Assessee-firm was constituted with two partner . During the year, assessee introduced capital amounting contributed by both the partners. Assessee furnished its partnership deed, audited financials, ITRs, bank statements and ledger accounts of partners. Assessee also submitted that capital was introduced by its partners through banking channels and supported by ledger accounts and confirmations. However, AO held that only ‘R’ responded to notice under section 133(6) and provided documentary evidence. The other partner, ‘G’ did not respond. Thus, relying solely on the non-response, the AO treated the capital contribution by ‘G’ as unexplained cash credit and made addition under section 68. CIT(A) deleted the addition holding that the addition was based merely on suspicion and non-compliance under section 133(6), without bringing any adverse material on record to rebut the documents filed by assessee.

Assessee furnished all the requisite documentary evidence to substantiate identity, genuineness, and creditworthiness of ‘G’, including PAN, ITR, audited financial statements, bank statements, confirmations, and ledger accounts. Further, capital was received through banking channel and duly recorded in books of account of assessee. AO did not point out any defect or inconsistency in the evidences submitted by assessee. A non-response by a third party, without more, could not form the sole basis for invoking section 68 in the hands of assessee, when all other documentary evidences were placed on record. CIT(A) after carefully examining the submissions and facts, rightly concluded that assessee discharged the initial onus cast under section 68. He noted that failure of partner to respond to notice under section 133(6) was not communicated to assessee and, even otherwise, did not ipso facto establish that capital was unexplained. It is settled position of law that once the partner is identifiable and capital is recorded through proper banking channel, no addition under section 68 can be made in the hands of the firm, if there is no evidence that the amount is undisclosed income of the firm. Hence, CIT(A) was justified in deleting the addition under section 68.(AY. 2018 -19 ) (ITA No. 1081/Ahd/2023,dt. 01/04/2025)