The Income Tax Appellate Tribunal (ITAT), Cuttack bench has held that a Firm cannot be assessed for the unexplained cash credit under Section 68 of the Income Tax Act, 1961 in respect of the capital introduced by the partner.
In the instant case, one of the partners of the assessee- Firm, Smt. Lalita Jain introduced capital of Rs. 11 lakhs by cash during the year under consideration. The Assessing Officer treated the same as unexplained cash credit in the hands of the assessee firm and added Rs.11 lakhs to the income of the assessee by invoking section 68 of the Act.
Before the Tribunal, the assessee contended that no addition in the hands of the firm can be made on account of the introduction of capital by the partner of the firm where the partners have owed that the monies deposited in their account are their own.
The assessee relied on the decision of Hon’ble Allahabad High Court in the case of Jaiswal Moors Finance wherein, it was held that it is well settled that if there are cash credit entries in the books of a firm, in which the accounts of the individual partners exist, and it is found as a fact that cash was received by the firm from its partners, then, in the absence of any material to indicate that they were the profits of the firm, it could not be assessed in the hands of the firm.
“No material has been brought on record by the Revenue to show that the amount of Rs.11 lakhs shown as capital introduced by the partner Smt. Lalita Jain was the profits of the firm. Therefore, in view of the decision of Hon’ble Allahabad High Court in the case of Jaiswal Motor Finance (supra), no addition in the hands of the firm can be made as unexplained cash credit u/s.68 of the Act. We, therefore, set aside the orders of lower authorities and delete the addition of Rs.11 lakhs and allow this ground of appeal of the assessee,” the Tribunal said.
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