s hand. Assessment has to be done in the right hands
ABCAUS Case Law Citation:
ABCAUS 2861 (2019) (04) ITAT
Important Case Laws Cited/relied upon by the parties
ITO Vs. Ch. Atchaiah reported at 218 ITR 239 (SC)
ACIT Vs. Prabhakar Kamath 68 taxmann.com 359 (Kar.)
The question involved in this case was when sale consideration is received by partnership firm and the same is reflected in the books of account of the partnership firm and had been offered to tax then whether the same amount can be assessed in the hands of the individual partners for the purpose of taxation ?
The assessee had filed return of income which was processed u/s 143(1) of the Income Tax Act, 1961 (the Act) accepting the returned income. Thereafter, search and seizure action u/s 132 of the Act along with survey u/s 133A of the Act was conducted in the case of a business group.
Various documents were seized under relevant provisions of the Income Tax Act, wherein it was observed that cash has been paid to the partnership firm of the appellant assessee over and above the agreement value towards the purchase of land.
The Assessing Officer formed an opinion that since the appellant was the partner in the firm alleged to have received cash along with others as per agreement and not shown his share of cash receipt in return of income and therefore, notice u/s 148 of the Act was issued to the assessee.
The assessee in his submissions stated that in the statement recorded during the search, it was nowhere asserted that the seller had paid the cash amount to the assessee and other. The statement only stated that cash has been paid to the vendors.
The assessee further stated that the transaction of sale of property had been carried out by the firm and the assessee submitted that no cash has been received by the assessee.
The contention of the assessee did not find favour with the Assessing Officer. It was observed by the Assessing Officer that assessee was one of ten beneficiary of cash received in this land transaction. Since the assessee was the partner in the said firm, the AO added 10% of the alleged cash payment to the total income of the assessee u/s 68 of the Act.
During First Appellate proceedings, the Ld. CIT(Appeals) also upheld the findings of the Assessing Officer.
Before the Tribunal, the assessee demonstrated that the transactions pertains to the firm in which the assessee was a partner. The transaction was duly reflected in the books of account of the firm. The land had been sold by the partnership firm was already reflected in the books of account of the partnership firm and the sale consideration received and that income had already been offered to tax in the hands of the partnership firm.
It was also contended that when the transaction being done by partnership firm, the amount received by partnership firm and it had been offered to tax in the return of income of the partnership firm, then in no possible manner, the amount could be made taxable in the hands of the assessee.
The Tribunal observed that as demonstrated, the cash payment was made and credited to the firm and the transaction of the amount was assessed in the hands of the firm. In such scenario, terming the assessee as ultimate beneficiary was not appropriate.
The Tribunal noted that the Hon’ble Supreme Court had clearly held that assessment has to be done in the right hands. Therefore, when sale of land transaction has been done by the partnership firm, addition cannot be made in the hands of the individual assessee even though he is a partner of the firm.
The Tribunal set aside the order of the CIT(Appeals) and allowed the appeal of the assessee.