ITAT dismisses Revenue's Appeal: No Addition U/s 68 for Partner's Capital when Identity & Creditworthiness Proved [Read Order]

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench “C”, has dismissed the appeal filed by the Revenue challenging the deletion of an addition of Rs.8 crore made under Section 68 of the Income Tax Act, 1961. The Tribunal upheld the order of the CIT(A), concluding that the capital contribution by a partner cannot be treated as unexplained cash credit when the partner’s identity, creditworthiness, and the genuineness of the transaction are established.

The respondent, Goodfarm Rearing, a partnership firm engaged in the business of livestock and dairy farming, had received capital contributions of Rs.16 crore during Assessment Year 2018–19, of which Rs.8 crore was introduced by each of its two partners—Goodfarms Calfcare LLP and Rellonge Traders LLP. The Assessing Officer had made an addition of Rs.8 crore under Section 68, attributing it to unexplained cash credit, solely on the ground that one of the partners, Goodfarms Calfcare LLP, did not respond to a notice issued under Section 133(6).

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Before the CIT(A), the assessee submitted comprehensive documentary evidence including the PAN, ITRs, audited financial statements, bank records, and confirmations of both partners. It was explained that the capital was introduced through banking channels and duly recorded in the books of the firm. The CIT(A) accepted the explanation, holding that the addition was based only on suspicion and third-party non-compliance without any adverse material on record to contradict the evidence furnished by the assessee.

During proceedings before the Tribunal, the Departmental Representative reiterated the Assessing Officer’s view, stating that the partner’s failure to reply to the statutory notice undermined the claim of creditworthiness. However, the respondent, represented by Tushar Hemani and Parimalsinh B. Parmar, contended that all necessary documents to establish the identity, creditworthiness, and genuineness of the transaction had been filed, and the respondent could not be penalized for the partner’s non-response.

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The Tribunal observed that there was no inconsistency or defect pointed out in the materials submitted by the respondent. It held that the burden of proof under Section 68 had been sufficiently discharged by the assessee(before CIT(A) and respondent, here before ITAT), and the Revenue had failed to rebut the same. The Bench also took note that the source of funds was traceable to Orbitol Investment Pvt. Ltd., the holding company of the contributing partner.

The order was passed by the Bench comprising Suchitra Kamble, Judicial Member, and Makarand V. Mahadeokar (Accountant Member).

In Conclusion, the Revenue’s appeal was accordingly dismissed.

To Read the full text of the Order CLICK HERE

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