Unexplained cash credits: examine source in partner's hands when identity and primary evidence exist; firm's addition set aside.

Where a partnership firm produces primary documentary evidence identifying a partner as the source of capital and showing bank credits followed by withdrawals, the firm's alleged unexplained cash credit should be examined in the hands of the partner rather than treated as unexplained in the firm; with identity undisputed and primary onus discharged, additions in the firm's hands are deletable and the Revenue may pursue enquiry against the partner. The outcome was deletion of the addition against the firm.

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Issues: Whether the addition of Rs. 33,90,000 made under Section 68 of the Income-tax Act, 1961 on account of capital introduced by a partner is sustainable in the hands of the partnership firm.

Analysis: The assessee produced the Joint Development Agreement, the bank statement of the person in whose account the refundable deposits were credited, and date-wise details of subsequent withdrawals which were contended to have been introduced as capital by the partner. The documentary record shows credits aggregating to Rs. 48,00,000 followed by cash withdrawals aggregating to Rs. 35,48,000, indicating withdrawals post-dating the deposits. No contrary material was placed on record by the Revenue disproving the asserted source. Where the identity of the partner introducing capital is undisputed and primary evidence explaining the source is furnished, the proper course is to examine the source in the hands of the partner rather than to treat the firm's account as unexplained cash credit without further material. Precedent supports deletion of additions in the firm's hands when primary onus is discharged and the Revenue may investigate the partner if dissatisfied.

Conclusion: The addition of Rs. 33,90,000 made under Section 68 of the Income-tax Act, 1961 in the hands of the partnership firm is deleted; the appeal is allowed in favour of the assessee.

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