TMI Blog2022 (12) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to source of capital introduced in firm and concerned partner had also confirmed such contribution, it could be concluded that assessee had duly discharged onus cast upon it. Therefore, if Assessing Officer was not convinced about creditworthiness of partner who had made capital contribution, inquiry had to be made at end of partner and not against firm. Notable, the SLP filed by the Department against the above order has also been dismissed by Hon'ble Supreme Court [ 2018 (7) TMI 651 - SC ORDER] Again the High Court in the case of CIT v. M. Venkateswara Rao [ 2015 (3) TMI 153 - ANDHRA PRADESH HIGH COURT] held that contribution made by partners to capital of assessee-firm would constitute very substratum for business of firm and it is difficult to treat pooling of such capital, as credit. The High Court held that it is only when entries are made during course of business that can be subjected to scrutiny under section 68. Therefore, partnership firm is not required to explain source of income for partners regarding amount contributed by them towards capital of firm. Thus, in view of the above discussion, the assessee has sufficiently charged the onus a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.s. 36(1)(iii) of the Act. The Assessing Officer therefore disallowed an amount of Rs. 20,46,990/- out of the above interest expenditure. While making the additions, the Assessing Officer made the following observations:- 9.1 In view of the-above, it is proven that it is the onus of the assessee to provide identity, genuineness of the transaction and creditworthiness of the amount credited as capital through its partners. The recent amendment in provision of 68 enhances the onus on the promoters of the companies regarding directors capital and share premium introduced. Though the instant case is of Partnership Firm, the spirit of the amendment and the intent of legislature is equally applicable to the firm. The partners are jointly and severely liable for all the affairs of the firm. If the partners are not providing confirmations and bank statements means such partners are dummy partners and all the capital reflected in their name are either being paid outside the books or the undisclosed income of the firm is introduced in the name of dummy partners. 9.2 In view of the above, the following capital introduced by the partners is treated as unexplained cash credit repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and from the concerned authority was to be received, the sale deed can be executed in the name of the partnership firm. The assessee filed a copy of the agreement to sale executed between the partners and the farmer/seller of the land. The assessee further submitted that capital contribution made to acquire the land was in tranches, however, the ld. Assessing Officer assumed that the entire consideration was paid during the year under consideration. The assessee further submitted before the CIT(A) that there was a dispute between the partners and owing to the same the assessee could not place on record details asked for by the Assessing Officer during the course of appellate proceedings. During the course of appellate proceedings before ld. CIT(A), the assessee furnished copy of the ledger accounts of the Partners, copy of the acknowledgment of return filed by the Partners and copy of bank statement reflecting the payment made by the respective partners as capital contribution. 4.1 The CIT(A) granted relief to the assessee on the ground that the ledger account of each of the partners have been filed and on perusal of the bank accounts of such partners, it was observed that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Creditworthiness Genuineness 1 PRAVINB HAI SHANTILA L PATEL 7143803/- (includes interest of Rs.6,82,330/-) Copy of Return (page- 01/PB) Bank Statement v(PP 2-7/PB) Confirmation filed. 2 UMESHB HAI RAMANBH Al PANCHAL 7143803/- (includes interest of Rs.6,82,330/-) Copy of Return (page- 10/PB) Bank Statement (PP 11-15/PB) Confirmation filed. 3 DHARME NDRAB HAI SHANTIB HAI PATEL 7143803/- (includes interest of Rs.6,82,330/-) Copy of Return (page- 18/PB) Bank Statement (PP 19- 21/PB). Confirmation filed. Total Rs.2,1 4,31 ,409/ Capital Amount Rs.1, 93,84,419 + Interest Rs.20,46,990/- The ledger account for each of the partner has been filed at page number 8-9/Pravin,16-17/Umesh and 22-23/Dharmendra of the paper bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. The ground No.1 2 of appeal are accordingly allowed. 5. Before us, the Departmental Representative invited our attention to page 8 of the CIT(A) s order (Remand Report issued by the Assessing Officer) wherein the Assessing Officer has pointed out that on verification of bank statements of the partners bank accounts, it is noticed that there was immediate credit entries preceding the transfer entries to the firm as capital by the partners. Moreover, the bank statement also reveals that most of the time the bank balance is having minimum deposit and before transferring amount to assessee s account immediately before that, nearly the same amount was credited by transfer in the bank accounts of the partners. Hence, genuineness of the transaction could not be established in totality. The Departmental Representative primarily relied upon the observations made by the ld. Assessing Officer in the assessment order. 5.1 In response, the counsel for the assessee drew our attention to findings of CIT(A) at page 17 of the CIT(A) s order. The counsel for the assessee submitted that in the appeal proceedings all necessary documents were furnished and hence primary onus was discha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital contribution, inquiry had to be made at end of partner and not against firm. Notable, the SLP filed by the Department against the above order has also been dismissed by Hon'ble Supreme Court reported in [2018] 96 taxmann.com 469 (SC). In the case of Prayag Tendu Leaves Processing Co. v. CIT [2017] 88 taxmann.com 23 (Jharkhand) , the High Court held that under section 68, Assessing Officer while assessing a Partnership Firm, can ask for source of income of partnership firm, 'source of source' cannot be shown by assessee. Again the High Court in the case of CIT v. M. Venkateswara Rao [2015] 57 taxmann.com 373 (Andhra Pradesh and Telangana), held that contribution made by partners to capital of assessee-firm would constitute very substratum for business of firm and it is difficult to treat pooling of such capital, as credit. The High Court held that it is only when entries are made during course of business that can be subjected to scrutiny under section 68. Therefore, partnership firm is not required to explain source of income for partners regarding amount contributed by them towards capital of firm. 6.1 Thus, in view of the above discussion, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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