2018 (1) TMI 861 - HC - Income Tax

Addition on account of capital introduction by one of the partner of the firm u/s 68 - Held that - When the assessee has furnished the details with regard to the source of the capital introduced in the firm and the concerned partner had confirmed such contribution, the assessee had duly discharged the onus cast upon it. If the Assessing Officer was not convinced about the creditworthiness of the partner who had made the capital contribution, the inquiry had to be made at the end of the partner and not against the firm. The controversy involved in the present case, therefore, stands squarely covered by the decision of Commissioner of Income-tax v. Pankaj Dyestuff Industries 2005 (7) TMI 601 - GUJARAT HIGH COURT as held no addition can be made with regard to the partner s capital introduction in the hands of the partnership firm and dismissed the appeal. - Decided in favour of assessee

Summary

Issues:
- Question of law regarding deletion of addition on account of capital introduction by a partner under section 68 of the Income Tax Act.

Analysis:
1. The appellant-revenue challenged the order of the Income Tax Appellate Tribunal regarding the addition of ?1,05,46,160 on account of capital introduction by a partner under section 68 of the Income Tax Act for the assessment year 2010-11.
2. The Assessing Officer made the addition during the assessment under section 143(3) of the Act, which the appellant contested in appeal before the Commissioner (Appeals) and later before the Tribunal.
3. The Tribunal dismissed the appeal based on the audited balance-sheet of the partner reflecting investments in the partnership firm and the partner's own capital, secured and unsecured loans, besides liability, indicating the genuineness of the source of capital contribution.
4. The Tribunal relied on the decision of the High Court in Pankaj Dyestuff Industries, stating that no addition can be made regarding the partner's capital introduction in the hands of the partnership firm.
5. The Tribunal found that the appellant had sufficiently proven the source of the capital introduced in the firm, and since the partner confirmed the contribution, the onus was discharged. Any doubts about the partner's creditworthiness should have been addressed at the partner's end, not against the firm.
6. The Tribunal's decision aligned with the precedent set by the High Court in Commissioner of Income-tax v. Pankaj Dyestuff Industries, where it was established that the inquiry into the creditworthiness of a partner making a capital contribution should be directed at the partner, not the firm.
7. Consequently, the Tribunal's application of the High Court's decision to the facts of the case was deemed appropriate, leading to the dismissal of the appeal as there was no legal infirmity in the order justifying interference or raising a substantial question of law.