Capital contribution deposited in assessee’s bank not partnership firm – Addition 69A upheld

Addition u/s 69A confirmed as alleged capital contribution by partners was deposited in bank account of assessee not in account of partnership firm

In a recent judgment, Andhra Pradesh High Court confirmed addition under section 69A of Income Tax Act as the alleged capital contribution by the partners of the firm was deposited into the individual bank account of the assessee but not in the account of partnership firm.

ABCAUS Case Law Citation:
4932 (2025) (12) abcaus.in HC

The appellant was an individual filed its return of income for the relevant Assessment Year u/s 44AD of the Income Tax Act, 1961. Subsequently, the case was selected for “limited scrutiny” under CASS to verify the sources for cash deposits during the year.

The assessee stated that the cash deposited in his bank accounts are out of sale of agricultural produce, gift received from his mother-in-law and investment by partners of new partnership firm etc. 

However, the explanation submitted in respect of amounts including the amount claimed to have been received towards capital contribution from partners of firm was not accepted by the Assessing Officer.

As a result, the AO for all of the cash deposited in bank made addition u/s. 69A r.w.s 115BBE of the Act as unexplained cash deposits in various bank accounts.

The Tribunal though deleted other additions except the cash deposit which was stated by the assessee being received by cash being the contribution towards the capital of the firm by various partners of the firm.

The Tribunal observed that there was no recital with respect to the capital contribution made by the partners.  Further, the Assessee also could not explain why the capital contribution was deposited into the assessee’s bank account instead of the bank account of the partnership firm.

The Tribunal further observed that various partners of the said firm had declared their income as agricultural income and provided confirmation letter regarding their investment in the partnership firm.  However, the creditworthiness of the partners could not be established and also the income earned by the partners through agricultural sources could not be substantiated.

The Tribunal held that cash deposits during the demonetization period in the bank accounts of the assessee claiming it out of the capital alleged to be introduced by the partners of the firm can not be accepted as deposits from explained sources.

Accordingly, the Tribunal confirmed the addition.

Not contained by the order of the ITAT, the assessee challenged it before the Hon’ble High Court.

The Hon’ble High Court observed that the plea that additional evidence had been overlooked was not correct. The confirmation letters of the partners and the sufficiency as well as credibility of the same was addressed by the Appellate Tribunal. 

The Hon’ble High Court held that substantial question of law that, whether the Tribunal was justified in rejecting the confirmation letters of the partners without subjecting them to any further enquiry, was therefore answered against the appellant for the reason that the Income Tax Appellate Tribunal assigned justification that the partnership deed was not indicating the contribution of the partners as well as the questioned deposit of capital contribution was into the individual bank account of the  assessee but not in  the account of partnership firm.

Therefore, the Hon’ble High Court opined that the Tribunal had properly addressed the aspects that, (1) Partnership deed was not containing capital contribution. (2) why the capital contribution was deposited into the assessee’s bank account instead of partnership account. 

As a result, the appeal was dismissed.

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