Unexplained cash credits and firm registration: rejected explanations sustain income addition, while concealed profits alone do not defeat registration.

Unexplained cash credits may be treated as income of the year in which they are credited when the assessee's explanation is rejected, and a new factual plea not urged before the tax authorities or Tribunal will not be entertained. On that issue, the addition was sustained against the assessee. Registration of a firm under section 26A cannot be refused merely because concealed profits were not divided among partners, where the partnership deed exists, the firm's genuineness is accepted, and the statutory requirements are otherwise satisfied. On that issue, registration was upheld in favour of the assessee.

---

---

Issues: (i) Whether the Tribunal was justified in restoring the addition made on account of unexplained cash credits and in treating the amount as income from undisclosed sources. (ii) Whether the assessee-firm was entitled to registration under section 26A of the Income-tax Act notwithstanding the non-division of the concealed profits among the partners.

Issue (i): Whether the Tribunal was justified in restoring the addition made on account of unexplained cash credits and in treating the amount as income from undisclosed sources.

Analysis: The explanation offered by the assessee for the cash credits was rejected by the income-tax authorities. Once the explanation for such credits is found unsatisfactory, the department is entitled to treat the amounts as income derived in the year in which the cash credits were made. The attempt to raise a new plea before the Court that discarded accounts could not be used for arriving at peak credits was not permitted, as that contention had not been urged before the authorities or the Tribunal.

Conclusion: The issue was decided against the assessee and in favour of the department.

Issue (ii): Whether the assessee-firm was entitled to registration under section 26A of the Income-tax Act notwithstanding the non-division of the concealed profits among the partners.

Analysis: The firm was found to be constituted under an instrument of partnership and its genuineness was not doubted by the authorities. The mere fact that a concealed portion of income was not divided among the partners did not, by itself, defeat the claim for registration where the firm otherwise existed as shown in the partnership deed and the statutory requirements were satisfied.

Conclusion: The issue was decided in favour of the assessee and against the department.

Final Conclusion: The reference was answered partly for the department and partly for the assessee, with the addition on unexplained cash credits upheld and the claim for registration sustained.

---