Spa constructions Vs ITO (ITAT Hyderabad)
ITAT Hyderabad: Capital Introduced by Partners Not Taxable in Firm—If at All Taxable, It Must Be Assessed in the Partner’s Hands
The Tribunal examined the addition of Rs.3,26,91,139/- under section 69A r.w.s. 115BBE made on account of “capital introduced by partners.” Upon evaluating the registered sale deeds, partners’ capital accounts, and bank statements, it was found that substantial payments towards purchase of land from Smt. D. Poojitha were directly made by the partners and duly credited through journal entries, rendering the AO’s factual inference incorrect. The allegation of lack of “creditworthiness” was rejected as the AO failed to identify any discrepancy in the financial records. The Tribunal further clarified that the statutory requirement of proving “source of source,” brought in by the Finance Act 2022, does not apply to AY 2017-18. Relying on Nova Medicare v. ITO (459 ITR 477), it held that unexplained capital appearing in partners’ accounts is assessable only in the hands of the partners, not the firm. Accordingly, the addition of Rs.3,26,91,139/- was held unsustainable and deleted.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by SPA Constructions (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 14.06.2025 for the A.Y 2017-18.
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