In the case of The Income-tax Officer vs M/s. Shree Kastbhanjan Dev Developers, the Ahmedabad bench of Income Tax Appellate Tribunal (ITAT) proclaimed in its recent order that firm cannot be assessed for unexplained cash credits in respect of capital introduction by its partner.
In the instant case, the assessee is a Partnership Firm. During the assessment year, one of its partners had introduced capital in the firm amounting to Rs. 1,26,11,000.
During the course of assessment proceedings, the Assessing Officer (AO) asked the assessee to furnish the details regarding the introduction of capital by the partner with all supporting evidence. But the assessee has failed to do so; accordingly, the AO has treated the same as unexplained cash credit under section 68 of the Income Tax Act 1961 and also made an addition of the said amount.
On appeal, the first appellate authority wherein it was observed that the capital introduced by the partner in the hands of the firm must be deleted and the AO will be at liberty to proceed against the partner on the basis of evidence on his records as per law, as the partner has not provided any explanation of the sources of amounts deposited in his bank account.
Aggrieved by the order of the AO revenue was on appeal before the tribunal.
After analyzing the facts and circumstances deeply, the tribunal bench comprising of Judicial Member S.S.Godara and Accountant Member Pradip Kumar Kedia objected the findings of the AO and observed that capital introduction cannot be taxed in the hands of the assessee and no addition of such capital can be made in the hands of the assessee, but if the AO is not satisfied with the explanation offered by the partners, he may proceed against the partners and assess the same in their hands.
The division bench also directed the AO to delete the addition made by him on account of capital introduced by the partner in the hands of the firm by declaring that a partnership firm cannot be assessed for unexplained cash credits in respect of capital introduction by one of its partners.
