TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1438
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....of unexplained cash credits brought into the assessee firm by partners. The CIT(A) wrongly held that should the partners fail to explain the sources for the cash brought in, addition has to be considered in the hands of the partners. The CIT(A)'s position is contrary to the scheme of section 68 of the Income Tax Act wherein it is held that "where any sum if found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or if the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charges to income tax as the income of the assessee of the previous year." This section leaves no doubt that the addition u/s 68 has to be made in the hands of the assessee in whose books the credits appear and not in the hands of the creditor of the assessee. 2. The CIT(A) in deciding that unexplained credits brought into the books of the firm by the partners need to considered in the hands of the partners and not the firm, has overlooked the decision of the Hon. High Court of Rajasthan in CIT vs. Kishorilal Santhoshilal [1995] 216 ITR 9 (Raj.) whe....
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....ital and current account credits. Accordingly, the Assessing Officer treated the introduction of credits as unexplained and added the same to the income of the assessee-firm u/s 68 of the I.T.Act. The relevant finding of the Assessing Officer in making the addition u/s 68 of the I.T.Act, concerning assessment year 2006-2007 reads as follows:- "4.1 Cash credits in the form of current account capital: On verification of the cash book maintained for the period, it is seen that the following cash credits made in the accounts of the assessee firm in the names shown against them. Date Amount In the name of 23-05-2005 12000 P.T.Benny 24-05-2005 11000 P.T.Davis 25-05-2005 12000 P.T.Varghese 09-08-2005 15000 Gracy Thomas 09-08-2005 12000 Reeny Johnson 09-08-2005 15000 P.T.Benny 09-08-2005 8000 P.T.Davis 09-08-2005 15000 P.T.Varghese 27-10-2005 20000 Gracy Thomas 27-10-2005 20000 Reeny Johnson 27-10-2005 20000 P.T.Benny 27-10-2005 20000 P.T.Davis 27-10-2005 20000 P.T.Varghese 28-10-2005 20000 Reeny Johnson 28-10-2005 20000 P.T.Benny 28-10-2005 20000 P.T.Davis 28-10-2005 20000 P.T.....
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....um of Rs. 5,90,000 (610000-20000) credited into cash book is treated as un-explained and taxed under section 68 of the Act." 6. Aggrieved by the addition made u/s 68 of the I.T.Act for assessment years 2006-2007 to 2012-2013, the assessee preferred appeals to the first appellate authority. The CIT(A) deleted the addition made u/s 68 of the I.T.Act. The CIT(A) noticed that additional income was disclosed by the partners before the Income Tax Settlement Commission and such additional income offered by the partners would be sufficient to cover the introduction of capital / credits in the partners account for the respective assessment years. The relevant finding of the CIT(A) concerning assessment year 2006-2007 reads as follows:- "6.3. I have gone through the assessment order and the Grounds of Appeal of the appellant. It is seen that the partners of firm have brought in capital in cash, amounting to Rs. 6,1 0,000/- in total, during the year under consideration. It can be seen from the chart that capital has been introduced on various dates starting from 23.05.2005 to 06.03.2006. A search was conducted in Johnson Group of cases. Subsequent to the search, the individuals in the gr....
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....dentified and the additions are to be made in the hands of the creditors. This reasoning of the CIT(A) goes against the provisions of section 68 of the I.T.Act. When an assessee records credit in the name of third party in its books of account, it must prove not only the identity of the creditors, the capacity of the creditors to advance money, but also the genuineness of the transaction. The onus of proving the source of a sum of money found to have been received by the assessee is on the assessee itself. When the nature and source of the receipt cannot be satisfactorily explained by the assessee, it is open for the Revenue to hold that it is the income of the assessee. Further the burden lies with the assessee to show that the income is from a particular source. In the instant case, for all the assessment years, the A.O. has examined the creditworthiness of all the partners and has categorically found that the partners did not have sufficient withdrawals on matching dates of introduction of capital / current account credits. We also notice that the A.O. had given due credits for source when there was matching withdrawal / explanation by partners. 8. The CIT(A) further was of th....