2025 (7) TMI 1802 - AT - Income Tax

Addition under Section 68 for partner's capital introduction disallowed due to proper books and lack of evidence

Omega Infrastructures Versus Dy. Commissioner of Income Tax (Central Circle) -1 (4), Mumbai

The ITAT Mumbai held that addition under section 68 regarding capital introduced by a partner was not sustainable as the amount was duly recorded in the ... Addition u/s 68 - capital introduced by partner - identity of the parties - HELD THAT:- We found that the amount received by the assessee has already been duly reflected in the books of account maintained by the concerned partners and they had also confirmed such contribution. Therefore, addition u/s. 68 made on the basis of suspicion is not maintainable. On this proposition we rely upon the decision of Umacharan Shaw and Bros. [1959 (5) TMI 11 - SUPREME COURT] wherein, it was held that suspicion however strong may be cannot take the place of evidence. In our view capital introduction cannot be treated as non-genuine or bogus based on mere suspicion more so when parties have confirmed the transactions, even no cross examination was afforded of alleged parties whose statement is relied. The amount of capital introduced is duly reflected in books of Ashtech since year 2012 therefore, the same cannot be disallowed. Appeal of the assessee is allowed ISSUES: Whether delay in filing appeal can be condoned on grounds of sufficient cause and in the interest of natural justice.Whether addition under Section 68 of the Income Tax Act, 1961, on account of capital introduced by a partner can be upheld when the source and genuineness of capital is in dispute.Whether suspicion alone can justify addition under Section 68 without concrete evidence.Whether capital introduction can be disallowed when the amount is reflected in books of accounts and confirmed by the concerned parties. RULINGS / HOLDINGS: Delay in filing appeal was condoned as the explanation provided constituted 'sufficient cause' and the principles of advancing 'substantial justice' were held to be of prime importance over technicalities.Addition of Rs. 2,40,25,000/- under Section 68 on account of capital introduced by a partner was deleted as the source of capital was traced to refund of share application money and the amount was transferred through banking channels, thus establishing genuineness.'Suspicion however strong may be cannot take the place of evidence' and addition based solely on suspicion was held not maintainable.Capital introduction cannot be treated as non-genuine or bogus where the amount is duly reflected in the books of accounts maintained by concerned partners and confirmed by them, especially when no cross-examination of alleged parties was afforded. RATIONALE: The court applied the legal framework under Section 68 of the Income Tax Act, 1961, which requires that unexplained cash credits must be added to income unless the assessee satisfactorily explains the nature and source of such credits.Reliance was placed on precedent from the Supreme Court in Umacharan Shaw and Bros vs. Commissioner of Income Tax (1959) 37 ITR 271, establishing that suspicion cannot replace evidence.Further reliance was placed on the Supreme Court decision in PCIT vs. Vaishnodevi Refoils & Solves (2018) 257 Taxman 440 (SC), which held that addition under Section 68 is not justified where the amount is reflected in books and confirmed by the concerned partner.The court emphasized the importance of 'substantial justice' over procedural technicalities in condoning delay, following the principles laid down in Collector Land Acquisition, Anantnag vs. MST. Katiji & Ors. (1987 AIR 1353).The decision reflects a doctrinal adherence to requiring concrete evidence for additions under Section 68 and a liberal approach towards procedural delays to ensure equity and natural justice.