ITO Vs Samvatt Properties LLP (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT) Ahmedabad dismissed the appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals), which had deleted the addition of ₹2.62 crore in the case of Samvatt Properties LLP. The case revolved around the applicability of Section 68 of the Income Tax Act, 1961, regarding the unexplained credit of capital introduced by partners into the firm. The Assessing Officer had initially added the amount as unexplained cash credit under Section 68. However, the CIT(A) overturned this, ruling that the firm fulfilled its obligation under the law by explaining the source of funds through the banking channels used by the partners.
The ITAT, relying on precedents from both the Gujarat High Court and the Supreme Court, affirmed that any issues regarding the creditworthiness of the partners should be examined in the hands of the partners and not the firm. The tribunal upheld the CIT(A)’s view that the responsibility of the firm is limited to explaining the source of the funds introduced as capital by the partners. Once this is done, any further inquiry should be directed at the partners individually, not the partnership firm. The ITAT dismissed the Revenue’s appeal, confirming the position that no addition can be made under Section 68 for capital introduced by the partners in a firm.
