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2025 (4) TMI 210 - AT - Income TaxAddition u/s 68 - unexplained cash credit as capital contribution by one of the partners - AO Relying solely on the non-response by partners treated the capital contribution as unexplained cash credit - assessee submitted that the capital was introduced by its partners through banking channels and supported by ledger accounts and confirmations. HELD THAT - CIT(A) was justified in deleting the addition made under section 68 of the Act as rightly concluded that the assessee had discharged the initial onus cast under section 68 of the Act. He noted that the failure of the partner to respond to a notice under section 133(6) of the Act was not communicated to the assessee and even otherwise does not ipso facto establish that the capital is unexplained. The assessee has satisfactorily discharged the onus cast upon it by furnishing adequate evidence to prove the identity genuineness and creditworthiness of the partner. Therefore we find no infirmity in the order passed by the CIT(A) and accordingly the appeal filed by the Revenue is dismissed.
ISSUES PRESENTED and CONSIDERED
The core legal issue considered in this judgment was whether the addition of Rs. 8,00,00,000/- made by the Assessing Officer (AO) under section 68 of the Income-tax Act, 1961, as unexplained cash credit in the hands of the assessee firm, was justified. The Tribunal examined whether the assessee had adequately discharged its burden to prove the identity, genuineness, and creditworthiness of the partner, Goodfarms Calfcare LLP, which contributed the capital. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents Section 68 of the Income-tax Act, 1961, addresses unexplained cash credits, requiring the assessee to establish the identity, genuineness, and creditworthiness of the creditor. Precedents such as CIT v. Pankaj Dyestuff Industries and PCIT v. Vaishnodevi Refoils & Solvex were pivotal, emphasizing that capital introduced by a partner cannot be treated as unexplained income in the hands of the firm if the partner is a taxpaying entity. Court's Interpretation and Reasoning The Tribunal interpreted that the non-response of Goodfarms Calfcare LLP to the AO's notice under section 133(6) of the Act cannot solely justify the addition under section 68, especially when the assessee provided ample documentary evidence supporting the capital contribution. The Tribunal noted that the CIT(A) rightly concluded that the assessee had discharged its initial burden under section 68. Key Evidence and Findings The assessee furnished comprehensive evidence, including the partnership deed, audited financials, ITRs, bank statements, and confirmations from the partners. The capital was introduced through banking channels, and the identity and creditworthiness of the partner were substantiated by the financial statements of Goodfarms Calfcare LLP, which indicated that the funds were borrowed from its holding company, Orbitol Investment Pvt. Ltd. Application of Law to Facts The Tribunal applied the legal principles established in relevant precedents, determining that the assessee had adequately demonstrated the identity, genuineness, and creditworthiness of the partner. The Tribunal found that the AO's reliance solely on the non-response to a notice was insufficient to sustain the addition under section 68. Treatment of Competing Arguments The Revenue argued that the creditworthiness of Goodfarms Calfcare LLP was not established due to its non-response to the notice under section 133(6). However, the Tribunal found this argument unpersuasive, as the assessee had provided substantial evidence supporting the capital contribution. The Tribunal distinguished the case from the precedent cited by the Revenue, Kailash Chand Agarwal v. ITO, noting that the facts differed significantly since the assessee had established all necessary components. Conclusions The Tribunal concluded that the CIT(A) was correct in deleting the addition of Rs. 8,00,00,000/- under section 68, as the assessee satisfactorily discharged its burden by furnishing adequate evidence. The Tribunal upheld that the non-response of a partner to a notice under section 133(6) does not automatically render the capital unexplained if the assessee has provided sufficient documentation. SIGNIFICANT HOLDINGS The Tribunal emphasized that the burden of proof under section 68 shifts to the Revenue once the assessee has provided prima facie evidence of the identity, genuineness, and creditworthiness of the creditor. The Tribunal held that: "In absence of any adverse material brought on record by the AO, the burden shifts on the Revenue to rebut the evidence furnished by the assessee, which has not been done in the present case." The Tribunal affirmed the principle that capital introduced by a partner cannot be assessed as unexplained income in the hands of the firm if the partner's identity and creditworthiness are established, aligning with the judgments in CIT v. Pankaj Dyestuff Industries and PCIT v. Vaishnodevi Refoils & Solvex. The Tribunal dismissed the appeal filed by the Revenue, thereby upholding the CIT(A)'s decision to delete the addition under section 68.
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