The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that a firm can’t be assessed for the fresh capital induced by a partner in the firm.
The assessee in this case, M/s Aditya Enterprise, is a partnership firm and engaged in the wholesale trading of pulses. The assessee in its profit and loss account has shown gross profit ratio @ .87% on the turnover but failed to furnish any evidence in support of the same. Therefore, Assessing Officer (AO) treated the gross profit ratio @ 2% and made addition to the total income of the assessee.
Aggrieved by this action, the assessee submitted before the Commissioner of Income Tax (Appeals) CIT(A) that gross profit ratio has been presumed @ 2% without any basis. The assessee further submitted that they were unable to produce the books of account due to the reasons that there was rumors in the market that assessee has gone bankrupt and as a result of which, all the creditors started demanding their dues suddenly. The landlord also forced the assessee to vacate the shop, go-down instantly and because the landlord has thrown all books of account therefore it was unable to produce the same before the AO. However, Ld. CIT(A) disregarded the contention of assessee and confirmed the order of AO.
The Tribunal bench comprising of Judicial Member S.S. Viswanethra Ravi and Accountant Member Waseem Ahmed while allowing the appeal of the assessee, held, “ in the instant case the profit has been determined on estimated basis. Thus in our considered view there cannot be any disallowance of sundry trade creditors. Therefore we reverse the order of Authorities Below. This ground of appeal of assessee is allowed.”
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