2020 (11) TMI 216 - AT - Income Tax

Unexplained cash credit u/s 68 - initial burden to prove the cash - prove of three main ingredients, viz., identity of the creditor, creditworthiness of the creditor and genuineness of the transactions - HELD THAT - The assessee has introduced a sum of ₹ 1.60 crores in his capital account. The source of the above said amount was the withdrawal made by the assessee from a firm named M/s Shri Banadeshwar Constructions , wherein the assessee is a partner. There is no dispute with regard to the fact that a partnership firm by the above said name was formed by nine persons including the assessee. The remaining eight partners are farmers and they have introduced capital in the partnership firm. Hence the partnership firm was having enough funds and the assessee has withdrawn money from the above said partnership firm.We notice that the assessee has furnished details relating to receipt of compensation, bank account details of other partners etc. The AO also did not find fault with those documents, meaning thereby, the assessee has also proved source of sources. The assessee has proved the sources of funds, i.e., it was withdrawal from the partnership firm. The partnership deed, the books of accounts of the firm, its fund position examined by the AO would show that the assessee has proved identity, credit worthiness and genuineness of the transactions. Though the AO has expressed the view that the partnership firm is a colourable entity, yet we notice that the AO has observed so on surmises only. The capital contribution made by the other partners has not been established to be not genuine. In fact, the AO was satisfied with the capacity of the other partners to make the capital contribution. Though he has expressed that there is time gap of six months etc., yet it was again a surmise only not supported by any material to show that the amount introduced as capital was not the amount withdrawn from the banks. In fact, the decision rendered in the cases of P. Padmavathi 2010 (10) TMI 1154 - KARNATAKA HIGH COURT and S.R Venkata Ratnam 1980 (8) TMI 73 - KARNATAKA HIGH COURT would reject the apprehension of the AO. Thus, we notice that the assessee has not only proved the source, but also source of sources. Hence we are of the view that the Ld CIT(A) was justified in deleting the addition - Decided in favour of assessee.

Summary

Issues:
Challenge to deletion of addition under section 68 of the Act by Ld CIT(A) for assessment year 2014-15.

Detailed Analysis:
1. Facts and AO's Observation:
The AO added &8377; 1.60 crores to the total income of the assessee as unexplained credit under section 68 of the Act. The AO contended that the assessee failed to prove the capital introduced in his account and viewed the partnership firm as a colorable entity for cash introduction.

2. Ld CIT(A) Decision and Revenue's Appeal:
The Ld CIT(A) deleted the addition, leading to the revenue's appeal. The Ld D.R argued against the assessee's explanation, claiming it lacked credibility due to a time gap between withdrawal and investment. The Ld A.R cited legal precedents supporting the assessee's stance and criticized the AO's surmises.

3. ITAT's Analysis:
ITAT emphasized the burden on the assessee to prove cash credits under section 68. It highlighted the identity, creditworthiness, and genuineness of transactions as crucial aspects. The assessee explained the source of funds as withdrawals from a partnership firm, supported by partnership details and compensation receipts.

4. Judicial Precedents and CIT(A)'s Ruling:
The ITAT referred to Karnataka High Court decisions supporting the assessee's position, emphasizing the source explanation sufficiency. CIT(A) relied on legal precedents to justify deletion of the addition, noting the AO's lack of concrete evidence against the genuineness of transactions.

5. Final Decision and Conclusion:
ITAT upheld CIT(A)'s decision, emphasizing the assessee's successful proof of fund sources and the legitimacy of the partnership firm's transactions. It dismissed the AO's surmises and lack of substantial evidence, concluding in favor of the assessee and allowing the appeal.

In conclusion, the ITAT upheld the Ld CIT(A)'s decision to delete the addition under section 68 of the Act, emphasizing the assessee's fulfillment of burden of proof and the genuineness of the transactions. The judgment highlighted the importance of legal precedents and concrete evidence in such cases, ultimately ruling in favor of the assessee.