The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals), NFAC, Delhi, whereby additions made under Section 68 of the Income Tax Act, 1961, aggregating to ₹13.16 crore, were deleted. The additions related to capital introduced by a partner and unsecured loans received from a partner and his close relative during Assessment Year 2017-18.

During assessment proceedings, the Assessing Officer treated the capital contribution of ₹11.15 crore and unsecured loans of ₹2.01 crore as unexplained cash credits on the ground that the assessee firm had failed to establish identity, creditworthiness, and genuineness of the transactions. The AO further observed that the firm had not carried out any business activity during the year and had earned only interest income from fixed deposits.

In appellate proceedings, detailed documentary evidence was furnished, including affidavits from the contributors, bank statements evidencing the flow of funds, confirmation of accounts, and balance sheets reflecting the transactions. It was demonstrated that the amounts originated from maturity proceeds of FCNR deposits and were routed through identifiable banking channels. The principal contributor, being a partner holding a substantial profit-sharing ratio, duly confirmed the advances and explained the source thereof.

The CIT(A) held that once the identity of the contributor is established and the transaction is supported by documentary evidence, the onus under Section 68 stands discharged in the hands of the firm. Any inquiry regarding the source of funds must be carried out in the hands of the contributor and not the assessee firm. Reliance was placed on settled judicial precedents, including the decision of the Madhya Pradesh High Court in CIT v. Metachem Industries Ltd. and the ITAT Cuttack ruling in Panda Fuels v. ITO.

The Income Tax Appellate Tribunal, Delhi Bench, upheld the findings of the CIT(A). The Tribunal observed that there was no material to suggest that the impugned amounts represented undisclosed income of the firm. It reiterated that where partners or identified persons confirm the contribution and explain the source with supporting evidence, additions under Section 68 cannot be sustained in the firm’s hands.
Consequently, the appeal of the Revenue was dismissed.

Source Link- https://itat.gov.in/public/files/upload/1767355698-jg4B74-1-TO.pdf

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