Unexplained investment addition fails where partner funding is identified and supported by returns, balance sheets and bank records.

Where the assessee traced the source of the investment to identified partners and produced their returns, balance sheets, confirmations and banking records, the explanation was accepted and the addition for unexplained investment could not be sustained in the firm's hands. The record showed adequate net worth in the hands of the contributors, and the Revenue made no cogent enquiry to rebut those documents. Once identity and a plausible source are established with financial evidence, any doubt about the contributors' capacity must ordinarily be pursued in their own hands rather than by treating the amount as unexplained in the recipient's assessment.

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Issues: Whether the deletion of addition made on account of unexplained investment, based on funds advanced by partners and supported by confirmations, returns, balance sheets and banking records, was justified.

Analysis: The addition arose from the Revenue's view that two partners had not satisfactorily explained the source of funds used for the property investment. The record showed that the partners' identities were established, their income-tax returns and balance sheets were produced, and the loan transactions moved through banking channels. The material before the appellate authority indicated sufficient net worth and available sources in the hands of the partners, and no cogent enquiry had been made to dislodge those documents. Where the source of capital or loan introduced into the firm is traced to an identified person, and the Department's objection relates to that person's capacity, the proper course is to examine that person rather than treat the sum as unexplained in the firm's hands, unless the explanation is shown to be inherently unacceptable.

Conclusion: The deletion of the addition was justified and the assessee's explanation was accepted; the addition could not be sustained in the firm's hands.

Final Conclusion: The assessment addition for unexplained investment was not sustainable on the facts, and the Revenue's challenge failed.

Ratio Decidendi: Once the assessee establishes the identity of the contributor and furnishes a plausible explanation supported by financial records and banking evidence, the burden shifts, and any adverse inference regarding the contributor's capacity must ordinarily be pursued in the contributor's hands rather than by adding the amount in the recipient's hands without contrary material.

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