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Facts
The assessee, engaged in the liquor business, filed its return for AY 2020-21. The Assessing Officer (AO) made additions totaling Rs. 3,25,07,793/-, including Rs. 3,13,42,240/- for unexplained cash credits under Section 68. The CIT(A) partly allowed the assessee's appeal.
Held
The Tribunal noted that the capital introduction from partners was through banking channels, and partners provided necessary details like PAN, ITR, and bank statements. The AO's addition was made without sufficient opportunity. The Tribunal observed that Section 68 is not applicable to partnership firms in the same way as to companies, and the firm discharged its onus by establishing the identity, creditworthiness, and genuineness of the partners' contributions.
Key Issues
Whether the addition made by the AO under Section 68 on account of unexplained cash credits (capital introduced by partners) was justified when the partners had provided sufficient evidence.
Sections Cited
68, 40A(3), 133(6), 142(1), 46A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘G’ NEW DELHI
Before: SHRI MAHAVIR SINGH & SHRI KRINWANT SAHAY
ORDER PER MAHAVIR SINGH, VP: The appeal filed by the Revenue and Cross Objection by the Assessee are directed against the order passed by the Ld. National Faceless Appeal Centre (NFAC), Delhi dated 30.01.2025 for A.Y. 2020-21.Since appeal and Cross Objection both are inter-connected, hence, the same were heard together and disposed of by this common order for the sake of convenience.
First we deal with Revenue’s appeal No. 1945/Del/2025, wherein, the solitary ground of appeal raised reads as under:- “That on the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 3,13,42,240/- u/s 68 of the Act on account of unexplained cash credits found in the books of account during the FY 2019-20 relevant to AY 2020-21.”
Brief facts of the case are that the assessee filed its original return of income for AY 2020-21 on 19/10/2020 declaring income of Rs. 39,460/-. The assessee is engaged in the business of all kinds of country liquor, foreign liquor, wine, beer and alcoholic drinks in wholesale as well as retail. The case of the assessee was taken up for complete scrutiny assessment under Computer Aided Scrutiny Selection (CASS framework) and statutory notice u/s. 143(2) of the Act dated 29.6.2021 was issued by the AO, requiring the assessee to submit, inter alia, (i) details of source of addition made to capital account of Rs. 3,13,42,240/-, (ii) details of unsecured loans of Rs. 75,66,264/- and discharge of onus by furnishing confirmation, bank statement and return of income of depositors, and (iii) ledger accounts of electricity expenses. Assessee has submitted his reply and documentary evidence from time to time. On the basis of available record and after the consideration of submission of the assessee, the assessment was concluded with the assessed income of Rs. 3,25,47,253/-. While passing the assessment order, the AO has made total additions of Rs. 3,25,07,793/- on account (i) loans obtained from two parties under section 68 amounting to Rs. 9,63,424/- (ii) capital introduced by various parties under section 68 amounting to Rs. 3,13,42,240/- and (iii) disallowance under section 40A(3) 2 amounting to Rs. 2,02,129/-. Against the above, assessee preferred the appeal before the Ld. CIT(A), who partly allowed the appeal of the assessee.
Aggrieved, Revenue is in appeal before us.
Ld. DR relied upon the order of the AO and stated that Ld. CIT(A) has erred in deleting the addition of 3,13,42,240/- u/s. 68 of the Act on account unexplained cash credits found in the books of account during the FY 2019-20 relevant to AY 2020-21. It was also submitted that this addition was deleted without considering the fact that the assessee has failed to prove the source of fresh capital introduced in the firm and also failed to prove the creditworthiness of the parties and genuineness of the transactions. It was further submitted that Ld. CIT(A) erred to examine the source of capital introduced by the partners as they have declared very less income in their ITRs during the year under consideration, whereas they have introduced huge capital in the firm. It was also submitted that the CIT(A) has not called the remand report from the AO on the additional evidences submitted by the assessee on the issue of fresh capital introduced in the firm during the appellate proceedings. In view of above, he submitted that the addition made by the AO u/s 68 of the Act be upheld.
Per contra, Ld. AR for the assessee submitted that Ld. CIT(A) has passed a well-reasoned order, which does not need any interference on our part, which needs to be upheld.
We have heard the rival contentions and perused the records. We note that the AO made the addition of Rs. 313,42,240/- u/s.68 of the Act as un- explained cash credit with the allegation that the required detail in respect of fresh capital introduced by the partners during the F.Y.2019-2020 of the Assessee firm has not furnished. It is noted that vide notice u/s.142(1) of the Act dated 30.08.2022 and SCN dated 15.09.2022, the A.O., has required to the Assessee to furnish source of Capital Addition with supporting documentary evidence aggregating amounting to Rs.313,42,240/-, however due to the genuine reasons narrated here-in-above Assessee unable to furnish the said desired information/documents, however it is admitted fact that in compliance to the notice U/s. 142(1) of the Act dated 12.11.2021, Assessee furnished confirmation account of all the partners [including from whom additional / fresh amount of capital has been received containing, name, address, PAN, date, amount and bank particulars etc. It is noted that the Assessment order was passed on 21.09.2022 and query in this regard was raised by the A.O. only by way of show cause notice dated 15.09.2022 and compliance thereof was sought on 19.09.2022. Further the A.O. passed order on 21.09.2022 without giving reasonable opportunity against adjournment request dated 19.09.2021, though the present case was going to time barred on 30.09.2021 only. Further, the A.O. sought the information within a short period of time of less than one week while Assessee was not in a position to submit the necessary details/documents due to reasonable, valid and genuine reason. However, Assessee has already submitted Application under Rule 46A of the Act alongwith the Appeal before the Ld. CIT(A) with the request to grant permission to submit the additional evidences in respect offers the capital introduced by partners of the firm during the F.Y.2019-2020 of Rs.313,42,240/- in discharge of onus lay upon the Assessee in the principles of natural justice. However, from the under mentioned detail explanation the source of the capital introduced by the partner during the F.Y.2019-2020, in the Assessee firm aggregating to Rs.313,42,240/- seems to be valid and genuine and all the partners have the creditworthiness to introduced the capital. Before submitting the information / documents with regard to source of Capital Introduced during the financial year 2019-2020, Assessee drew our attention towards the following chart containing name of Partner, their Ratio, PAN, Return Income and their date of filling of ROI of A.Y.2020- 2021 and aggregate amount of Capital Introduced during the financial year 2019-2020, by respective Partner, which is as follows:- SI. Amount of No. Capital Introduced Name of Partner Ratio PAN Return of Income Date of Filling 01. Mr. Anil Kumar Kansal 09.00% AARPK2022M 530,060.00 06.01.2021 10,00,000.00
Mr.Ashok Kumar Singhal 10.00% ABZPS8034Q 734,520.00 16.10.2020 35,00,000.00 03. Mrs. AasthaSinghal 09.00% AILPG9764A 28,05,910.00 13.10.2020 75,000.00
Mr.DineshKumar Singhal 09.00% ABZPS8036N 20,31,120.00 13.10.2020 57,48,000.00
Mr. KapilSinghal 09.00% AGUPS5399C 511,900.00 30.01.2021 42,28,240.00 06. Mrs. MadhuKansal 09.00% ABMPK0128Q 214,330.00 04.01.2021 10,00,000.00 07. Mrs. Maya Devi 09.00% AVKPS1660B 826,670.00 21.10.2020 11,95,000.00 08. Mr.PadamKumar Singhal 09.00% ABZPS8037P 796,120.00 17.10.2020 15,00,000.00
Mr. Vijay Singhal 09.00% AQDPS2634P 11,24,290.00 17.10.2020 130,96,000.00
Mr. Punit Kumar Goyal 09.00% APAPG3857N 479,240.00 13.02.2021 NIL
Mr. Navneet Kumar Goyal 09.00% AGVPG4542L 484,090.00 04.01.2021 NIL 100.00% TOTALRs. 313,42,240.00 7.1 It is noted that during the financial year 2019-20, total aggregate addition of Rs. 313,42,240/- was taken place in the Partners Capital Accounts of the firm. A detail chart containing date, particulars, name and amount in this reference was also submitted by the assessee in compliance to the notice u/s. 142(1) of the Act dated 12.11.2021. Besides the same duly completed and signed partners capital accounts was also furnished alongwith the reply made in compliance of the notice u/s. 142(1) dated 12.11.2021. On perusal of the aforesaid detail and the copy of capital account, Ld. CIT(A) has noted that all the transaction of capital addition in all the partners account has been taken place during the financial year 2019- 20, through the banking channel mode only and all the partners are regular income tax assessee and holding the valid PAN. Source of the capital addition is not at all the forming part of any undisclosed sources. 7.2 During the course of appellate proceedings, the assessee has also filed certain additional evidences. The additional evidences filed by the assessee were forwarded to the jurisdictional AO for his comments and report thereon, in terms of Rule 46A of the Income Tax Rules. The AO has submitted his report on 01.01.2025 on admissibility of additional evidence, as under: “2.2 As stated above, there is no such circumstance in existence as referred in the rule 46A of the IT Rules, 1962 in the case of the assessee. The sequence of events as discussed in above paras, indicate that the assessee had been given ample opportunities and reasonable time to provide the necessary details, documents and evidences during the assessment proceedings. However, the assessee has not furnished the complete details/documents before the assessing officer (Faceless). 2.3 In view of the above, your honor is kindly requested not to admit the additional evidences and take into account the same, produced by the assessee before your honor since it would be in contravention to Rule 46A & will be opposite to decision of Hon'ble Jurisdictional High Court in Fairdeal Filaments Ltd. (208)302ITR 173 (Guj.)& other High Courts in Ranjit Kumar Choudhary (2007) 162 Taxman 267 (Gua.) &TrimlineVyopar P Ltd (2014) 45 Taxmann.com 145 (Calcutta).” 7.3 However, on merits, it is noted that the AO issued notices u/s. 133(6) to nine partners who introduced the capital and each partner furnished confirmation of capital contribution; PAN and ITR acknowledgement; bank statement showing transfer through NEFT/Cheque; explanation of source (business income, fixed deposits, excise refunds, etc.). The remand report dated 1.1.2025 states that “letters were issued to partners giving proper opportunity and replies along with documentary evidences were received 6 through the e-filing portal and thereafter no adverse comment or finding was recorded”. It is noted that firm cannot be taxed for partners’ explained capital, in view of the decision in the case of CIT vs. Metachem Industries (2000) 245 ITR 160 (MP) wherein, it has been held that once the partner owns and explains the source, no addition can be made in the firm’s hands. Also, in the case of CIT vs. Jaiswal Motor Finance (1983) 141 ITR 706 (All.) wherein, it was held that if partners are identifiable and confirm investment, firm cannot be taxed. It is noted that in the instant case each partner personally confirmed the contribution and furnished supporting evidence. Therefore, the addition in the firm’s hands is against the spirit of the well settled law. We note that AO has conducted independent enquiries from the lenders and found the documents in order by holding that in view of the facts and submissions made by the lender i.e. Shri Rohit Singhal and Shri Kuldeep Singh Choudhary, the creditworthiness and genuineness of the unsecured loan is found in order and the contention of the assessee may be accepted on merit. Ld. CIT(A) noted that at the fag end of the assessment proceedings, a show cause notice dated 15.09.2022 was issued by the AO, wherein only [4] days’ time was granted to the assessee to submit its response on or before 19.09.2022. The assessee has stated that earlier, Sh. Anil Kumar (advocate) were handling their matter, but one of his staff Sh. Subhash Chand left the office in March 2022 and various files/records (including that of assessee) were not traceable since then. Sh. Anil Kumar had even filed a complaint/FIR with PS Hapur. Accordingly, the assessee had appointed new counsel/authorized representative: Sh. Manoj Parkash (advocate) who responded to the notice on the due date itself (i.e. 19.09.2022) seeking some days’ time to study the case records. However, no further notice was issued by the AO and the assessment proceedings were concluded in undue haste within next 2 days, i.e. 21.09.2022, even though the proceedings had to become time barred on 30.09.2022. Ld. CIT(A) further noted that the term ‘Sufficient Cause’ has not been defined under the Act. However, the Courts have interpreted such term from time to time and held that the term ‘sufficient cause’ means a cause which is beyond the control of the party invoking the aid of the provisions of the law and whether the same could have been avoided by means of due care. The meaning and limit of the word would vary from facts to facts of different cases and the same will be at the discretion of the authorities. Further, it has been held that the term ‘sufficient cause’ should be liberally construed so as to advance substantial justice when no negligence, or any inaction or want of bona fide is imputable to the party. It is noted that in the remand report, the AO has accepted the stand of the assessee on merits. Therefore, in the interests of natural justice, the additional evidences submitted the assesse under rule 46A were rightly admitted in the interest of natural justice. 7.4 It is noted that the assessee is a partnership firm constituted on 01.04.2019 amongst 11 partners. Copy of partnership deed as well as license to carry on liquor business has been submitted by the assessee during the assessment proceedings and is placed on record. During the present year under consideration, the appellant firm had received capital contribution of Rs. 3,13,42,240/- from [9] of its partners, details of which are as under:
SI. No. Name of Partner PAN Capital introduced
Mr. Anil Kumar Kansal AARPK2022M 10,00,000 2. Mr. Ashok Kumar Singhal ABZPS8034Q 35,00,000 3. Mrs. Aastha Singhal AILPG9764A 75,000 8
Mr. Dinesh Kumar Singhal ABZPS8036N 57,48,000 5. Mr. Kapil Singhal AGUPS5399C 42,28,240 6. Mrs. Madhu Kansal ABMPK0128Q 10,00,000 7. Mrs. Maya Devi AVKPS1660B 11,95,000 8. Mr. Padam Kumar Singhal ABZPS8037P 15,00,000 9. Mr. Vijay Singhal AQDPS2634P 1,30,96,000 Total 3,13,42,240 7.5 It is noted that during the course of assessment proceedings, the appellant had submitted signed confirmation of account of all the partners, containing their name, address, PAN, date, amount, bank particulars, etc. Having noted above that transactions of capital infusion have been conducted through proper banjoing channels w.r.t all the parties and that there is no evidence of any unaccounted cash being infused through the own coffers of the assessee, it is important to note that during the course of present appellate proceedings, independent verification has also been carried out by the Id. AO by sending notices u/s 133(6) of the Act directly to all the parties. All such parties have duly submitted their confirmation, bank statement, ITR etc. and hence it is also not a case of non-availability of parties or non-service of any notices. These facts further fortify the genuineness of the parties as well as the capital transaction. Thus, the assessee appears to have discharged its onus by proving the three necessary ingredients of section 68 of the Act i.e., identity of lender, creditworthiness of lender and genuineness of capital transaction. 7.6 It is pertinent to note that the requirement of proving ‘source of source’ in case of capital has been laid down in second proviso to section 68, wherein the word ‘company’ has been categorically mentioned: “Provided further that where the assessee is a company (not being ny in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any 9 explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:’’ 7.7 In light of above provisions, it can be discerned that provisions of section 68 can otherwise not be invoked in the case of assessee firm to explain source of funds in the hands of the partners, as the same is applicable only in the case of private company and assessee being a partnership firm is apparently out of the purview of said section. The maximum onus which could be placed on the assessee firm is to establish the identity, genuineness and creditworthiness of partners of the firm. lt is noted that this position has been upheld in the various judicial pronouncements. 7.8 In the instant case, the source of capital contribution in the assessee firm has not been doubted by the AO. It is undisputed that the credit of Rs. 3,13,42,240/- pertains to capital contribution from partners. The bank statements of all the partners are also available on record, from which it is crystal clear that the partners had the necessary funds in their bank account (i.e. credibility) to make the contribution in the assessee firm. Thus, when nature and source of contribution in the hands of assessee is undisputed, then no addition can otherwise be made in the hands of assessee ‘firm’ merely on the basis of some doubts professed in regard to further source in the hands of partners, i.e. ‘source of source’ in the hands of assessee. In view of above, Ld. CIT(A) rightly observed that assessee has discharged its onus as required by section 68 of the Act, hence, addition made u/s. 68 of the Act was allowed, which does not need any interference, on our part, hence, we 10 uphold the action of the CIT(A) and dismiss the ground no. 1 raised by the Revenue.
As regards Assessee’s cross objection is concerned, since we have already upheld the order of the Ld. CIT(A), as aforesaid by dismissing the appeal of the Revenue, hence, the cross objection of the assessee has become infructuous and dismissed as such.
In the result, the Revenue’s appeal as well as Assessee’s cross objection stand dismissed.
Order pronounced in the Open Court on 12.02.2026.
Sd/- Sd/- (KRINWANT SAHAY) (MAHAVIR SINGH) ACCOUNTANT MEMBER VICE PRESIDENT SRBhatnaggar