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TMI Blog2016 (7) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... lly in view of absence of any material to indicate that the amount was profit of the firm ?" 3. It is admitted by learned counsel for the parties that the facts involved in the two appeals, which relate to separate assessment years 2004-05 and 2005-06, are broadly the same and the facts of M.A. No.49 of 2011 may be treated as representative. 4. The assessee is a partnership firm engaged in dealership of Tata Diesel vehicle, and servicing and dealership of Bharat Petroleum Corporation Ltd. For the assessment year 2004-05, it was selected for scrutiny under section 143(3) of the Income-tax Act, 1961 (in short "the Act"). Statutory notices under sections 143(2) and 142(1) of the Act were issued. On September 10, 2007, a questionnaire was issued fixing the date of compliance on September 24, 2007 and after several adjournments reply to the final show cause was furnished on December 5, 2007. Even then various documents sought for were not furnished including supporting documents for sale of land or other income by the assessee. With regard to the issue before us, the Assessing Officer found credit entries in cash in capital account of Mohan Himatsingka, partner of the firm of differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the said reason, it was also found that the same showed that the Hindu undivided family did not have the capacity to introduce such huge capital in the firm. It was further found in the balance-sheets produced in reply that the value of agricultural land was shown at Rs. 35,000 for both the years and thus as per the documents, there was no reduction in asset, despite it being sold, which was incomprehensible and there was no sale of land, more so, when no document related to sale of land like, sale deed or even the name and address of purchasers, date of sale etc. was furnished and the receipt was entirely in cash. The Assessing Officer came to the conclusion that the explanation given by the Hindu undivided family regarding its sources and creditworthiness was not substantiated with documentary evidences and its confirmation had no evidentiary value and the entire transaction being in cash, remained unverifiable and unsubstantiated. Thus, neither the creditworthiness of the creditor nor the genuineness of transaction was established and conclusion was drawn that the source of these cash credits in the books of the assessee was not satisfactorily explained. For the said reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under appeal was also covered by the order of the Tribunal for the assessment year 2004-05. The findings recorded by the Commissioner of Income-tax (Appeals), which have been affirmed, by the Tribunal were that in spite of specific requisitions made and ample opportunities provided to the assessee, it failed to furnish any supporting documents for sale of agricultural lands or other income in respect of Mohan Himatsingka (HUF) from where the credit entries in cash in capital account of Mohan Himatsingka, partner in the firm, was claimed to be sourced, as no document relating to sale of land such as sale deed, etc. was furnished and further since the purported receipt was entirely in cash, the same remained unverifiable and therefore, unsubstantiated. The Commissioner of Income-tax (Appeals), therefore, held that the Assessing Officer was fully justified in adding the same to the total income of the assessee by invoking the provisions of section 68 of the Act which, according to him, was also supported by the decision of this court. 12. Before us, learned counsel for the appellant has sought to argue that under section 68 of the Income-tax Act, the onus of the assessee is merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of Income-tax. It is open to the Assessing Officer to take appropriate action under sec tion 69 of the Act, against the person who has not been able to explain the investment. In the present case, there is the concurrent finding of both the Commissioner of Income-tax (Appeals) as well as of the Tribunal that the firm has satisfactorily explained the aforesaid entries. We are, therefore, of the opinion that the view taken by the Tribunal is correct and the aforesaid question is answered against the Revenue and in favour of the assessee." 16. Learned counsel for the appellant further relies upon a decision of the Allahabad High Court in the case of India Rice Mills v. CIT [1996] 218 ITR 508 (All), at pages 510-511 of which it has been held as follows : "On the facts and in the circumstances of this case, we are of the considered view that the Tribunal has fallen into serious error. The Tribunal should have taken note of the fact that all the deposits aggregating to Rs. 1,43,000 represented the capital contribution of the partners in the firm and they were made before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed was specifically asked for but could not be produced by the assessee and thus the explanation was rightly not accepted by the Assessing Officer and the appellate authorities. In the said circumstances, it is urged that the addition has rightly been made to the income of the assessee-firm in terms of section 68 of the Income-tax Act. 19. In support of the aforesaid stand, learned counsel for the Revenue relies upon three decisions of the Patna High Court. The first is the case of Hardwarmal Onkarmal v. CIT [1976] 102 ITR 779 (Patna), at page 784 of which it has been laid down as follows : "If the assessee offers no explanation for the sum found credited in his books, the sum so credited has got to be added to the income of the assessee. To that extent there is no difficulty in saying that previously the law was exactly the same. But if an explanation is offered which, in the opinion of the Income-tax Officer, is not satisfactory then also section 68 provides that the cash credit can be added to the income of the assessee. In this regard also, if I may say so, a departure does not seem to have been made from the law laid down authoritatively by the Supreme Court in various d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn that, where an assessee shows that the entries regarding cash credits in third parties' accounts are genuine and the sums were, in fact, received from third parties as loans or deposits, the onus is discharged by the assessee. In that case it would be for the third parties to explain their sources of the money so advanced. In any event, such loans cannot be charged as the assessee's income, in the absence of any cogent material to indicate that they belonged to the assessee. The position in law, however, is different in so far as the degree of heaviness of the burden to prove varies where the credit entries in the assessee's books of account are in favour of, say, partners of the firm, of which the asses see is himself a member, in the assessee's own name in any different capacity, in the name of the assessee's wife or children, in the names of other near relatives of the assessee, in the names of employees of the assessee, or in the names of other such units as have got some financial interest common to the assessee. In my view, the law is too well-settled, and this I say not only on account of consensus of judicial opinion, but also for the additional reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amounts in question to the assessee, the burden immediately shifts on to the department to show as to why the assessee's case could not be accepted and as to why it must be held that the entry, though purporting to be in the name of a third party, still represented the income of the assessee from a suppressed source. And, in order to arrive at such a conclusion, even the department has to be in possession of sufficient and adequate materials, as I have already indicated above, the Income-tax Officer's rejection not of the explanation of the asses see, but of the explanation regarding the source of income of the depositors, cannot by itself lead to any inference regarding the non- genuine or fictitious character of the entries in the assessee's books of account. Nor, for that matter, is there any such finding recorded either by the Income-tax Officer or the Appellate Assistant Commissioner. On the contrary, the Appellate Assistant Commissioner, whose appellate order in favour of the assessee forms part of the statement of the case, marked 'B', clearly points out that the findings recorded by the Income-tax Officer were no positive findings. The Appellate Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is at all warranted or for that matter, the partners had explained the source of their capital, in our view, shall make little difference in law after the insertion of section 68 of the Act. But this is merely of academic interest as we have already pointed out above that even if the Tribunal has categorically held that the partners' agricultural income from which they had brought these cash credits was not supported by any evidence in support of that which had been brought before the Tribunal, that clinches the issue. For the aforesaid reasons we are constrained to hold in favour of the Revenue and against the assessee and answer the question of law referred to us in the negative. We, accordingly, hold that on the facts and in the circumstances of the case, the Tribunal was not correct in deleting the above sum of Rs. 16,700 from the assessment of the firm." 22. We have considered the submissions of learned counsels for the parties and the materials on the record. It is evident from a consideration of section 68 of the Act that the situation as the present one where any amount is found credited in the books of an assessee maintained for any previous year, and the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake addition of such credit entries as the income liable to tax of the assessee. In such circumstances, the Income-tax Department may proceed against the said third party. 26. The submission of learned counsel for the appellant that the Assessing Officer cannot look into the source of source can only apply to the case of such third party and not where the party is closely connected with the assessee as in the present case. All the earlier decisions of this court relied upon by learned counsel for the Revenue clearly support the aforesaid proposition. On the other hand, the reliance placed by learned counsel for the appellant on the decision of the Madhya Pradesh High Court in Metachem Industries case (supra) can be of no avail of taking into consideration the consistent view to the contrary of this court. Further, the decision of the Allahabad High Court in India Rice Mills' case (supra) instead of supporting the case of the appellant, as a matter of fact goes against the appellant, as is evident from the part of the said judgment quoted above. In India Rice Mills' case (supra) the decision was rendered in favour of the assessee for the sole reason that the entire deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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