2023 (7) TMI 497 - AT - Income Tax

Addition u/s 68 - introduction of capital by partners in assessee-firm - non-submission of creditworthiness and source of investment of partners - HELD THAT - Considering the investment amount by the partners the revenue authorities had added back u/s 68 due to the non - satisfactory explanation by the assessee. But the investment of the partners should be examined in the hands of the partners. The addition cannot be accepted in the hands of the firm. We respectfully relied on the order of M. Venkateswara Rao 2015 (3) TMI 153 - ANDHRA PRADESH HIGH COURT and Odedara Construction 2014 (2) TMI 130 - GUJARAT HIGH COURT and in the case ofVaishno Devi Refoils Solvex 2018 (7) TMI 651 - SC ORDER if Assessing Officer was not convinced about creditworthiness of partner who had made capital contribution inquiry had to be made at end of partner and not against firm. Thus the addition amount is quashed. Accordingly the grounds of the appeal of assessee are allowed.

Summary

Issues involved:
The appeal against the order of the ld. Commissioner of Income Tax (Appeals) for A.Y. 2011-12, emanated from the order of the ld. Deputy Commissioner of Income Tax, Circle-, Jammu, under section 143(3) of the Income Tax Act 1961.

Delay Condonation:
The assessee filed the appeal with a delay of 122 days, citing medical emergency of a partner's wife as the reason. The delay was condoned after submission of medical documents and no objection from the ld. DR.

Grounds of Appeal:
The assessee contested the additions of capital amounting to Rs. 19,50,000/- by the partners in the firm, under section 68 of the Income Tax Act, 1961. Alleged errors in law and facts were highlighted, emphasizing insufficient explanation by the authorities.

Assessment and Appeal:
The appeal was filed after the ld. CIT(A) partly allowed the appeal, upholding the addition of capital introduction by partners due to lack of creditworthiness and source of investment. The assesssee challenged this decision before the tribunal.

Arguments and Precedents:
The ld. AR argued for the examination of partners' source of investment in their hands, not the firm's. Citing legal precedents, including cases like M. Venkateswara Rao and Odedara Construction, the AR emphasized the need for partners to prove creditworthiness.

Revenue Authorities' Position:
The ld. DR supported the ld. CIT(A)'s order, stressing the lack of satisfactory explanation by the assessee regarding the capital introduction. Failure to provide details led to the sustained addition of Rs. 19,50,000/-.

Tribunal's Decision:
After considering the documents and arguments, the tribunal found that the investment by partners should be scrutinized in their hands. Relying on legal precedents and the Supreme Court's decision in Vaishno Devi Refoils & Solvex, the tribunal quashed the addition of Rs. 19,50,000/-.

Final Verdict:
The tribunal allowed the appeal of the assessee, bearing ITA No. 93/Asr/2020, and pronounced the order in open court on 20.06.2023.