NICAF LLP is engaged in the business of carpets and floor coverings was formed upon conversion of NICAF Pvt. Ltd. on 02.12.2016. The AO held that\u00a0 the pre-conversion share capital and reserves totaling \u20b92.71 crore were credited to the partners’ capital accounts, allegedly violating Section 47(xiiib)(f), which bars distribution of accumulated profits within three years of conversion. Treating the amount as unexplained under Section 68 read with Section 115BBE of the ACT . The CIT(A), on appeal, deleted the addition. On appeal the Tribunal held that\u00a0 Section 68 of the Income Tax Act, 1961, applies only where the nature and source of a credit is unexplained. In the present case, the credit of pre-conversion reserves and share capital to the partners’ capital accounts, arising from a lawful conversion under Section 47(xiiib), constituted a known and explained source. The Tribunal further held that any alleged violation of Section 47(xiiib)(f), which restricts distribution of accumulated profits for a period of three years post-conversion, may render the transaction ineligible for capital gains exemption under Section 45, but does not attract addition under Section 68. It was also observed that a mere accounting entry, without actual monetary benefit to the partners, does not constitute “payment” within the scope of Section 47(xiiib)(f). The burden to establish the applicability of Section 68 rests upon the Assessing Officer, who failed to discharge it. Accordingly, the addition was found unsustainable, the Revenue\u2019s appeal was dismissed, and the assessee\u2019s cross-objection was allowed. (ITA No. 1880\/Mum\/2025 & C.O. No. 86\/Mum\/2025 dt. 18 -6 -2025 ) (AY. 2017 -18)<\/p>\n","protected":false},"excerpt":{"rendered":"
S:68: Cash credits – Unexplained Credit \u2013 Conversion of Company to LLP \u2013 Capital Account \u2013 Accumulated Profits \u2013Capital gains – Mere accounting entry, without actual monetary benefit to the partners, does not constitute payment for alleged Violation of Section 47(xiiib)(f) \u2013 Book Entry \u2013 No Actual Payment \u2013 Burden on AO \u2013 Addition is deleted .[ S.45 , 47(xxib)(f), 115BBE , Limited Liability Partnership Act , 2008 , S. 56, 57 ]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-55022","post","type-post","status-publish","format-standard","hentry","category-income-tax-act"],"acf":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9S2Rw-ejs","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/55022","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/comments?post=55022"}],"version-history":[{"count":1,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/55022\/revisions"}],"predecessor-version":[{"id":55023,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/55022\/revisions\/55023"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/media?parent=55022"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/categories?post=55022"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/tags?post=55022"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}