Facts of the Case

The assessee, Somnath Cold Storage, filed its return of income for Assessment Year 2017-18 on 28.10.2017 declaring total income of ₹9,630. The case was selected for scrutiny and notice under Section 143(2) was issued. Due to non-compliance with statutory notices, the Assessing Officer completed assessment making additions of ₹34,89,500 as unexplained cash deposits, ₹31,30,909 as unexplained unsecured loans, and ₹2,52,80,028 as unexplained credits in partners’ capital accounts under Section 68.

On appeal, the CIT(A) partly allowed relief. The assessee carried the matter before the Tribunal challenging confirmation of additions under Section 68 and related provisions.

Issues Involved

Whether additions under Section 68 in respect of partners’ capital contributions and unsecured loans were sustainable when identity, creditworthiness and genuineness were supported by documentary evidence, and whether unexplained cash and credit additions could survive once such evidence was on record.

Petitioner’s Arguments

The assessee submitted that complete documentary evidence was furnished before the CIT(A), including affidavits of partners, capital accounts, bank statements, land ownership records (7/12 extracts) evidencing agricultural income, and copies of returns of income of partners for relevant years. It was contended that neither the Assessing Officer nor the CIT(A) disputed the identity of partners or the genuineness of transactions and that at least some partners were found to have sufficient creditworthiness.

Respondent’s Arguments

The Revenue relied on the assessment order and the order of the CIT(A), submitting that additions were rightly made due to lack of compliance during assessment and that the burden under Section 68 was not fully discharged.

Court Order / Findings

The ITAT Ahmedabad observed that the CIT(A) himself recorded that one of the partners had sufficient creditworthiness and that identity and genuineness of partners were not in doubt. The Tribunal noted that affidavits of seven partners, their bank statements, landholding proofs supporting agricultural income, and copies of income-tax returns were placed on record. The Tribunal held that when the Assessing Officer does not dispute identity, creditworthiness and genuineness of contributors, additions under Section 68 cannot be sustained.

The Tribunal further observed that with respect to additions relating to unexplained cash deposits and unsecured loans, the Assessing Officer failed to properly consider all parties while submitting the remand report and the same aspects were already addressed by the CIT(A). Accordingly, the additions were held to be unsustainable.

Important Clarification

The Tribunal clarified that once partners’ capital contributions are supported by affidavits, bank statements, land records and returns of income, and the Department does not dispute identity or genuineness, such credits cannot be treated as unexplained under Section 68 merely on suspicion or non-compliance at the assessment stage.

Final Outcome

The appeal filed by the assessee was allowed. The additions made under Section 68 in respect of partners’ capital and related unexplained credits were deleted in full.


Link to download order https://www.mytaxexpert.co.in/uploads/1769063956_SOMNATHCOLDSTORAGEGANDHINAGARVS.THEITOWARD1GANDHINAGAR.pdf

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