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Facts
The assessee, an individual and partner in a firm, deposited Rs. 9,50,000 in cash into his individual bank accounts during the demonetisation period. The assessee claimed these funds originated from his partnership firm, with the firm's books and audit reports reflecting these accounts as its assets.
Held
The Tribunal held that the bank accounts, although in the assessee's name, were operated, used, and owned by the partnership firm. Since the funds originated from the firm's regular income and were reflected in its accounts, the addition of Rs. 9.50 lakhs as unexplained cash credit in the hands of the assessee was unjustified.
Key Issues
Whether cash deposits in the individual bank accounts of a partner, which are reflected in the partnership firm's books as firm's assets and sourced from the firm's income, can be treated as unexplained income of the partner.
Sections Cited
143(3), 143(2), 115BBE, 69A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI
This appeal is filed by Ajitkumar Adinath Dhanashetti (the assessee/appellant) for the assessment year 2017-18 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 8.7.2025 wherein the appeal filed by the assessee against the assessment order passed u/s. 143(3) of the Income-
tax Act, 1961 [the Act] dated 14/11/2019 by the ITO, Ward 2, Bijapur was dismissed. The assessee is aggrieved and in appeal.
Briefly stated the facts of the case show that assessee is an individual, who filed his return of income on 31.3.2018 at a total income of Rs.4,92,110. The case was selected for limited scrutiny for verification of the cash deposit during the demonetisation period. Notice u/s. 143(2) of the Act was issued on 24.9.2018. Information was called for and it was found that assessee is a partner in a firm, A J Dhanashetti & Co. dealing in fertiliser business. The assessee has shown business income of remuneration and interest from the above partnership firm. The amount of cash deposits during the demonetisation period was found to be of Rs.9,50,000.
The explanation of the assessee was that assessee has bank accounts with Siddeshwar Co-op. Bank Ltd. and SBI wherein cash of Rs.7 lakhs and Rs.2.50 lakhs were deposited. This was stated to be the funds from the firm where the assessee is a partner, but the amounts were deposited in his individual accounts. It was submitted that firm has recorded it in its books of accounts, books of the firm are audited.
As Originally vide letter dated 22.8.2019 assessee offered to pay the tax on the above amount, however during the course of assessment proceedings, the assessee did not provide any such information and therefore the ld. AO made an addition of Rs.9.50 lakhs as unexplained cash deposit u/s. 115BBE r.w.s. 69A of the Act vide assessment order dated 14.11.2019.
The assessee aggrieved with the same filed appeal before the ld. CIT(A). The assessee reiterated the submissions, but the ld. CIT(A) noted that as assessee has earlier agreed to offer the same income for taxation, but subsequently did not pay the tax, the addition was confirmed and the appeal was dismissed.
The assessee aggrieved with the appellate order is in appeal before me. The ld. AR, Smt. Pratibha, Advocate, submitted a paperbook containing 101 pages and also explained the facts of the case. The facts were reiterated as was stated before the ld. lower authorities. She submitted that addition has been wrongly made in the hands of the assessee as the money belongs to the firm. She further referred to the submission made before the ld. CIT(A).
The ld. DR, Shri Ganesh R. Ghale, Advocate, Standing Counsel, supported the orders of the ld. lower authorities.
We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The facts show that assessee is a partner in a firm. The partnership firm has several bank accounts. Further there are two bank accounts where the cash is deposited in the name of the partner of the firm, the assessee, to these bank accounts are shown in the books of account of the partnership firm. In the audit report filed by the assessee, all these accounts are reflected in the balance sheet of the firm. Audit report filed by the assessee before us as well as before the ld. lower authorities clearly show that these bank accounts are in the balance sheet of the firm and are assets of the firm.
During the FY 2016-17 the firm has deposited the cash in those bank accounts. This fact has been verified by the ld. AO during the course of assessment proceedings with the books of account of the firm. There were no personal transactions found in that bank account, but all the transactions are shown to be accounted for in the books of the partnership firm. The amount of cash deposited is also having source emanating from the books of account of partnership firm. Thus the only fact remains that the bank accounts is in the name of assessee, but is in fact operated upon, used by and owned by the partnership firm and those bank accounts are also disclosed in the annual accounts of the partnership firm. There is no evidence with the ld. AO that the money is unaccounted income of the assessee, but all the evidence produced by the assessee shows that cash deposit in the bank accounts is the source emanating from the regular income of the partnership firm. In view of these facts, the addition made in the hands of the assessee of Rs.9.50 lakhs as unexplained cash credit/investment u/s. 69A of the Act is unjustified. In view of this, reversing the orders of the ld. lower authorities, I allow the ground No.1 of the appeal and direct the ld. AO to delete the addition of Rs.9.50 lakhs.
In the result, the appeal filed by the assessee is allowed.
Pronounced in the open court on this 28th day of October, 2025.