Reassessment after four years upheld where waiver of partner’s capital account lacked supporting records; matter remanded for fresh merits review

5-Second Takeaway

Reopening after four years was upheld because the assessee produced no documentary basis to show that the amount credited to profit and loss on waiver of a former partner’s capital account was not taxable. The matter was restored to the Assessing Officer for a fresh decision on merits after giving the assessee an opportunity to file complete evidence.

The case concerned reassessment based on a credit of Rs. 54,10,183 said to arise from the waiver of a retired partner’s capital account. The assessee contended that the sum had become an unsecured loan on retirement and was later written back to profit and loss under a mutual understanding, and therefore was not taxable. The record, however, contained no retirement deed or other supporting documents.

The tribunal noted that neither the Assessing Officer nor the Commissioner (Appeals) had examined the chargeability issue in detail. It also found that the assessee had not filed material showing how the account had been built up over time, whether any interest or salary entries had earlier been claimed as deductions, or what exact understanding governed the waiver.

On that basis, the tribunal held that the defect was curable rather than fatal, but that the burden remained on the assessee to prove that the receipt was outside the Act. It therefore upheld the reopening and remitted the matter for fresh adjudication on the taxability of the amount after affording the assessee due opportunity.