Usage of Document found at business premises of Partnership Firm against Partners: Delhi HC closes appeal without substantial Question of Law

In a recent case, the Delhi High Court, while closing the appeal as no substantial question of law, held that documents found at the business premises of partnership firms could not be used against partners.

The appeal is filed by the Principal Commissioner Of Income Tax against the order of the Income Tax Appellate Tribunal (ITAT). The question raised in this appeal is whether the Assessing Officer’s (AO) addition under Section 69 of the Income Tax Act, 1961, regarding the cash allegedly paid by the assessee to acquire 50% of the 10% share held by the late Kulbir Singh, a partner in a firm known as Punihani International, can be upheld.

The respondent/assessee, Tarlok Singh, along with deceased Kulbir Singh, Narinder Singh Punihani, and Amarjeet Singh Punihani were partners in Punihani International.

According to the appellant/revenue, the respondent/assessee purchased 50% of the 10% share in the immovable property. During the appellate proceedings, the ITAT, on legal and factual grounds, overturned the Commissioner of Income Tax (Appeals)’s order dated June 30, 2022.

According to the partnership firm Punihani International, the addition was allegedly made based on two documents found during a search operation. It seems that the Tribunal has decided that the respondent/assessee or partner could not have been negatively impacted by the documents discovered at the business premises.

According to the Tribunal, the partner, who is the respondent/assessee, could not have been held accountable for the incriminating document that served as a receipt for payment related to the same property and a receipt in full settlement of the claim about the relevant property. Sanjay Kumar, Senior Standing Counsel, with Easha Kadian and Hemlata Rawat, Standing Counsel, argued for the appellant/revenue, stating that the respondent/assessee Tarlok Singh and Narinder Singh Punihani paid Rs.6.25 crores to purchase the share. The total consideration paid by the respondent/assessee was Rs.8 crores; therefore, the total amount paid in cash was Rs.6.50 crores, while the balance amount, i.e., Rs.1.50 crores, was paid by way of cheque(s).

After analyzing the facts and arguments of both parties, a division bench of Judges Rajiv Shakdher and Girish Kathpalia held that they are not persuaded to alter the order by the factual circumstances highlighted by the Tribunal. Thus, the division bench held that it is not necessary for the court to address the other legal issues raised in the contested order, such as whether a document discovered at the partnership firm’s office could not be utilized against the partners. The revenue does not dispute that any of the factual conclusions mentioned above are erroneous.

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