2023 (4) TMI 137 - AT - Income Tax

Unaccounted and Unexplained cash credit u/s 68 - capital introduced by partners - CIT-A deleted the addition - HELD THAT - There are no adverse remarks of the AO regarding source of capital introduced by the partners in the assessee firm except for the fact that no documentary evidences were furnished by the assessee during the course of assessment proceedings to justify the source of capital introduced by the partners. On merits, we find that the assessee filed ample corroborative documentary evidences such as confirmation of accounts, bank statements and income-tax returns of the partners along with the copy of capital/ ledger account of the partners in the books of the firm, M/s Motilal Gopikishan and thus, the assessee satisfactorily discharged the primary onus cast upon it under section 68 of the Act. There was no justification for making addition to the total income of the assessee on account of capital introduced by its partners since the assessee duly justified the identity and creditworthiness of the partners as well as genuineness of the transactions as entered into with them. We also find force in the contentions that assessment in the case of two of the partners was also completed by the same Assessing Officer wherein the AO did not take any adverse view in respect of the amount of capital introduced in the assessee firm which in itself justified that the AO was satisfied with the source of capital introduced in the assessee firm. Assessment in the case of the partnership firm from where the partners of the assessee firm withdrew cash/ obtained loan and thereafter introduced capital in the assessee firm was also completed by the same Assessing Officer and that no adverse view was taken in the case of partnership firm in respect of the amount withdrawn by the partners for contributing capital in the assessee firm which further justified that the AO was satisfied with the source of capital introduced in the assessee firm - no reason to sustain addition to the total income of the assessee on account of capital introduced by partners since source of capital introduced by the partners stood duly explained. Addition made by the Ld. AO on account of capital introduced by partners cannot be said to be justified in view of the observations made hereinabove. Appeal filed by the Revenue is dismissed.

Summary

Issues Involved:

1. Deletion of additions made by the Assessing Officer (AO) on account of capital introduced by partners, treating it as unexplained cash credit under Section 68 of the Income-Tax Act, 1961.

Summary:

Issue 1: Deletion of Additions on Account of Capital Introduced by Partners

The Revenue filed an appeal against the order of the Ld. CIT(A) deleting the additions amounting to Rs. 2,59,28,791/- made by the AO, treating the capital introduced by partners as unexplained cash credit under Section 68 of the Income-Tax Act, 1961. The assessee, a partnership firm, had undergone a search and seizure operation, leading to the AO's observation that the assessee did not submit documentary evidence regarding the source of the capital introduced by its partners. Consequently, the AO added the amount to the assessee's total income.

The Ld. CIT(A) deleted the addition after considering the assessment order, submissions, remand report, and additional evidence provided by the assessee. The AO in the remand report challenged the legality of accepting additional evidence under Rule 46A but did not comment on the merits of the evidence.

The Ld. Counsel for the assessee argued that the AO never required details of the source of capital during the assessment proceedings, depriving the assessee of an opportunity to justify the source. The assessee later provided ample documentary evidence, including confirmation of accounts, bank statements, and income-tax returns of the partners, to justify the identity, creditworthiness, and genuineness of the transactions.

The Ld. CIT(A) observed that the AO did not doubt the identity of the partners and that the creditworthiness and genuineness of the transactions were proven. The capital introduced by the partners was mainly withdrawn from another firm, M/s Motilal Gopikishan, assessed by the same AO without any adverse view. The Ld. CIT(A) concluded that the assessee had discharged the primary onus under Section 68 and deleted the addition.

The Tribunal upheld the Ld. CIT(A)'s decision, noting that the AO failed to comment on the merits of the documentary evidence and that the assessee had satisfactorily justified the source of capital. The Tribunal found no reason to sustain the addition and dismissed the Revenue's appeal.

Conclusion:

The appeal filed by the Revenue was dismissed, and the deletion of the addition of Rs. 2,59,28,791/- made by the Ld. CIT(A) was found to be just and proper.