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Shri Santosh P. Gulwadi, Flat No.5, Hriak Society, Irla Bridge, S.V. Road, MUMBAI 400 053. Vs. Dy. Commissioner of Income Tax, Range 8(2),MUMBAI.
April, 10th 2013
                    MUMBAI BENCHES "E" MUMBAI
                           [^ .., Û.     / 
        BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER                          /AND
                                    ^ Û], ..

                     . / ITA               No. 6865/Mum/2011
                        [ [ /Assessment Year 2006-07

              Shri Santosh P. Gulwadi,                Dy. Commissioner of
              Flat No.5, Hriak Society,               Income Tax,
              Irla Bridge, S.V. Road,       Vs.       Range 8(2),
              MUMBAI ­ 400 053.                       MUMBAI.

                     PAN: AEOPG 1550 K
              ( /Appellant)       (× / Respondent)

          / Appellant by                          :     Shri D.J. Thakkar &
                                                        Shri R.P. Shah
       ×    / Respondent by                       :     Shri P.K. Singh

                   / Date of Hearing                           :      20-03-2013
              / Date of Pronouncement                          :      03-04-2013

                                    / O R D E R


        Following Grounds of Appeal have been filed by the assessee against the order
dt. 29-06-2011 of CIT(A)-17, Mumbai:

           1. On the facts and under the circumstances of the case and in law, the learned
           Commissioner of Income Tax (Appeals) erred in making addition of
           Rs. 20,31,749/-.

              a) Without issuing notice for the enhancement;

              b) Treating debit balance of partner's capital account as perquisite u/s.
                 24(iv) of the Income Tax Act, 1961.

              c) Calculating notional interest on debit balance of partner even though the
                 interest paid by firm was disallowed by partnership firm in Computation
                 of Income.
                                           2                            ITA No. 6865/Mum/2011
                                                                        Shri Santosh P. Gulwadi

       2. On the facts and under the circumstances of the case and in law, the learned
          Commissioner of Income Tax (Appeals) erred in confirming the action of AO of
          making addition of Rs. 1.49 Lakhs cash deposited in bank account as unexplained
          cash credit u/s. 68 of the Income Tax Act, 1961.

       3. On the facts and under the circumstances of the case and in law, the learned
          Commissioner of Income Tax (Appeals) erred in confirming the action of AO of
          making addition of Rs. 1.97 Lakhs of advance given to Salpra Pharmaceuticals &
          Chemicals as unexplained investment u/s. 69 of the Income Tax Act, 1961.

       4. The appellant craves for leave to add, to alter and/or to withdraw all or any of
          the above grounds of appeal, if necessary.

2.      Assessee, an individual and a partner of M/s. Salpra Pharmaceuticals &
Chemicals (SPC), filed his return of income on 3-1-2007 declaring total income at Rs.
98,400/-. Initially, the return was processed u/s. 143(1) of the Income Tax Act, 1961
(Act). Subsequently, the case was selected for scrutiny and assessment was finalised
by the Assessing Officer (AO) u/s. 143(3) of the Act on 28-11-2008.

3.       During the assessment proceedings, AO made addition to the income of the
assessee on account of credit card expenditure. Assessee preferred an appeal before
the First Appellate Authority (FAA) who deleted the addition made by the AO. But,
considering the material available on file, he invoked the provisions of Sec. 28(iv) of
the Act. During the appellate proceedings, FAA found that no interest had been
charged by the firm on the debit balance of the partners. On the other hand, it was
also noticed by him that the firm had in its computation of income tax for AY. 2006-
07, added back an amount of Rs. 8,10,900/- and Rs. 32,52,599/-, being interest on
loans, that in the instant year the firm had taken interest-bearing loans and diverted
the funds for the personal use of the partners, that firm had disallowed suo-moto the
above mentioned interest for the purposes of computing its income under the Act, that
said amount had not been bifurcated and debited to the capital account of the partners,
that in the hands of the partners said amount would constitute a taxable perquisite
u/s.28(iv) of the Act, that amount-in-question was also not a money perquisite. He
directed the AO to bring to tax the sum of Rs. 20,31,749/- u/s. 28(iv) of the Act.

4.     Before us, Authorised Representative (AR) submitted that Ground No.1(a)
should be treated as not pressed. As the said Ground is not pressed, the same stands

4.1.   With reference to Ground No. 1(b), he submitted that amount in question
could not be taxed as perquisite in the hands of the assessee. He relied upon the case
of Ravinder Singh delivered by the Hon'ble High Court of Delhi (205 ITR 353).
Depart-mental Representative (DR) relied upon the order of the FAA.

4.2.    We find that in this case, while making the addition u/s. 28(iv) of the Act,
FAA had not considered the availability of interest bearing/non-interest bearing funds
during the year in relation with the advances made to the partner.AR has also not
brought the said data on record. In the case of Ravinder Singh (supra) Hon'ble High
Court has held that availability of interest bearing fund/non-interest bearing fund is a
pre-condition for invoking provisions of section 28(iv) of the Act. Therefore, in the
interest of justice, we restore back the matter to the file of the FAA for fresh adjudi-
                                          3                           ITA No. 6865/Mum/2011
                                                                      Shri Santosh P. Gulwadi

cation. He is directed to afford a reasonable opportunity of hearing to the assessee.
As the Ground No. 1(b) has been restored back to the AO for fresh adjudication, so,
Ground No. 1 (c) becomes academic. It is treated as allowed for statistical purposes.

       Ground No.1 is allowed in part in favour of the assessee.

5.      Next Ground of Appeal pertains to addition of Rs. 1.49 Lakhs, being
unexplained cash credits, u/s. 68 of the Act. During the assessment proceedings, AO
noted that in the Savings Bank A/c of the assessee there was cash credits of Rs. 1.49
Lakhs, that the assessee was unable to give any explanation. He treated the same as
income u/s. 68 of the Act. Before the FAA, it was submitted that, the cash deposits in
the bank account were made from cash withdrawals from the books of the firm which
had been debited to the capital account of the partner in the books of firm. A chart
showing the cash withdrawals from the books of the firm and cash deposits in the
assessee's bank account was filed before him. After considering the submissions of
the assessee, he held that cash deposits and withdrawals did not correspond either in
amount or date, that appellant did not give any explanation on this account before the
AO, that the explanation being given before him amounted to additional evidence
which could not be admitted for want of any allowable reasons, that the assessee had
been directly meeting his personal expenses from the bank account of the firm, by
issue of cheque, that it was beyond understanding as why cash was not transferred to
the bank account of the assessee by issue of cheque, that in view of the above
discrepancies, explanation of the appellant could not be treated reliable. As a result,
Appeal filed by the assessee in this regard was dismissed by the FAA.

6.      Before mentioning the submissions made by the AR and the DR with regard to
above ground of appeal we will to take up the last Ground of Appeal also, as the
arguments /submissions of the AO, FAA and the AR / DR for the both the grounds
are of similar nature.

7.      Last ground of appeal is about addition made by the AO u/s. 69 of the Act
amounting to Rs. 1.97 Lakhs. In the course of assessment proceedings, AO noted that
a sum of Rs. 1.97 Lakhs had been credited in cash to the capital account of the
assessee in the books of the firm, as per the AO, assessee failed to file any
explanation. As a result, said sum was brought to tax as un-explained investment. In
the course of appellate proceedings, before the FAA, assessee submitted that the cash
deposited in the books of the firm was from withdrawals made from the saving bank
account of the assessee. Assessee filed a chart explaining the same.FAA held that he
had not inclined to accept the explanation of the appellant for the same reasons he had
given with regard to Ground pertaining to disallowance made u/s. 68 of the Act.
Finally, he dismissed the appeal filed by the assessee.

8.      Before us AR submitted that withdrawals/deposits from the bank accounts
were not considered by the revenue authorities while deciding the issue under
consideration, that assessee could have issued/received cheques only in place of cash
withdrawals/ deposits, that for not following a particular system of deposits and
withdrawal additions u/s. 68 and 69 of the Act could not be made/confirmed, charts
submitted by the assessee should have been considered before fastening tax liability to
the assessee. DR supported the orders of the AO and the FAA.
                                           4                              ITA No. 6865/Mum/2011
                                                                          Shri Santosh P. Gulwadi

8.1.    We have heard the rival submissions. It is a fact that assessee had produced a
chart about withdrawal and deposits of money in his Bank accounts. FAA was of the
opinion being additional evidence same was not to be considered. In our opinion, in
the interest of justice, matter should be restored back to the file of the AO for fresh
adjudication. AO had made the additions on the basis that assessee was not a partner
of SPC and explanation offered by him about withdrawal / deposit from the said firm
had to be treated u/s. 68 or 69 of the Act. We find that FAA had given a categorical
finding that assessee was partner of M/s.SPC and the firm was assessed to tax. In
these circumstances, to determine the `due liability' of tax, matter has to be decided
after considering the charts/submissions made by the assessee. AO is directed to
afford reasonable opportunity of time to the assessee.
       Ground No.3 is Partly Allowed in favour of the assessee.
8.2.   We are also restoring back the Ground No.4 to the file of the AO for fresh
adjudication, as the background of the addition u/s.69 and its confirmation by FAA is
the same as Ground No.3. As directed earlier, AO should consider the material
produced by the assessee before the FAA before passing fresh assessment order.

       Ground No.4 is Partly decided in faovour of the assessee.
       As a result, appeal filed by the assessee stands partly allowed.
        [             .

       Order pronounced in the open court on 3rd April, 2013.
            Û   3rd April, 2013    

             Sd/-                                                  Sd/-
  (..          / B.R. MITTAL)                            (Û] /     RAJENDRA)
Û  / JUDICIAL MEMBER                             / ACCOUNTANT MEMBER

/Mumbai,          /Date: 3rd April, 2013

    /Copy of                   the Order forwarded to :

       1. Appellant
       2. Respondent
       3. The concerned CIT (A)
       4. The concerned CIT
       5. DR "E" Bench, ITAT, Mumbai
       6. Guard File
         ×  //True Copy//

                                                             / BY ORDER,

                                               /  Dy./Asst.
                                              ,  / ITAT, Mumbai
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