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Facts
The assessee, a partnership firm engaged in real estate, declared nil income for AY 2017-18. The Assessing Officer (AO) made an addition of Rs. 12.75 lakh on account of cash deposits and Rs. 1.80 lakh as interest on refund, assessing total income at Rs. 14.55 lakh. The assessee appealed against the cash deposit addition.
Held
The Tribunal held that the assessee had sufficient opening cash in hand and had received capital contribution from an incoming partner, Mr. Popatlal Shah, whose identity, creditworthiness, and transaction genuineness were established. Therefore, the cash deposit was explained.
Key Issues
Whether the cash deposits made by the assessee during the demonetization period were sufficiently explained regarding their nature and source, considering the opening cash balance and capital introduced by a new partner.
Sections Cited
68, 250, 143(3), 143(2), 142(1)
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of assessee pertaining to A.Y. 2017-18 is directed against the order dated 17.03.2025 of National Faceless Appeal Centre (NFAC) Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of Assessment Order dated 18.12.2019 passed u/s.143(3) of the Act.
Assessee has raised following grounds of appeal :
“1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act, it be held that the addition of Rs.12,75,000/- made by the Learned Assessing Officer and confirmed by the First Appellate Authority under section 68 of the Act is unwarranted, unjustified and contrary to the provisions of the Act and facts prevailing in the case. The addition so made be deleted. The Appellant be granted just and proper relief in this respect M/s G and S Associates 2 Without prejudice to Ground no. 1 and on the facts and circumstances prevailing in the case and as per the provisions and scheme of the Act, it be held that the addition made by the Ld. AO and confirmed by the First Appellate Authority is on a higher side. The addition made be substantially reduced. The Appellant be granted just and proper relief in this respect.
The Appellant prays to be allowed to add, amend, modify, rectify, delete, raise any grounds of appeal at the time of hearing.
3. Brief facts of the case are that the assessee is a partnership firm engaged in the business of Construction and Development of Real Estate purchase. Nil income declared in the return for A.Y. 2017-18 furnished on 31.10.2017. Based on the information about cash deposits of Rs.5.00 lakh and Rs.11.56 lakh during the demonetization period in the bank account of the assessee held with HDFC Bank Ltd. and Corporation Bank, return of the assessee selected for Scrutiny followed by valid notices issued and served u/s.143(2) and 142(1) of the Act. Assessee provided various details about the cash deposits. However, ld. Assessing Officer (AO) was not satisfied with these details and made addition of cash deposit of Rs.12.75 lakh as well as addition for interest on income-tax refund at Rs.1.80 lakh and assessed the income at Rs.14,55,000/-. Thereafter, assessee preferred appeal before ld.CIT(A) only against the addition of Rs.12.75 lakh. During the appellate proceedings, assessee furnished information about the cash in hand available as on 31.03.2016 and also through partner’s capital introduced in cash at Rs.5.50 lakh by the incoming partner Mr. Popatlal Shah. Assessee filed the details of income-tax return, bank account of the new partner to prove the genuineness of the transaction, creditworthiness of Mr. Popatlal Shah. However, ld. CIT(A) found no merit in the contention of ld. AR and confirmed the addition of Rs.12.75 lakh.
Ld. Counsel for the assessee referring to the paper book running into 211 pages case law paper book running into 58 pages and the copy of income-tax return for A.Y. 2016-17 filed on 16.10.2016 submitted that as per the Audited Balance sheet for F.Y. 2016-17 cash in hand available with the assessee is Rs.11,51,502/-. Thereafter, he referred to the date-wise Cash Flow statement placed at pages 61 of the paper book and submitted that the cash in hand available with the assessee firm prior to deposit of the alleged cash. Major source of cash apart from the opening balance is the amount received from the incoming partner Mr. Popatlal Shah at Rs.5.50 lakh. He also submitted that when all the credentials of Mr. Popatlal Shah have been submitted before the lower authorities in support of capital contribution, the action if any could have been taken in the hands of Mr. Popatlal Shah as the assessee has successfully explained the nature and source of the cash received from the incoming partner.
On the other hand, ld. DR supported the orders of the lower authorities.
We have heard the rival contentions and perused the record placed before us. Assessee is aggrieved with the addition of Rs.12.75 lakh confirmed by ld.CIT(A) by not accepting the source of cash deposit shown by the assessee. We firstly note that the assessee had cash in hand at Rs.11,51,502/- as on 01.09.2016 and it is duly appearing in the audited balance sheet which has been furnished/uploaded prior to the commencement of the demonetization scheme. Therefore, the M/s G and S Associates correctness of available cash in hand as on 01.04.2016 cannot be doubted. Thereafter, on perusal of the page 61 of the paper book, we notice that there are various entries of cash withdrawals and cash deposits and prior to the declaration of demonetization scheme, the assessee had cash balance of Rs.16.06,537/-. One of the observation of ld.CIT(A) is that why the assessee has deposited the cash in parts rather than depositing it together. To this observation, ld. Counsel for the assessee has submitted that at that point of time it was practically not possible to deposit huge amount of cash as the banks were not accepting it and it has to be deposited in piece meal. However, question before us is regarding the source of cash deposit and which in this case is the opening cash in hand as well as the capital contribution from incoming partner Mr. Popatlal Shah.
So far as the opening cash in hand as on 01.04.2016 is concerned, we have already discussed above and find that the same is duly supported by Audited Balance sheet. So far as sum of Rs.5.50 lakh received from Mr. Popatlal Shah, we notice that Mr. Popatlal Shah has been inducted as a partner from 01.04.2016 onwards and as per the capital account of Mr. Popatlal Shah placed at page 187 there are various transactions through bank and also the transaction in question, i.e. cash received on 18.05.2016. To verify the genuineness of the transaction, we find that Mr. Popatlal is the partner and in the capacity of the partner capital contribution can be received by the assessee firm in cash/cheque mode. Now coming to the question of creditworthiness of the partner to give capital contribution of Rs.5.50 lakh, we observe that apart from cash of Rs.5.50 lakh there have been various other credits from the M/s G and S Associates partner Mr. Popatlal Shah amounting to Rs.1,08,13,000/- including Rs.50 lakh on 22.08.2016 and Rs.30,00,000/- lakh on15.10.2016 which have not been disputed by the AO. Further, income of Rs.17,28,080/- has been declared in the return for A.Y.2017-18 by Mr. Popatlal Shah. Bank Account of Mr. Popatlal Shah is also filed where substantial balance is being maintained consistently. Considering all these facts, we find that the assessee has successfully explained the nature and source of the cash received from the partner as the Identity and creditworthiness of the incoming partner and genuineness of the transaction has been proved. Considering the facts and also the available cash in hand in the books of Rs.16,06,537/- as on 13.10.2016, we find that the assessee has sufficient cash in hand balance to explain the source of alleged cash deposit of Rs.12.75 lakh. We therefore reverse the finding of ld.CIT(A) and delete the impugned addition of Rs.12.75 lakh. Grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee is allowed.
Order pronounced on this 12th day of September, 2025.