TMI Blog2022 (1) TMI 1410X X X X Extracts X X X X X X X X Extracts X X X X ..... m and not by the partners of the assessee firm. From the above provisions of section 68 and the facts of the relevant case before us it is crystal clear that the assessee firm is directly hit by the provisions of section 68 of the Act. Needless to mention that if the partners of the assessee-firm had introduced the cash in their respective books and thereafter transferred the same to the books of the assessee firm then probably the onus may be on the partners of the assessee firm to establish the source of the cash brought into their respective books and therefore addition may not be made in the hands of the assessee firm depending on the facts and circumstance of the case. In the case of the assessee it is apparent that the cash was never introduced in the books of the partners of the assessee firm, but it was merely introduced in the books of the assessee firm. Therefore, the onus is on the assessee firm to establish the genuineness of the cash introduced in its books. Since the assessee firm has failed to establish the genuineness of the cash introduced in its books obviously the addition has to be made in the hands of the assessee firm as held by the Ld. AO. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source was not explained: Sl No. Name Amount (Rs.) 1. Sri N. Srirangarao 1,38,00,000 2. Smt. N. Harita 20,00,000 3. Sri V. Rajireddy 83,00,000 4. Smt. V. Rama 30,00,000 Total (A) 2,71,00,000 5. Similarly, the partners of the firm had also introduced cash into the firm by way of loan from partners the source of which could not be explained as detailed herein below: Sl No. Name Amount (Rs.) 1. Sri N. Srirangarao 51,97,796 2. Smt N. Haritha 2,52,411 Total ..(B) 54,50,207 6. Further, the assessee had debited interest at the rate of 12% on the amount introduced by the partners in the firm as detailed herein below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that of the Allahabad High Court in CIT v. Jaiswal Motor Finance (1983) 141 ITR 706 (All). 8. Section 68 of the Act no doubt directs that if an assessee fails to explain the nature and source of credit entered in the books of account of any previous veer, the same can be treated as income. In this case, the amount, that is sought to be treated as income of the firm is the contribution made by the partners to the capital. In a way, the amount so contributed constitutes the very substratum for the business of the firm. It is difficult to treat the pooling of such capital, as credit. It is only when the entries are made during the course of business that can be subjected to scrutiny under section 68 of the Act. 9. Even otherwise, it is evident that the respondent explained the amount of Rs. 76.57.263 as the contribution from its partners. That must result in a situation, where section 68 of the Act can no longer be pressed into service. However, in the name of causing verification under section 68 of the Act. the Assessing Officer has proceeded to identify the source for the respective partners to make that contribution. Such an enquiry can, at the most be condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Further, the Ld CIT deleted the addition made for Rs. 27,00,000/- towards interest credited in the partners capital account by observing as follows: 7. Next issue involved in this appeal is with regard to AD's action in disallowing interest amounts totalling to Rs. 27,00,000/- paid by the assessee firm u/s. 40(b) of the Act. AO's observations are as under: Addition on account of interest paid on capital in the case of Sri N. Srirangarao:- As discussed above, the assessee firm had not substantiated the capital of Rs. 2,13,00,000/-brought by the partners. However, the firm had claimed interest @ 12% on the capital. The capital account of Sri N. Srirangarao is gone through. The firm had credited an interest of Rs. 12,92,000/- as interest @ 12% on the capital introduced. Since the assessee firm had not substantiated the capital brought, the said amount of Rs. 12,92,000/- is added to the total income of the firm. Addition on account of Interest paid on capital ln the case of Smt. N. Haritha:- Likewise, the firm had credited total amount of Rs. 1,10,000/-. Since the assessee firm had not substantiated the capital brought, the said amount i.e., Rs. 1,70,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as ..... 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