Large capital contributions by newly joined partners cannot be treated as unexplained firm income without proving contributors' genuineness and creditworthiness

ITAT DELHI - AT held that addition of large capital contributions made by newly joined partners could not be treated as unexplained income in the firm's hands where genuineness and creditworthiness of the contributing partner companies were not established; the Tribunal affirmed the reversal of the AO's addition and dismissed the revenue's appeal.

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Revenue's appeal under section 143(3) for AY 2017-18 challenges the deletion by CIT(A)/NFAC of an addition of Rs. 3,24,00,000 made by the AO under section 69 treating capital contributions from newly joined partners as "unexplained investment." Revenue alleged lack of genuineness and creditworthiness of partner companies, common address/directors, and alleged siphoning of funds by a working partner. Tribunal found the CIT(A)/NFAC correctly reversed the AO, applying precedents (CIT v. Taj Borewells; CIT v. M. Venkateswara Rao; Metal & Metals of India; CIT v. Kewal Krishna & Partner) that hold that "such addition of partners' capital contribution made in a firm could not be added as unexplained in the latter's hands." On facts, the appellate authority's deletion of the Rs. 3.24 crore addition was affirmed and the Revenue's appeal was dismissed.

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