INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Unexplained capital contribution to be assessed in hands of firm vis-a-vis individual partners -

Assessee was a partnership firm having 8 partners. All the partners together had contributed the share capital of Rs. 2,25,50,000 during the impugned assessment year. AO viewed that the investment made by the partners from own sources to the extent of Rs. 77,96,000 was not acceptable since no evidence was produced for investment. In respect of sources explained from unsecured loans to the extent of Rs. 1,47,54,000 AO stated that though the loan creditors appeared and explained the sources, all of them had given stereo-typed answers, hence, AO did not believe the genuineness of the source. Therefore, AO disbelieved the creditworthiness and made the addition of Rs. 2,12,50,000 to the returned income. Held: Following the decision in case M. Venkateswara Rao & Ors. [I.T.T.A. No.29 of 2003, dated 27-8-2014] : 2015 TaxPub(DT) 349 (AP-HC), wherein it was held that the capital contribution made by the partners and confirmed by them could not be assessed in the hands of the firm. AO was directed to delete the addition and was at liberty to examine and consider these amounts (contribution to capital accounts and current accounts) in the hands of the respective partners. Thus, it was held that the addition made by AO in the hands of the firm in respect of capital contributed by the partners could not be sustained in law.

Followed:CIT v. M. Venkateswara Rao & Ors. [I.T.T.A. No.29 of 2003 dated 27-8-2014] : 2015 TaxPub(DT) 349 (AP-HC)

REFERRED : Gowthami Builders v. ITO & Vice-Versa [ITA No. 247/Viz/2016 and ITA No. 323/Viz/2017, dated 14-3-2018]

FAVOUR : In assessee's favour.

A.Y. : 2015-16

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