Shakti Developers Vs ITO (ITAT Surat)
Capital Introduced by Partners Cannot Be Taxed in Firm’s Hands: ITAT Surat Deletes Addition of Rs. 2.52 Crore
Assessee, a partnership firm engaged in real estate development, filed Nil return for A.Y. 2017-18. AO, in absence of compliance, passed ex parte assessment u/s 144 on 15.12.2019 making addition of Rs. 2.52 crore as unexplained investment u/s 69, being capital introduced by partners, & Rs. 3 lakh as unexplained loan u/s 68. Entire amount was further taxed u/s 115BBE at 60% with surcharge.
Before CIT(A), Assessee submitted that capital was introduced by partners through banking channels & duly reflected in their ITRs. It was argued that as per Gujarat High Court ruling in CIT vs. Pankaj Dyestuff Industries & Supreme Court dismissal of SLP in PCIT vs. Vaishnodevi Refoils & Solvex, capital introduced by partners cannot be assessed as unexplained in hands of firm. Though additional evidences were filed, CIT(A) upheld AO’s addition holding that partners’ creditworthiness was not proved.
Before Tribunal, Assessee filed paper book with partnership deed, ITRs, bank statements & confirmations of partners. Tribunal observed that identity of partners & source of capital contribution were established. Once partners have confirmed capital introduction, onus shifts to Revenue to examine them individually if their creditworthiness is doubted. Reliance was placed on binding Gujarat High Court judgments in Pankaj Dyestuff Industries & Vaishnodevi Refoils & Solvex, wherein it was categorically held that addition of partners’ capital cannot be made in firm’s hands. Accordingly, Tribunal deleted addition of Rs. 2.52 crore u/s 69, holding that AO had no jurisdiction to tax partners’ contribution in hands of firm. Addition of Rs. 3 lakh u/s 68 was also not sustained.
