MKF International Vs DCIT (ITAT Mumbai)
Partner Capital Not Taxable U/s 68 in Firm’s Hands – Source of Partner Funds Not Firm’s Burden – ₹19.06 Cr Addition Deleted – ITAT Mumbai
The AO treated capital contribution of ₹19.06 Cr introduced by partners (including NRI partners) as unexplained cash credit u/s 68 and taxed it u/s 115BBE, alleging failure to explain the ultimate source of foreign remittances. CIT(A) confirmed the addition.
ITAT held that capital introduced by partners stands on a different legal footing from loans or share capital. Once identity of partners, confirmations, bank remittances & ownership of contribution are established, the firm is not required to prove “source of source.” Any enquiry into funds in partners’ foreign bank accounts can be done only in their individual assessments, not in the firm’s hands.
The Tribunal also noted violation of natural justice as remand report was relied upon without giving the assessee opportunity to rebut it. However, remand was refused since addition itself was legally unsustainable. Relying on High Court rulings (Nova Medicare, Darshan Enterprise), ITAT deleted the entire addition u/s 68 and allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is preferred by the assessee against the order dated 04.11.2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] under section 250 of the Income Tax Act, 1961[hereinafter referred to as “the Act”], arising out of the assessment order dated 30.09.2021 passed by the Income Tax Officer, Ward 7(2)(1), Mumbai[hereinafter referred to as “Assessing Officer”] under section 143(3) of the Act for Assessment Year 2018–19.
