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TMI Blog2020 (11) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 of the Act. 2. The facts relating to the issue are discussed in brief. The AO noticed that the assessee has introduced a sum of Rs. 1.60 crores in his capital account. The assessee explained that he is a partner in a partnership firm named "M/s Shri Banadeshwar Constructions" and he has withdrawn money from the above said firm and introduced the same in his capital account. 3. The AO examined the details of the partnership concern, referred above. It consisted of nine partners including the assessee. Remaining eight partners are farmers, who had sold lands earlier to M/s Karnataka Industrial Area Development Board (KIADB). They had received compensation from the above said Government body and have introduced the same as their respectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce for the additional capital introduced in his capital account is the money withdrawn from the partnership firm. However, the AO has expressed the view that the assessee has adopted colourable device of forming a partnership firm and through the firm, he has withdrawn money from his capital account. There is a time gap of about six months from the date of withdrawal of funds by the other partners from their respective bank accounts and introduction of amount as capital in the partnership firm. However, the said partners have not maintained books of accounts and hence they could not conclusively prove that the amount withdrawn by them from bank account was only introduced as capital. He submitted that the claim of the assessee fails the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership firm. He submitted that it is mere a surmise by the AO unsubstantiated by any other evidence. The Hon'ble Karnataka High Court has held in the above said two cases that the AO cannot reject the sources merely on the surmise that there was a time gap. In the above said decision, the time gap was about two years. Accordingly, he submitted that the above said two decisions are squarely applicable to the facts of the present case and hence, it was rightly taken support of by Ld CIT(A). 7. The Ld A.R submitted that the assessee is required to prove the source of funds. The assessee has proved the same as the funds represented withdrawals made from the partnership firm. Further the assessee has also proved the source of sources, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e partnership firm. Hence the partnership firm was having enough funds and the assessee has withdrawn money from the above said partnership firm. The books of accounts of partnership firm reflected above transactions. Hence, primarily, the identity, credit worthiness and genuineness of transactions, visa- vis the partnership firm stand proved. 10. It is further noticed that other partners have received funds on sale of land to KIADB and they have explained that they have introduced the same as their capital in the partnership firm. We notice that the assessee has furnished details relating to receipt of compensation, bank account details of other partners etc. The AO also did not find fault with those documents, meaning thereby, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eject the explanation as not believable for the reason that on his investigation no such pigmy deposit was ever made into the bank. In the alternative, he ought to have called upon the assessee-petitioner to substantiate his claim by documentary evidence. Having exercised neither of the choices, it was not open to the ITO to merely surmise that it would not be probable for the assessee to keep Rs. 15,000/- unutilised for a period of two years. The ITO should have given an opportunity to the assessee to substantiate his assertion as to the source of the capital outlay." Considering the same, the bench held that "once the money is shown to be in the account and withdrawn what the assessee did with the money till it was actually deposited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions. Though the AO has expressed the view that the partnership firm is a colourable entity, yet we notice that the AO has observed so on surmises only. The capital contribution made by the other partners has not been established to be not genuine. In fact, the AO was satisfied with the capacity of the other partners to make the capital contribution. Though he has expressed that there is time gap of six months etc., yet it was again a surmise only not supported by any material to show that the amount introduced as capital was not the amount withdrawn from the banks. In fact, the decision rendered by Hon'ble Karnataka High Court in the cases of P. Padmavathi (supra) and S.R Venkata Ratnam (supra) would reject the apprehension of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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