ITAT: ₹8 Cr Addition U/S 68 Invalid as Firm furnished complete evidence – Partner’s non-response not enough – ITO Vs Goodfarm Rearing (ITAT Ahmedabad)
Assessee is a partnership firm constituted on 31.10.2017 with two partners namely Goodfarms Calfcare LLP & Rellonge Traders LLP. During the year assessee introduced capital amounting to Rs.16 crore-, of which Rs.8 crore was contributed by each of the two partners. AO held that only Rellonge Traders LLP responded to the notice u/s 133(6) & provided documentary evidence. The other partner, Goodfarms Calfcare LLP, did not respond. Relying solely on the non-response, the AO treated the capital contribution of Rs. 8,00,00,000/- by Goodfarms Calfcare LLP as unexplained cash credit & made an addition u/s 68, taxing the same u/s 115BBE. Penalty proceedings u/s 271AAC(1) was also initiated
Assessee submitted that the non-response of Goodfarms Calfcare LLP to the AO’s notice u/s 133(6) was never communicated to the assessee & that it could not be held liable for such third-party non-compliance. Moreover, the AO did not identify any defect, inconsistency, or insufficiency in the documents filed by the assessee
Tribunal noted that the issue in dispute relates to the addition of Rs.8 crore made u/s 68, being capital contribution by one of the partners; namely, Goodfarms Calfcare LLP, which was deleted by CIT(A). Assessee had furnished all requisite documentary evidence to substantiate the identity, genuineness, & creditworthiness of the partner, including PAN, ITR, audited financial statements, bank statements, confirmations, & ledger accounts. The capital was received through banking channels & duly recorded in the books of accounts of Assessee firm. AO, however, proceeded to make the addition solely on the basis that the said partner, Goodfarms Calfcare LLP, failed to respond to the notice issued u/s 133(6). AO did not point out any defect or inconsistency in the evidences submitted by Assessee-firm. Such non-response by a third party, without more, cannot form the sole basis for invoking section 68 in the hands of the firm when all other documentary evidences have been placed on record.
Tribunal noted that CIT(A), after carefully examining the submissions & facts, rightly concluded that the assessee had discharged the initial onus cast u/s 68 noting that the failure of the partner to respond to a notice u/s 133(6) was not communicated to the assessee & even otherwise, does not ipso facto establish that the capital is unexplained. In absence of any adverse material brought on record by the AO, the burden shifts on the Revenue to rebut the evidence furnished by Assessee, which has not been done.
Assessee also demonstrated that the source of funds invested by Goodfarms Calfcare LLP was traceable to its holding company—Orbitol Investment Pvt. Ltd.—as disclosed the audited financial Statements, factual claim of which was not refuted by the Revenue.
Tribunal relied on CIT v. Pankaj Dyestuff Industries where it was held that once the partner is identifiable & the capital is recorded through proper banking channels, no addition u/s 68 can be made in the hands of the firm if there is no evidence that the amount is the firm’s undisclosed income. Similarly, in case of PCIT v. Vaishnodevi Refoils & Solvex, Gujarat High Court upheld that once the capital is confirmed by the partner & the source is explained in the partner’s books, the addition cannot be made in the hands of the firm. Revenue’s SLP in case of PCIT v. Vaishnodevi Refoils & Solvex is dismissed (96 taxmann.com 469). Tribunal noted that Revenue relied on the judgement of Hon’ble High Court of Rajasthan in the case of Kailash Ch& Agarwal v. ITO, which lays down that the firm has to establish identity, genuineness, & creditworthiness of the capital introduced. Tribunal held that this judgment is distinguishable on facts, since all three components have been duly established, & no material was brought by the AO to indicate otherwise.
Author Bio
