ITAT confirmed addition as assessee had not explained source of capital

1. The assessee filed its return of income u/s 139 (of Income Tax Act, 1961) declaring the total loss of Rs.15,965/- in the Asstt.Year 2003-04 and total income at Rs.14,467/- in the Asstt.Year 2004-05. The AO got information from ITO that capital contributed by the partner, Smt. Sagunaben J. Roy failed to explain the source of capital in her hand. It was taxed on protective basis in her hand. Accordingly, the assessment proceeding has been reopened. AO confronted the assessee in both the years to explain the capital contribution of Smt. Sagunaben Roy, partner of the assessee-firm. AO held that the assessee failed to give any explanation, and therefore, he made addition of the alleged capital contribution.

2. CIT(A) confirmed the action of the AO.

3. On appeal, the ITAT held as under:

4. On due consideration of the facts and circumstances, we do not find any merit in both these appeals, because, neither before the AO nor the CIT(A) assessee could bring any evidence exhibiting the source of capital in its hands. The AO has examined the case of the partner also, rather, stand of the assessee is that she (partner) had filed a false return of income, as no income was earned by or accrued to her. If that be the stand of the assessee, then, it is for the assessee to explain the source of capital came to its books of accounts. Considering all the facts, we do not find any merit in these appeals. They are dismissed.”

Case Reference- Shiv Textiles vs ITO

IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ ITA.No.881 and 882/Ahd/2013/Asstt. Year: 2003-2004 and 2004-2005