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2023 (7) TMI 1401 - AT - Income TaxBogus share capital u/s 68 - assessee firm failed to prove the genuineness of the funds utilized to introduce capital - as submitted capital has been introduced by partner of the firm - HELD THAT - We find that in this case there is no ambiguity about the identity of the partner and capital introduced from him. In such circumstances if he AO was of the opinion that the amount is not proved in the hands of the partner, he should have considered it in his individual hands and not in the hands of the firm. This view is duly supported in the case of CIT vs. Metachem Industries 1999 (9) TMI 21 - MADHYA PRADESH HIGH COURT - Appeal by Revenue stand, dismissed.
Issues:
The issues involved in the judgment are: 1. Deletion of addition on account of bogus share capital u/s 68 of the Act. 2. Failure to prove the genuineness of funds introduced as capital by partners. 3. Discharge of statutory onus of proving genuineness and creditworthiness of share capital. Issue 1: Deletion of addition on account of bogus share capital u/s 68 of the Act - The Revenue appealed against the deletion of an addition amounting to Rs. 2,68,50,000/- on account of bogus share capital u/s 68 of the Act. - The AO observed that funds were routed through various persons to create share capital of the assessee firm. - The AO held that the appellant failed to discharge its statutory onus of proving genuineness and creditworthiness of the source of share capital. - The AO added Rs. 2,68,50,000/- to the taxable income of the appellant on account of capital introduced by the partners in the firm. Issue 2: Failure to prove the genuineness of funds introduced as capital by partners - The Ld. CIT(A) noted that the appellant had explained that the amount was brought in by the partners through banking channels. - The identity of the partners and the sources of income were placed on record. - The AO could not examine the source of funds in the case of the non-corporate assessee. - The Ld. CIT(A) held that if the genuineness of the sources was doubted, it should have been considered in the hands of the partners and not the firm. - Various case laws were cited to support the position that the burden of proof was on the assessee to explain credit entries in the books of account. Issue 3: Discharge of statutory onus of proving genuineness and creditworthiness of share capital - The appellant established that funds were received from the partners, thereby discharging its onus. - The appellant provided confirmations from all persons who advanced money to the partners, along with relevant documents. - The AO's addition of Rs. 2,68,50,000/- in the hands of the appellant firm was deemed unjustified. - The source of source had to be proved in the case of a corporate assessee, not a non-corporate one. - The well-reasoned order of the Ld. CIT(A) was upheld, and the appeal by the Revenue was dismissed. This judgment highlights the importance of proving the genuineness and creditworthiness of funds introduced as capital, the burden of proof on the assessee, and the distinction between individual and firm liabilities in such cases.
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