The Income Tax Appellate Tribunal (ITAT), Chennai bench has held that the Firm cannot made taxable for the capital introduced by the Partner as section 68 of the Income Tax Act, 1961 cannot be applicable.
The Assessee, M/s. Nithyasudha Combines filed an appeal against the assessment wherein the CIT(A) granted relief to the assessee. The department approached the Tribunal against deletion of quantum addition made under section 68 of the Income Tax Act, 1961 contending that the assessee firm had filed the first return of income for the assessment year 2015-16 with a capital introduction of ₹.9.70 crores and the onus of providing the source of the said capital introduction entirely vests with the assessee.
The Tribunal bench comprising Shri V. Durga Rao, Judicial Member & Shri Manoj Kumar Aggarwal, Accountant Member observed that on verification of the bank statements and other details of the partners, Smt. Nithyalakshmi and Shri Gurumurthy who have introduced capital in the assessee’s firm, the Assessing Officer has observed that the total capital introduced by the assessee are only ₹.7.30 crores, whereas, in the return of income of the assessee, being first return of income for the assessment year 2015-16, it was mentioned wrongly mentioned in the return of income and based on the return of income, the Assessing Officer has wrongly made the addition as the addition was not as per books of accounts.
“Therefore, the Assessing Officer has nothing to say further on the wrong addition made, she could not confirm for hearing of the issue raised before the appellate authority,” the Tribunal said.
Relying on a catena of decisions, the Tribunal observed that “the capital introduced by the partners cannot be taxed in the hands of the assessee-firm under section 68 of the Act. Under the above facts and circumstances as well as considering various case law, we are of the considered opinion that the ld. CIT(A) has fully justified in deleting the addition of ₹.2,40,00,000/- made under section 68 of the Act. Thus, the appeal filed by the Revenue is dismissed.”