TaxTMI 
TaxTMI 
2020 (4) TMI 765
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..../- in the hand of the firm? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee was not able to prove the source of income of partners who have made the deposit with the firm in their capital account therefore addition u/s 68 is justified?" 3. The records of the case before us indicate that the assessee has described itself as a partnership firm having sixteen partners engaged in the business of cold storage. For the assessment year 1999-2000, the assessee filed a return of income on 01.11.1999 declaring an income of Rs. 36,92,056/. The case was selected for scrutiny and notices under Section 143(2)/142(1) of the Act were issued. The assessment was thereafter made under Section 143(3) and in terms of an order dated 26.03.2002 the Assessing Officer noted the following credits in the names of the partners: Sr. No. Name Amount/Date Nature Evidence 1 Vishwanat Prasad Kesharwani (HUF) 50,000/010399 Agricultural Income Photo copy of hand record 2 Bhairo Nath (HUF) 50,000/010399 ---do--- ---do--- 3 Prabhu Nath (HUF) 50,000/010399 ---do--- ---do--- 4 Raj Kumar 50,000/010399 ---do--- ---do--- 5....
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....ich had been accepted by the Revenue as such without any addition, and out of the said agricultural income the partners having made the deposits with the firm in their capital accounts, the appellant assessee had satisfied the conditions provided under Section 68 of the Act with regard to the identity and capacity of the depositors as well as genuineness of the transactions. It is submitted that the only point which was required to be considered on the question of making addition under Section 68 of the Act in the hands of the firm was the nature and source of the transaction and the appellant assessee was not required to prove the source of the source. 10. It has been further contended that the genuineness of the transactions having been proved and the firm having duly explained the deposit, the impugned order passed by the Tribunal was not justifiable, and deserves to be set aside. 11. Per contra, the learned counsel appearing for the Revenue has supported the order passed by the Tribunal by submitting that the credits having been found in the hands of the firm the onus was on the firm to prove the creditworthiness of the partners as well as genuineness of the transaction and n....
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.... assessee would be required to explain the source of credit in the books of accounts but not the source of the source i.e. source of the creditor. It is seen that although the requirement under Section 68 is that the Assessing Officer must be satisfied that the explanation offered by the assessee is genuine, but it is also provided that in the absence of a satisfactory explanation, the unexplained cash credit "may" be charged to income tax - therefore, the un-satisfactoriness of the explanation would not automatically result in deeming the amount credited in the books as income of the assessee. 16. A similar view was taken in the case of Deputy Commissioner of Income Tax v Rohini Builders [2002] 256 ITR 360 (Guj) , wherein referring to the judgment of the Supreme Court in the case of Commissioner of Income Tax v Smt. P.K. Noorjahan [1999] 237 ITR 570 (SC), rendered in the context of Section 69 of the Act, it was held as follows:- "The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legi....
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.... of an assessee, but it is not obligatory to treat such source as income in every case where the explanation offered was found to be not satisfactory. It was held thus:" 14. Section 68 of the Act requires that there has to be a credit in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessee offers no explanation about the nature and source of such credit; or the explanation offered by the assessee is not, in the opinion of the assessing authority, satisfactory, then the sum so credited may be charged to tax as income of the assessee of that previous year. The apex court in the case of CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570 has laid down that the word "may" indicated the intention of the Legislature that a discretion was conferred on the Assessing Officer in the matter of treating the source of investment/credit which had not been satisfactorily explained as income of an assessee, but it was not obligatory to treat such source as income in every case where the explanation offered was found to be not satisfactory." 19. The nature and scope of Section 68 of the Act fell for consideration before the Supreme Court in Com....
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....the account books of the firm could validly be treated as income of the firm from the undisclosed sources. The operative portion of the judgment in the case of Kapur Brothers is being extracted below:- "In that case, the entries were alleged to have been made a week before the end of the accounting period. In the present case, the entries were made about three weeks prior to the end of the accounting period. Identical amounts were entered as deposited in the name of each partner. Different explanations were given by the assessee at different stages of the proceedings. They were disbelieved. In this view of the matter, the Tribunal was not justified in treating the amount as the income of the individual partner in view of the finding that the assessee had failed to establish that the partners have actually deposited the money and that the entries were not fictitious. Accordingly, we answer the question referred to us by holding that the cash credit entries standing in the names of the partners in the account books of the firm could validly be treated as the income of the firm from undisclosed sources. As no one appeared on behalf of the assessee, there will be no order as to cos....
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....the Infant case. Most striking feature of the case on hand is that all the deposits came to be made during the accounting year in the books of he assessee-firm before it started its business. Therefore, the onus was on the partners to explain the source in the case on hand and if they failed, the amount could have been added in their hands only and not in the hands of the assessee-firm." 24. The question as to whether in a case where there was credit in the capital account of partners in books of the firm, addition thereof could be made in the hands of the firm or the same had to be considered in the hands of the partners, came up in a reference under Section 256(1) of the Act in Commissioner of Income Tax v Metachem Industries [2000] 245 ITR 160 (MP), and it was held that according to Section 68 the burden was on the assessee to satisfactorily explain the credit entry in the books of account of the previous year and in a case where satisfactory explanation had been given by establishing that the amount had been invested by a particular person, be he a partner or any individual then the burden of the assessee firm is discharged and the credit entry could not be treated to be incom....
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....rm for the purposes of income-tax. It is open to the Assessing Officer to take appropriate action under section 69 of the Act, against the person who has not been able to explain the investment..." 25. A similar question was considered in Commissioner of Income Tax v Burma Electro Corporation [2001] 252 ITR 344 (P&H) wherein the deletion of the addition made by the Tribunal, on the ground that though there was no evidence on record to show availability of funds with partners at the time of investment with the assessee firm the concerned partners having admitted to have made those investments and there being no material to indicate that those investments were profits of the assessee firm, the sum so credited could not be assessed as income of the firm in terms of Section 68 but could be assessed in the hands of the individual partners, was upheld. 26. We may also refer to the decision in the case of Abhyudaya Pharmaceuticals v Commissioner of Income Tax [2013] 350 ITR 358 (All), wherein the earlier decision in the case of Jaiswal Motor Finance was followed on the point that if there are cash credit entries in the books of the assessee firm in which accounts of an individual part....
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....the firm in which the accounts of the individual partners exist and, it is found as a fact that cash was received by the firm from its partners then in the absence of any material to indicate that they were profits of the firm, it could not be assessed in the hands of the firm. We are, therefore, of the opinion that the Tribunal did not commit any error of law and rightly held that the deposits shown in its accounts were satisfactorily explained." 16. At this stage, the learned standing counsel for the Department places reliance upon another Division Bench decision of this Court in the case of Kapur Brothers [1979] 118 ITR 741 (All). It is apt to examine the facts of the case of Kapur Brothers (supra). The Assessing Officer found a deposit of certain amount while making assessment of M/s. Kapoor Brothers. The amount was deposited in the name of its partners. The deposits were entered as on October 20, 1966. The accounting period for the assessment year 1967-68 ended on November 11, 1968. The explanation offered by the assessee was not found satisfactory. In this factual background, it was noticed that the entries were made about three weeks prior to the end of the accounting pe....
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.... in the books of the firm when it was already carrying on its business. The firm was called upon to explain the source of the deposits. The explanation of the firm was that the deposits represented the sale proceeds of certain assets belonging to the partners. When no evidence was adduced to substantiate that explanation, the assessing authority added the amount as income of the partnership-firm. These facts are materially different from the fact of the instant case. Most striking feature of the case on hand is that all the deposits came to be made during the accounting year in the books of the assessee-firm before it started its business. Therefore, the onus was on the partners to explain the source in the case on hand and if they failed, the amount could have been added in their hands only and not in the hands of the assessee-firm." 19. On the facts and circumstances of this case, we are of the considered opinion that the authorities below have committed error as they have failed to take into account that this was the first year of the business of the assessee firm. The partnership firm was formed on July 5, 1990 and on July 7, 1990, Master Shishir Garg deposited Rs. 1,90,0....
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....s does not however absolve the responsibility of the Assessing Officer to prove that the cash credits constitute the income of the assessee. The onus on the assessee has to be understood with reference to the facts of each case and if the prima facie inference on the basis of facts is that the assessee's explanation is probable, the onus shifts to the Revenue. It has been consistently held that once the assessee has proved the identity of its creditors, the genuineness of the transactions and the creditworthiness of the creditors visavis the transactions which it had with the creditors, the burden stands discharged and the burden then shifts to the Revenue to show that the amount in question actually belong to, or was owned by the assessee himself. 29. The question as to whether in a case where money has come from a partner, addition, if any, has to be made in the hands of the partner or of the firm came up for consideration upon the reference under Section 256(1) of the Act in the case of Commissioner of Income Tax v Kishorilal Santoshilal [1995] 216 ITR 9 (Raj), and referring to the language used under Section 68 and various authorities on the point it was held that in this ....