2024 (9) TMI 474 - AT - Income Tax

Tribunal Upholds Deletion of Rs. 2.62 Cr Cash Credit Addition; Partners' Capital to Be Scrutinized Individually.

The ITAT dismissed the Revenue's appeal, affirming the Ld. CIT(A)'s decision to delete the addition of Rs. 2,62,50,000/- as cash credit under section 68 ... Addition of cash credit in the books of the assessee firm u/s. 68 r.w.s. 115BBE - assessee failed to prove the genuineness and source of funds - partners introduced capital through the banking channel - addition in the hands of Partners v/s Partnership firm. HELD THAT:- As decided in Vaishnodevi Refoils & Solvex [2018 (1) TMI 861 - GUJARAT HIGH COURT] when the Assessing Officer is of the view that creditworthiness of Partners who introduced capital had not been proved in that case, enquiry and additions had to be made in the hands of the Partners and not against Partnership firm. This view of Gujarat High Court was confirmed by Hon’ble Supreme Court, [2018 (7) TMI 651 - SC ORDER]. Thus the findings arrived by Ld. CIT(A) does not require any interference and further Revenue could not place any materials in support of its ground. Decided against revenue. Issues:Whether the deletion of the addition of Rs. 2,62,50,000/- as cash credit in the books of the assessee firm under section 68 r.w.s. 115BBE of the Income Tax Act, 1961 by the Ld. CIT(A) was justified without considering the facts of the case.Analysis:The appeal was filed by the Revenue against the appellate order passed by the Commissioner of Income Tax (Appeals) concerning the assessment year 2016-17 under section 143(3) of the Income Tax Act, 1961. The Revenue challenged the deletion of the addition of Rs. 2,62,50,000/- as cash credit in the books of the assessee firm by the Ld. CIT(A). The Assessing Officer added the amount as unexplained cash credit under section 68 r.w.s. 115BBE of the Act due to the failure of the assessee to prove the genuineness and source of funds related to the capital introduced by the partners. The Ld. CIT(A) considered the submissions of the assessee and referred to judgments of the Hon'ble High Court and Supreme Court on similar issues, leading to the deletion of the addition.The Ld. CIT(A) observed that the appellant firm received capital contribution from its partners, who sourced the funds either from partners or external sources. The partners introduced capital through the banking channel, fulfilling the obligation under section 68 of the Act. The Ld. CIT(A) noted that the firm was not responsible for the actions of the partners and emphasized that actions against the partners should be taken if necessary. The decision was supported by various judicial precedents, including judgments from the Hon'ble High Court and Tribunals, which highlighted that the responsibility of the firm ends once the amount is invested by a specific person, whether a partner or an individual.The counsel for the assessee submitted that no addition is permissible under section 68 in the hands of the Partnership Firm regarding credit in the capital account of the partners. The counsel relied on the judgment of the Hon'ble High Court of Gujarat and the subsequent confirmation by the Hon'ble Supreme Court, emphasizing that any examination should be done in the hands of the individual partners. The Revenue, represented by the Ld. Sr. D.R., failed to provide any supporting decisions.After careful consideration of the materials on record, the Tribunal upheld the decision of the Ld. CIT(A) based on the Jurisdictional High Court judgment. The Tribunal emphasized that if the creditworthiness of the partners introducing capital is in question, any enquiry or additions should be directed towards the partners and not the Partnership firm. As the Revenue could not present any material in support of its grounds, the appeal filed by the Revenue was dismissed, following the Jurisdictional High Court judgment.In conclusion, the Tribunal dismissed the appeal filed by the Revenue, affirming the decision of the Ld. CIT(A) based on the established legal principles and precedents cited in the judgment.