Tarmo IT Services Vs ACIT (ITAT Delhi)
Partner’s Capital Introduction Cannot Be Taxed in Firm’s Hands – Section 68 Addition Deleted
Delhi ITAT held that cash introduced by partners as capital cannot be assessed as unexplained cash credit u/s 68 in the hands of the partnership firm.
The AO had made an addition of ₹52,00,000 u/s 68 on account of capital introduced by two partners, alleging inability to match earlier withdrawals with subsequent deposits. The addition was confirmed by NFAC-CIT(A).
ITAT noted that it was an admitted fact that the impugned amounts were introduced by partners as capital contribution and both partners were persons of means, regularly filing returns of income. Tribunal reiterated the settled legal position that once the identity of partners and the fact of capital contribution is established, any enquiry regarding source can be made only in the hands of the partners and not in the hands of the firm.
Relying upon Metal & Metals of India (208 CTR 457) (P&H) and coordinate bench decisions, ITAT held that no addition u/s 68 was legally sustainable in the firm’s hands, even if the AO harboured doubts about the source. Accordingly, the entire addition of ₹52 lakh was directed to be deleted and the appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal arises from order dated 19.05.2025, passed u/s 250 of the Income Tax Act, 1961(hereinafter referred as “the Act”), by Ld. CIT(A)-NFAC, Delhi. In this case, the Ld. AO vide his order dated 18.11.2019, is seen to have made additions u/s 68 of the Act on account of cash introduced as capital by two partners. Thus, Rs.12,00,000/-introduced by Mr. Tarun Chauhan and Rs.40,00,000/- by Mr. Mohit Manocha has been subjected to the rigours of section 68 of the Act.
