TaxTMI 
TaxTMI 
2007 (4) TMI 203
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....nt-firm has not been able to explain the source of the capital invested by the partners which accordingly has to be treated as unaccounted income under section 68 of the Income-tax Act ? 3. Whether, on the facts and in the circumstances of the case, the Income-tax Tribunal is right in law in not following the judgment rendered in CIT v. Kishorilal Santoshilal [1995] 216 ITR 9 (Raj)?" 2. The facts leading to the above substantial questions of law are as under : 3. The assessee is a firm. It consists of seven partners with equal shares. It claimed the status of association of persons. The relevant assessment year is 1995-96 and the corresponding accounting year ended on March 31, 1995. The main business of the assessee-firm is deriving income from digging borewells at various places in and around Virudhunagar. The assessee-firm did not maintain any books of account for the reason that the total gross receipts were below Rs. 5 lakhs. The assessee-firm had admitted gross receipts at Rs. 34,000 from which it had claimed expenses like diesel, salary to staff etc. to the extent of Rs. 28,000 and the balance net receipt of Rs. 6,000 was returned. From this, the assessee-firm....
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....sh Kalia v. CIT reported in [2006] 286 ITR 357 (Delhi) ; (d) CIT v. Nivedan Vanijya Niyojan Ltd. [2003] 263 ITR 623 (Cal) ; (e) C. K. Gopinathan v. CIT reported in [2003] 260 ITR 213 (Ker) ; (f) Ram Lal Agrawal v. CIT reported in [2006] 280 ITR 547 (All) ; and (g) ITO v. Diza Holdings P. Ltd. [2002] 255 ITR 573 (Ker). 5. There is no representation on behalf of the respondent in spite of notice served on them. 6. Heard counsel. It is an admitted fact that the present assessment year is the first year of assessment of the assessee. The assessee did not maintain books of account and the amounts represented are capital contribution of the partners in the firm. The assessee had explained that these amounts were represented only as capital contribution made by the partners. So, it cannot be said that the assessee had not explained the source. If the Assessing Officer has any doubt with regard to the genuineness of the source, he should have considered the same in the hands of the partners and not in the hands of the firm. In the present case, the Assessing Officer invoked section 68 of the Act and made an addition of Rs. 5,25,000 under the head "....
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....he books of the assessee and written off as provided by the first proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922. At page 234, the Supreme Court has catalogued the four conditions required to be fulfilled and the fourth condition, according to the Supreme Court, to be fulfilled is that in the books of account of the assessee, the loss should have been brought in and written off. It follows, therefore, that if this requirement is not fulfilled, the assessee is not entitled to the relief of allowance of the loss. We may now refer to the decision of this court in P. Appavu Pillai v. CIT [1965] 58 ITR 622. In that case, the Tribunal took the view that relief under section 10(2)(vii) of the Indian Income-tax Act, 1922, could be given only in cases where the assessee maintains regular books of accounts and the loss had been written off in the books and that as the assessee did not keep any accounts, the allowance was rightly refused. The court found that though there is no indication in section 10(2)(vii) of the Indian Income-tax Act, 1922, as to the particular type of account book which should be maintained by the assessee, if accounts are produced, in which the releva....
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....001, with effect from June 1, 2001, and the same reads as follows : "(12A) 'books or books of account' includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device ;" 11. The above definition is an inclusive definition and it includes not only ledgers, day-books, cash books, account-books and other books, but also the print-outs of data stored in a floppy disc, tape or any other form of electro-magnetic data storage device. P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd Edition 2005, also defines "Books of account" as follows : "Books in which merchants, businessmen, and traders generally keep their accounts. 'Books of account' mean such books of account as are usual in the business, and do not extend to 'letters, cheques, and vouchers from which books of account can be made up' (Per Cave, J., Re Winslow, 55 LJQB 238)" "If the word 'account' is to be given wider meaning to include a record of financial transactions reckoned, a book containing a statement of mone....
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....ed by the assessee-firm. The said explanation has not been rejected by the Assessing Officer. Later, the Assessing Officer examined the partners and the partners had also made explanation in respect of the source for the contribution of the capital to the assessee-firm. The Assessing Officer had also partially accepted the explanation offered by the partners. The Assessing Officer had not rejected the explanation offered by the firm. Unless and until the explanation offered by the firm is rejected and the same is not genuine, the Assessing Officer cannot invoke the provision of section 68 of the Act. In the present case, the explanation offered by the firm was accepted and later, the Assessing Officer examined the partners and not accepted their explanation. The Assessing Officer cannot ask the assessee-firm to prove source of a source. Once the firm had offered an explanation and established that the capital was contributed by the partners, the same could not be assessable in the hands of the firm. Unless there are contradictions and inconsistencies in the statement of the partners, the credit cannot be treated as unexplained and cannot be added under section 68 of the Act in the ....
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.... firm and they had not filed any return in the earlier years. Therefore, the Assessing Officer held that the amount represented the income of the assessee-firm from undisclosed sources and on appeal, the Commissioner of Income-tax (Appeals) held that as the deposits were made by the partners before the firm started its business, the same could not be taken to be the income of the firm from undisclosed sources. The Tribunal held that as the amount was credited in the books of the firm, it was for the assessee-firm to explain the source of the deposit. On a reference, the court held that all the deposits came to be made during the accounting year in the books of the firm before it started its business and the deposits represented the capital contribution of the partners, and it was for the partners to explain the source of deposits and if they failed to discharge the onus, then such deposits could in no case be the income of the assessee-firm because the firm started its business only after the credits had been made in its books. Hence the Allahabad High Court held that the same cannot be assessed in the hands of the assessee- firm. We also agree with the view expressed by the Allaha....
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....ment, can be brought to tax as income from undisclosed sources under section 69 of the Act. It was also further held that there was no question of double taxation and the full effect of the deeming provision provided under sections 68 and 69 of the Act are to be given. Finally the Allahabad High Court held that the firm and the partners, being treated as separate assessees under the Act, the assessment of the income in the hands of different assessees under different provisions of the Act is permissible and on the facts and in the circumstances of the case, the Tribunal was justified in upholding the addition in the total income of the assessee even though the said amount was also assessed in the hands of two partners. In the above judgment, the explanation offered by the assessee-firm was not accepted and hence there was an addition. These facts are materially different from the facts involved in the present case. The most striking feature of the present case is that all the partners made contribution during the accounting year and the assessee-firm also explained the source and the same was not rejected and only the partners' explanations were rejected. Hence the Tribunal, in....