AI Drafter 
TaxTMI 
TaxTMI 
2004 (8) TMI 46
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.... to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the addition of Rs. 7,500 made by the Income-tax Officer?" Since both these references relate to the partnership firm and one of its partners for the assessment year 1977-78, and the questions are interdependent, they have been heard together and are being decided by a common judgment. Briefly stated, the facts giving rise to the present reference are as follows: M/s. Jagmohan Ram Ram Chandra Prasad, a partnership firm, consisted of six partners. In the course of the assessment proceedings during the assessment year 1977-78 relevant to the previous year ending on March 31, 1977, the Income-tax Officer inquired from the firm to explain the nature and source of two cash credits standing in the names of two partners: Rs. 10,000 on June 8, 1976 in the name of Udai Narain and Rs. 7,500 on June 5, 1976 in the name of Girish Narain. The explanation offered by the firm was that these two partners have surrendered the aforesaid amounts in their individual returns and that they have been assessed thereon. The Income-tax Officer rejected the explanation and treated ....
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....f it was to be treated as income of the partnership firm, the same amount could not have been taxed at the hands of the partners in their individual assessment as it amounts to double taxation which is not permissible under the law. In support of his submission, he relied on the following decisions: 1. Girdhari Lal Nannelal v. CST [1977] 109 ITR 726 (SC); 2. Sundar Lal Jain v. CIT [1979] 117 ITR 316 (All); 3. CIT v. Jaiswal Motor Finance [1983] 141 ITR 706 (All); 4. Addl. CIT v. Precision Metal Works [1985] 156 ITR 693 (Delhi); 5. India Rice Mills v. CIT [1996] 218 ITR 508 (All); and 6. Surendra Mahan Seth v. CIT [1996] 221 ITR 239 (All). Sri A.N. Mahajan, learned counsel for the Revenue, however, submitted that under the Act, the firm and the partners are treated to be distinct entities and therefore, if any entry of cash credits is found in the books maintained by the partnership firm which remains unexplained, the same can be added as income of the said firm under section 68 of the Act. Likewise, if the amount of investment is found in the assessment of an individual, who has not maintained any books of account, it can be added if the explanation offered ....
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....to draw the inference that the amount deposited constituted the income of the assessee-firm. This court referred to the observation of Untwalia, C. J. (as he then was) in the case of Hardwarmal Onkarmal v. CIT [1976] 102 ITR 779, 786 (Patna) which is to the following effect (page 743 of [1979] 118 ITR): "If the credit entry stands in the name of the assessee himself, the burden is undoubtedly on him to prove satisfactorily the nature and source of the amount of that entry; if the entry stands in the name of the assessee's near relation, in that case also the burden is on him. If the entry, however, stands in the name of a third party, then the assessee discharges the burden if he proves to the satisfaction of the Income-tax Officer his identity of the third party and also supplies evidence to show, prima facie, that the entry is not fictitious. If I may say so, the case in hand falls within the second category. If cash credits are found in the account books of a partnership firm in the names of the partners then such cash credits are in the names of persons who cannot call themselves as being related to the firm but surely are in the names of persons who constitute the firm itse....
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....e source of Rs. 10,000 would not justify the conclusion that the sum in dispute represents profits of the firm derived from undisclosed sales." The apex court in the aforementioned case had held that in appropriate cases it is permissible to treat unexplained acquisition of money by the assessee to be the assessee's income from undisclosed sources and assess him as such. In the case of Sundar Lal Jain [1979] 117 ITR 316, this court has held that where the entries are found in the books of a firm and the assessment is that of an individual, namely, one of the partners of the firm, section 68 will not apply as the existence of the entry in the books of the firm would be immaterial because those are in the books of a different assessee. In the aforesaid case, this court has held that the assessee had made investments which were not recorded in the assessee's books of account because he had not maintained any books of account at all. The explanation offered by the assessee i.e., individual partner, was not found satisfactory and all the ingredients and conditions of section 69 were satisfied which alone could apply and section 68 was entirely inapplicable. Thus, the aforesaid dec....