TaxTMI 
TaxTMI 
2026 (7) TMI 1331
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.... 1997-98 on 31.08.1997, declaring a loss of Rs. 15,783/-. 4. The return of income was processed under section 143(1)(a) of the Act on 22.07.1998. Thereafter, a notice under section 143(2) of the Act was issued on 31.08.1998 for a scrutiny assessment. The Assessing Officer noticed that the assessee had revalued its land and building on 15.04.1996 at Rs.52,11,845/-and Rs. 7,04,648/- respectively, and the surplus was credited to the capital accounts of the partners in their respective profit and loss sharing ratios in the month of April 1996 itself. 5. Thereafter, as per the retirement deed dated 08.11.1996, Shri Madhavlal K. Patel, Shri Khemchand K. Patel, and Shri Amrutlal K. Patel retired and their capital accounts were also credited with the proportionate revaluation surplus. Simultaneously, two new partners, Shri S. B. Jariwala and Shri Feroz Ismail Patel were admitted to the Firm on 09.11.1996 contributing Rs. 6,40,000/- and Rs. 24,00,000/- respectively toward their share capital. 6. The Assessing Officer, therefore, raised a query regarding the revaluation of the assets, which was explained by the assessee that the revaluation of assets had been done on the basis of th....
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....ala in respect of the transaction with the assessee, the Assessing Officer issued a show-cause notice dated 07.02.2000, asking the assessee to explain as to why the amount should not be added as an unexplained cash credit to the income of the assessee. By reply dated 14.02.2000, the assessee informed the Assessing Officer that due to a dispute between the partners, Shri S. B. Jariwala was neither cooperating nor furnishing confirmation and that provisions of section 68 of the Act were not applicable to the capital contribution by a partner. The Assessing Officer, however, concluded that since neither capacity of Shri S. B. Jariwala HUF was established in respect of the sum of Rs. 6,40,000/- nor genuineness of the transaction, the addition of the amount of Rs. 6,40,000/- was made under section 68 of the Act. 9. Being aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the CIT(Appeals). The CIT(Appeals) deleted the addition of Rs. 59,16,492/- for suppressed profits but sustained the addition of Rs. 6,40,000/- by observing as under: "10. The contention of the appellant has been carefully examined. It is evident from the fact that the am....
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....tner, whereas in the case under consideration as is evident from the facts of the case, the taxpayer had not charged the primary onus laid down upon it. Moreover, Shri S.B. Jariwala did not even confirm that the amount was indeed contributed by him. Similarly in the case of CIT v. Pankaj Dye Stuff Industries(supra), the Hon'ble Gujarat High Court observed that both the DCIT and Tribunal had found that the Taxpayer had discharged the primary onus which was done by offering explanation and which has not been found to be incorrect or false in any manner. The interest of the revenue were also safeguarded as Income-tax Officer had been given opportunity to consider the said credits in the case of the partner if he is not satisfied with the source of investment of cash credit in the account of the partners. Accordingly, Hon'ble High Court upheld the order of the Tribunal in deleting the addition. 6.31 We find from the order of lower authorities that the amount of Rs. 6,40,000/ had been credited in the books of the firm in the name of Shri S.B. Jariwala HUF. The said HUF is not assessed to tax as is apparent from the communication dated 23.8 1999 of Shri S.B. Jariwala, ta....
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.... Mohindeen Thamby and Co. v. CIT [1959] 36 ITR 481, relying on the said decision came to the conclusion that there is no distinction between the entries in the names of the partners and those in the names of the third parties, and the nature of the entry is not distinguishable In the absence of a satisfactory explanation, it is open to the Department to infer that these monies also belong to the assessee and represent suppressed income." 12. The learned advocate, Mr. Vishrut Jani appearing for the appellant-assessee submitted that the Tribunal had failed to consider the facts and evidence on record resulting in a perverse order. Learned advocate Mr. Jani invited the attention of the Court to the documents placed on record before the Tribunal in the paper-book to point out that in the reply dated 12.02.2000 filed before the Assessing Officer, the assessee had placed on record the photocopies of the relevant pay-in slips, on the reverse of which details of Demand Draft/Cheque of Rs. 6,40,000/-contributed by Shri S. B. Jariwala HUF were mentioned. Reference was also made to the Partnership Deed dated 09.11.1996 to point out that Shri S.B. Jariwala HUF was admitted was partner. Ther....
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....e to explain the source of the investments made in the firm. 15. On the other hand, learned advocate Mr. Dev D. Patel appearing for the respondent-Revenue submitted that there are concurrent findings of fact recorded by the CIT (Appeals) and the Tribunal. The learned advocate Mr. Patel referred to and relied upon the findings of fact recorded by the Tribunal and pointed out that in response to a query made by the Tribunal, the authorized representative of the assessee could not clarify as to whether the amount was brought in through a demand draft or a cheque. It was further submitted that the Tribunal in the case under consideration had held that the assessee had failed to discharge the onus cast upon it for establishing the creditworthiness of Shri S. B. Jariwala HUF or even the genuineness of the transaction. It was further submitted that the CIT (Appeals) and the Tribunal had rightly distinguished the decision rendered in case of Pankaj Dyestuffs Industries (supra) in absence of any confirmation. It was further submitted that the CIT (Appeals) and the Tribunal have rightly distinguished the decision of this Court in case of Pankaj Dyestuffs Industries, (supra) because in the....
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.... against the name of Shri S. B. Jariwala. The account of the partner Shri S. B. Jariwala, placed on record at Page 91 of the paper-book, reflects that the amounts of Rs. 5,00,000/- Rs. 1,00,000/-, and Rs. 40,000/- were received by Demand Drafts on 11.12.1996, 21.12.1996, and 11.03.1997 respectively. These facts are not controverted by the Revenue. 20. Moreover, in the statement of income of the assessee-Firm, the account of Shri S.B. Jariwala is also reflected at Page 87, which clearly shows that the amount of Rs. 6,40,000/- was received through demand drafts. Thus, the Tribunal committed a grave error by not considering such documentary evidence on record, erred in law and thereafter arrived at a perverse finding by reiterating the order passed by the Assessing Officer and the CIT (Appeal) and relying upon the decisions mentioned in Paragraph Nos 6.3.2 to 6.3.4 which pertain to the onus on the assessee to explain a credit entry. However, in the facts of the case, the Tribunal has, in Paragraph 6.3.5, has arrived at a finding contrary to the facts and evidence on record by holding that the assessee had failed to discharge its onus before the lower authorities, nor could even rep....
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....s of the firm." 10. The Deputy CIT (Appeals), upon consideration of the submissions of the appellant, found that the partners had produced sufficient evidence to show the source for deposit in their accounts. Accordingly, he deleted the addition. However, he left it open for the Income Tax Officer to consider the cash credits in the hands of the partners, if he was not satisfied with the source of investment of cash credits in the hands of the partners. 11. This Court in a recent decision dated 29th June 2005 rendered in case of C.I.T. v. Pragati Cooperative Bank Ltd., Income Tax Reference No. 215 of 1993 has, while construing the provisions of section 68 of the Act, observed as follows : "11. 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 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....
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....tners but they represent the undisclosed profits of the firm which left the firm earlier and returned through the intermediary of the partners. If the department was not satisfied with the explanation given by the partners then it is legitimate for the department to draw an inference that these amounts represent undisclosed profits of the partners and to assess them in their own individual assessment." The aforesaid decision in the case of Narayandas Kedarnath (supra) rendered by Bombay High Court on 28th March 1952 has precedential value equivalent to a decision of this Court and hence, is equally binding on this Court. The said decision though rendered under the Indian Income Tax Act, 1922, would not make any difference. Section 68 of the Act was introduced for the first time in the Act and there was no corresponding provision in the 1922 Act. However, as per settled legal position, Section 68 of the Act only gives a statutory recognition to the principle that cash credits which are not satisfactorily explained might be assessed as income. (See CIT v. Orissa Corporation Pvt. Ltd. [1986] 159 ITR 78). 13. Applying the aforesaid principles to the facts of the prese....