AGM Brothers vs. ITO, New Delhi, I.T.A No.20/Del/2024, ITAT Delhi
In a recent decision, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) provided relief to AGM Brothers, a dissolved partnership firm, by setting aside an addition of ₹43,55,357 made under Section 68 of the Income Tax Act, 1961. The Tribunal found merit in the argument that the cash deposits were made in the personal account of the erstwhile partner who had continued the business as a proprietor.
Background of the Case
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AGM Brothers, a partnership firm with Anupam Gupta and Mukesh Kumar as partners, was dissolved on 01.04.2016.
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After dissolution, Anupam Gupta took over all assets, liabilities, and the business, continuing it as a proprietorship.
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The AO made an addition of ₹43,55,357 u/s 68 on account of cash deposits in an HDFC Bank account, treating them as unexplained credits of the firm.
Key Contention by the Assessee
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The bank account in question was no longer operated by the firm and belonged to Anupam Gupta personally post-dissolution.
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Anupam Gupta had:
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Declared the same bank account and cash deposits in his ITR for AY 2017-18.
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Disclosed the turnover and transactions in the return, which matched the cash deposits.
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Filed an affidavit supporting the factual matrix.
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Had DVAT records updated to reflect the change in business constitution.
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The Department never made any inquiry with Anupam Gupta, indicating their implicit satisfaction.
Tribunal’s Observations
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ITAT noted that all relevant records were presented, and it was clearly stated that the business had transitioned into a proprietorship before the assessment year.
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The bank account did not belong to the firm, and therefore, the addition under Section 68 in the firm’s hands was questionable.
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Since the Assessing Officer did not examine these specific contentions earlier, the Tribunal chose to restore the matter for fresh verification.
Final Verdict
“The addition is restored to the file of the Assessing Officer for examination afresh… after providing adequate opportunity of being heard to the assessee.”
Key Takeaway
Additions under Section 68 cannot be sustained merely because cash was deposited in an account, unless it is established that:
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The account belongs to the assessee.
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The deposits are unexplained in the context of the assessee’s books.