SHAH DISTRIBUTORS AUTO DIVISION,KOLKATA vs. ITO, WARD 33(7),, KOLKATA

Brief facts of the case are that the assessee is a partnership firm carrying on the business as a dealer of Royal Enfield Motor Cycle and servicing and the original return of income was filed 20.08.2018 declaring total income at ‘NIL’. The case was selected for scrutiny through Computer Assisted Scrutiny Selection (in short 'CASS'). The assessee was requested to furnish several documents and was also required to furnish source of introduction of capital by the partners. After considering the submission made since the sum of ₹36 Lakh was found to have been credited in the books of the assessee being ₹9 Lakh each by the four out of the six partners and the explanation furnished was not found to be satisfactory to the Ld. AO, the same was added to ITA No(s). 212/KOL/2026 Assessment Year(s) 2017-18 the income of the assessee as unexplained cash credit u/s 68 of the Act. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who considered the submission of the assessee and confirmed the disallowance on account of employees' contribution to PF/ESI, deleted the addition on account of road tax and insurance charges and confirmed the addition of ₹36 Lakh on account of capital contribution of the partners and the appeal was partly allowed.

Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.

Rival contentions were heard and the submissions made have been examined.

Ground Nos. 1 and 9 being general in nature do not require any separate adjudication.

The rest of the grounds of appeal relate to the addition u/s 68 of the Act of ₹36 Lakh. The Ld. CIT(A) has given his findings as under: “6.4 Ground 3-Addition u/s 68 for Partner Capital Introduction 6.4.1 This ground concerns the addition of 36,00,000 introduced by four partners in cash during April-June 2016. The assessee has produced partner-wise capital ledgers showing multiple entries of 50,000 on various dates, along with personal balance sheets of partners as on 31.03.2016 reflecting opening cash balances, and ITR acknowledgements. The assessee's explanation is that each partner had sufficient opening cash-in- hand in their personal books and the capital introduction was made out of such cash. 6.4.2 Upon a careful evaluation of the material, it is seen that the evidences filed by the assessee do not satisfactorily establish the genuineness and source of the cash introduced, nor do they demonstrate the actual physical availability of such cash with the partners at the relevant point in time. While ledgers and personal balance sheets have been placed on record, these documents, by their very nature, are internal and self-generated and do not constitute independent proof of the existence of cash. The assessee has not ITA No(s). 212/KOL/2026 Assessment Year(s) 2017-18 brought any supporting contemporaneous evidence such as bank withdrawal vouchers, earlier-year cash flow statements, confirmations from previous business entities showing prior cash withdrawals by partners, or any documentary trail linking the opening balance shown on paper with real cash retained physically by the partners. There is also nothing on record to substantiate that any identifiable transaction-such as sale of an asset, settlement of a loan, or withdrawal from earlier firms-resulted in the creation of the alleged cash balances. Thus, the claim of substantial pre-existing cash is unsupported by any objective or third-party evidence. 6.4.3 Further, the pattern of the entries also calls for deeper scrutiny: each partner introduces cash in repeated instalments of exactly 50,000 during a narrow time frame of April-June 2016. Such uniformity, in the absence of corroboration, weakens the credibility of the explanation. A genuinely available cash balance would normally be reflected through either a one- time or need-based introduction rather than multiple, identically-sized, closely-timed instalments across different partners. This conduct casts doubt on the probabilistic genuineness of the explanation and strengthens the AO's inference that the ledger pattern is an afterthought to align with the desired capital introduction figure. 6.4.4 The assessee has also relied on cash deposit explanations and responses filed during the demonetisation period (November-December 2016). However, those documents pertain to a later period and have no evidentiary bearing on whether the partners possessed the alleged cash six months earlier, in April-June 2016. Depositing cash in November-December cannot retroactively establish its existence in April-June, nor does it explain the source of the earlier capital introductions.

In this factual matrix, the principles laid down by the Hon'ble Supreme Court in CIT v. Durga Prasad More (82 ITR 540) and Sumati Dayal v. CIT (214 ITR 801) become directly relevant. These landmark decisions hold that where surrounding circumstances create doubt over the apparent, the taxing authorities are entitled to look into the test of human probabilities, the conduct, and the totality of surrounding facts. Ledger entries or balance sheets, without independent corroboration, cannot by themselves discharge the onus. The Supreme Court has categorically observed that self-serving recitals or book entries cannot be taken at face value if the attendant facts make the explanation inherently improbable. Applying these principles, the partners' claimed possession of large cash balances-unsupported by even a single independently verifiable contemporaneous document-does not satisfy the standard of credibility required under section 68. 8. Thus, considering the absence of reliable independent evidence supporting the availability and source of cash, the suspicious pattern of ITA No(s). 212/KOL/2026 Assessment Year(s) 2017-18 uniform cash entries, the lack of any banking trail or documentary origin of funds, and the judicial mandate to test explanations against human probabilities, the assessee has failed to discharge the onus cast under section 68. The explanation offered remains unsubstantiated and is not acceptable. The addition of 36,00,000 u/s 68 is accordingly confirmed. Ground dismissed.

In result, assessee appeal is partly allowed.”

Rival submissions were heard and the record and the submissions made have been examined. Before us in the course of the appeal, the assessee filed the copy of the returns of the partners i.e. M.P. Shah, Jigar L. Shah, Sanjay L. Shah and Rajiv L. Shah for the returns filed on 17.10.2016 and 16.10.2016 in support of the claim that the cash was available. It was brought to the attention of the Ld. AR that the returns were filed subsequent to the commencement of demonetization to which the Ld. DR submitted that the returns were filed within the due date for filing the return for AY 2016-17. It was also brought to his notice that the cash availability, which is being shown in the balance sheet filed in the course of the appeal before us, was not supported by any evidence to which the Ld. AR drew our attention to pages 36 onwards of the paper book, which are copies of ledger accounts of the partners and capital accounts of the partners on various dates and also the balance sheet showing cash in hand in the case of Shri M.P. Shah as on 31.03.2016 which is ₹38,47,825.45 as per page 38 of the paper book and ₹17,69,825.45 as on 31.03.2017 as per page 39 thereof. The Ld. DR stated that the source of income of the partner was from house property and income from business and there is no withdrawal from the bank in support of the claim that the cash was available. The Ld. AR stated that the cash was generated earlier and was available with the partners and there is no law for not keeping cash in the hands of the partner. It was also enquired whether the cash available was shown in the return for ITA No(s). 212/KOL/2026 Assessment Year(s) 2017-18 AY 2015-16 to which the Ld. AR stated that the same was mentioned in the return for AY 2015-16 as well.

We have considered the facts of the case, the submissions made and the documents filed. Since the assessee claims that the partners had sufficient cash balance as per the return for AY 2015-16, on this limited issue, the order of the Ld. CIT(A) is hereby set aside and the matter is remanded to the Ld. AO for verification of the availability of cash as on 31.03.2015 as per the returns of income filed by the partners. The assessee shall also furnish cash flow statement for the availability of the cash in the hands of the partners and the Ld. AO is directed to delete the addition in case the cash in hand as claimed before us is shown in the return of the partners as cash in hand for AY 2015- 16 as on 31.03.2015 and the same is also shown to be available with the partners for capital contribution as per the cash flow statement to be filed before the Ld. AO. Hence, the grounds of appeal are partly allowed for statistical purposes.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 6th May, 2026. [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 06.05.2026 Bidhan (Sr. P.S.)

CIT(A)-NFAC, Delhi.

CIT-

CIT(DR), Kolkata Benches, Kolkata.

Guard File. //// By order