TMI Blog2016 (7) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case. - Decided in favour of the Revenue - Miscellaneous Appeal Nos. 356 of 2009 and 49 of 2011 - - - Dated:- 1-7-2016 - Ramesh Kumar Datta And Sudhir Singh, JJ. For the Appellants : Krishna Nandan Singh, Senior Advocate, Sriram Krishna, Kamla Deo Sharma and Abhimanyu Sharma For the Respondents : Archana Sinha, Senior Standing Counsel, Shalini Bihari and Alok Kumar JUDGMENT Ramesh Kumar Datta, J. 1. Heard learned counsel for the appellants and learned senior standing counsel for the Income-tax Department. 2. Both the appeals had been admitted by the common order dated April 6, 2012 and the following substantial questions of law were framed while admitting them : (i) Whether on account of alleged failure of one of the partners to satisfactorily explain the source for his capital contribution to the firm, the amount involved as capital contribution could be added as unexplained income of the firm with the help of section 68 of the Income- tax Act ? (ii) Whether it had to be treated as income in the hands of the partners, especially in view of absence of any material to indicate that the amount was profit of the firm ? 3. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration it had opening cash balance of ₹ 2,33,741 besides cash agricultural income of ₹ 1,12,945 and there was also cash income of ₹ 42,500 from other miscellaneous sources ; apart from the same, it had sold agricultural lands amounting to ₹ 14,39,059 and it had also various deposits in its capacity. The capital introduction was made out of these sources. The copy of its return and balance-sheet for the assessment years 2004-05 and 2005-06 was filed in support of the explanation but no supporting document for sale of land or other income had been furnished. 6. The Assessing Officer noted that the copy of acknowledgment of return of income for these years show that only computation of income was enclosed with the return which made it clear that the balance-sheets were never filed with the Department and thus the balance-sheets filed in the explanation at that stage were considered to be irrelevant and misleading. It was also found that the Hindu undivided family had shown loss of ₹ 15,000 approximately in the assessment year 2004-05 and income of ₹ 60,717. For the said reason, it was also found that the same showed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; no return of income of the partner was also filed showing such investment in the firm. There was no admission by the partner that he had paid the money to the firm and he owned the responsibility thereof and accordingly, the Tribunal held that the onus lying on the assessee firm cannot be said to be discharged. 10. The Tribunal also examined various decisions cited by the parties including two decisions of this court and held that in the present matter there was no admission by the partner; the partner was not produced before the Assessing Officer ; there was no evidence that the partner had introduced the money to the firm ; the onus was not discharged and, therefore, the authorities have rightly taxed it in the hands of the firm. 11. For the assessment year 2005-06, the Tribunal after quoting the order of the Commissioner of Income-tax (Appeals) at length and the fact that the Commissioner of Income-tax (Appeals) has relied upon the order of the Tribunal passed for the assessment year 2004-05, agreeing with the reasoning given by the Commissioner of Income-tax (Appeals) while confirming the similar addition, held that the issue under appeal was also covered by the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving considered the materials on record has found that section 68 of the Income-tax Act, 1961, is not attracted in the case for the reason that in this case credit in the books of account of the assessee-firm is on account of introduction of capital by the partners and the firm has failed to prove the amount credited in the books of account and as such it would be assessed in the hands of the partners as unexplained investment. In view of the aforesaid finding, in our view, no substantial question of law arises in this case warranting interference. Accordingly, this appeal is dismissed. 15. Learned counsel also relies upon the decision of the Madhya Pradesh High Court in the case of CIT v. Metachem Industries [2000] 245 ITR 160 (MP), at pages 162 of which it has been held as follows : So far as the responsibility of the assessee is concerned, it is satisfactorily discharged. Whether that person is an Income-tax payer or not or from where he has brought this money is not the responsibility of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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. 17. On the other hand, learned senior standing counsel for the Income-tax Department submits that under the provisions of section 68 of the Income- tax Act, it is for the assessee to offer an explanation and such explanation in the opinion of the Assessing Officer must be satisfactory, otherwise the credit entries are liable to be charged to Income-tax as the income of the assessee for that previous year. 18. It is submitted that in the present matter explanations were called for from the assessee as to the sources of the person from which the cash has been received in the account of the firm and the only explanation offered was that the partner in its Hindu undivided family had huge lands part of which has been sold and from the sale proceeds the cash investment has been made. It is further submitted that the sale deed was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision is reasonable, correct and perfectly warranted by the facts and circumstances of this case. The assessee could not persuade the Tribunal to record a finding in its favour that the money found deposited in its account books was actually the money brought by the partners and deposited. 20. The second decision relied upon by learned counsel for the Revenue is in the case of Sarogi Credit Corporation v. CIT [1976] 103 ITR 344 (Patna), in paragraph No. 4 of which it has been observed as follows (page 348) : Mr. N. P. Agrawala, learned counsel for the assessee, contended, and, in my view, rightly so, that the position under section 68 of the 1961 Act is in no way different from that with regard to cash credit entries prior to the 1961 Act ; and although there was no specific statutory provision in the 1922 Act, the principles which governed cases arising under the 1922 Act would also govern cases falling under section 68 of the 1961 Act. Learned counsel further contended that there was absolutely no inconsistency in the various decisions of the various High Courts as also of the Supreme Court in so far as the question at issue is concerned. One line of cases lays dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the names of the assessee's wife and children, or in the name of any other near relation, or an employee of the assessee, the burden lies on the assessee, though the entry is not in his own name, to explain satisfactorily the nature and source of that entry. But, if the entry stands not in the name of any such person having a close relation or connection with the assessee, but in the name of an independent party, the burden will still lie upon him to establish the identity of that party and to satisfy the Income-tax Officer that the entry is real and not fictitious. Once the identity of the third party is established before the Income-tax Officer and other such evidence are prima facie placed before him pointing to the fact that the entry is not fictitious, the initial burden lying on the assessee can be said to have been duly discharged by him. It will not, therefore, be for the assessee to explain further as to how or in what circumstances the third party obtained the money and how or why he came to make advance of the money as a loan to the assessee. Once such identity is established and the creditors, as in the instant case, have pledged their oath that they have advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentatives of both the sides. Before us the learned counsel for the assessee has merely reiterated that all the parties had agricultural income from which they had brought these credits. No definite evidence in support of that has been brought before us.' How anomalous ? On the one hand, the Tribunal does not seem to be satisfied with regard to the explanation given by the partners that they had invested the so-called capital from out of their agricultural income, and yet in the next breath, the Tribunal goes on to hold that since the partners had owned that these sums had been advanced by them as capital outlay for the formation of the firm, they entered them as cash credits in the previous year. The Tribunal has gone on rather more on the basis of surmises that this explanation may be true. Assuming, therefore, that it could be a discharge of onus only, yet, on the Tribunal's own showing, such an onus had not been dis charged. All the same, it is for the firm to explain to the satisfaction of the Income-tax Officer with regard to the nature and source of the cash credit entries in the books of account of the previous year. The question as to whether the partners& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the assessee was in a position to contribute such an amount in cash to the assessee-firm. 25. In this regard the observations of the earlier Division Bench decision of this court in Sarogi Credit Corporation's case (supra) would be relevant as to the degree of heaviness of the burden with respect to different types of credit entries in the assessee's books of account. It has clearly been laid down therein that if such credit entries are in favour of partners of the firm, of which the assessee 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 then the onus to be discharged would be much heavier. It is only in the case of entries in favour of third parties who themselves come forth and admit that they had advanced the loans, that the burden is held to be discharged by the assessee and it is for the third party in whose name the credit stands to explain his source, and the burden shifts upon the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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