2020 (4) TMI 15 - AT - Income Tax

Addition on account of capital contributed by one of the partner u/s 69 - A.O. recorded the statement of Shri Jagdish Chander u/s 131 observed that Shri Jagdish Chander categorically denied having given any loan to Shri Manoj Kumar and that the assessee had not been able to controvert the statement given by Shri Jagdish Chander - HELD THAT - In the present case it is an admitted fact that the Partner of the assessee firm made the contribution towards his capital account and explained the source for the same. As relying on METACHEM INDUSTRIES 1999 (9) TMI 21 - MADHYA PRADESH HIGH COURT , JAISWAL MOTOR FINANCE 1983 (2) TMI 47 - ALLAHABAD HIGH COURT , METAL METALS OF INDIA 2006 (11) TMI 630 - HIGH COURT OF PUNJAB HARYANA and METAL METALS OF INDIA 2006 (11) TMI 630 - HIGH COURT OF PUNJAB HARYANA when the Partner of the assessee firm accepted that he deposited the amount in the assessee firm as a share of his capital contribution and also explained the source of the deposits then the addition made in the hands of the assessee firm was not justified and if at all the A.O. was not satisfied from the explanation / source of the Partner, then the additions could have been made in the individual hands of the Partner if it was permissible under section 69 of the Act. In that view of the matter the addition made by the A.O. and sustained by the Ld. CIT(A) is deleted. - Decided in favour of assessee.

Summary

Issues:
Appeal against addition of capital contributions in hands of a partnership firm.

Detailed Analysis:
1. The appeal was filed against the order of the Ld. CIT(A), confirming the addition of ?11,00,000 in the hands of the partnership firm for capital contributions by one of the partners, Shri Manoj Kumar.
2. The Assessing Officer (A.O.) observed that ?9,50,000 was credited to Shri Manoj Kumar's account, claimed to be received from Shri Jagdish Chander, but Chander denied giving any loan. Additionally, ?1,50,000 was introduced in cash by Shri Manoj Kumar, which was not accepted as well.
3. The Ld. CIT(A) sustained the additions, stating that the funds were unaccounted money of the firm disguised as genuine through banking channels.
4. The Assessee argued that the contributions were explained, providing bank account details of both parties, and cited relevant case laws to support their position.
5. The Hon'ble Madhya Pradesh High Court and other High Courts have held that if a partner explains their investment, the responsibility of the firm ends, and any further tax implications lie with the individual partner.
6. The Tribunal found that the firm satisfactorily explained the entries, and therefore, no addition could be made in the firm's hands for the cash credits.
7. Following the legal precedents and the explanations provided by the partner, the Tribunal held that the addition made by the A.O. and sustained by the Ld. CIT(A) was unjustified, deleting the addition in the hands of the firm.
8. The appeal of the Assessee was allowed, and the judgment was pronounced on 07/01/2020.