2015 (4) TMI 1120 - AT - Income Tax

Un-explained credit introduced by the partner in the firm - addition u/s 68 - Held that - Apart from various principles on law, there is no dispute to the fact that the moneys were introduced by partner through bank and Sri Chaitanya Ravi Kumar is an assessee and in his personal capacity the investments in firm are accepted by the Revenue in the scrutiny assessments completed. In these circumstances, we are unable to confirm the same in the hands of Sri Chaitanya Ravi Kumar which can only be assessed in his hands. As far as the firm is concerned, the genuineness of credit, identity of creditor was established. We were surprised that Ld. CIT(A) deferred from her predecessor without any reason. Thus we have no hesitation in holding that the credits are genuine and there is no scope to make addition in the hands of the firm. What AO was asking the firm to prove is the source in the hands of Sri Chaitanya Kumar, which can only be done in his assessment and the same were accepted as such. As far as firm is concerned it discharged its onus and can not be expected to provide source of source in third person hands. In view of the above, we accept the genuineness of credits and delete the addition made. - Decided in favour of assessee

Summary

Issues:
Appeal against addition of unexplained credit under section 68 of the Income Tax Act.

Analysis:
The appeal was filed against the addition of an unexplained credit introduced by a partner in a firm. The partner had transferred funds from his personal bank account to the firm, but the Assessing Officer treated it as unexplained credit due to lack of evidence. The Commissioner of Income Tax (Appeals) deleted the addition based on a bank account copy provided by the assessee. However, the issue was set aside to the AO by ITAT for not fulfilling Rule 46A of additional evidence. In the subsequent proceedings, the AO rejected the contentions again, which was confirmed by the CIT(A).

The counsel argued that it was the first year of business for the firm, and the partner had introduced capital through legitimate means. The partner's creditworthiness, the source of funds, and the nature of the transactions were highlighted. The Tribunal noted that the funds were transferred through the bank, the partner's investments were accepted in his individual capacity by the Revenue, and the firm established the genuineness of the credit and the identity of the creditor. The Tribunal expressed surprise at the CIT(A) deviating from the previous decision without justification.

Referring to the CIT(A)'s earlier order, which emphasized the partner's regular tax assessments and the legitimacy of the capital introduction, the Tribunal held that the credits were genuine and should not be added to the firm's income. The Tribunal reiterated that the source of funds in the partner's hands should be assessed separately and accepted the genuineness of the credits, deleting the addition made by the AO. The Tribunal concluded that the firm had fulfilled its burden of proof and was not required to establish the source of funds in a third party's hands.

Ultimately, the Tribunal allowed the appeal, pronouncing the order in open court on 17th April 2015.