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TMI Blog1990 (7) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... nswara, Rajasthan. The ITO assessed the assessee-firm at a total income of Rs. 3,22,601 after making certain additions/disallowances. The learned CIT(A) allowed the assessee's appeal in part only, thus giving thereby raise to these cross-appeals. 3. Assessee's appeal (ITA No. 1394/Ahd/87) : The assessee has raised the following effective ground in its appeal: "The CIT(A) has erred in not allowing claim under ss. 80HH and 80-I of IT Act though claim is fully explained. The same may be allowed". 4. At the hearing it had to be agreed between the parties that the point in the above ground was considered by the Tribunal on identical facts in the case of a sister concern M/s Dhorajia Brothers for asst. yrs. 1982-83 and 1983-84 (ITA Nos. 1064/Ahd/87 and 2539/Ahd/86) and was decided on favour of the assessee. On a perusal of the said order, which was produced before us, we find that almost on identical facts, the Tribunal had accepted the assessee's claim under s. 80HH and 80J on the basis of the Orissa High Court decision in the case of CIT vs. N. C. Budhiraja & Co. (1980) 121 ITR 212 (Ori) in preference to Bombay High Court decision in the case of CIT vs. Shah Construction co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 12.8.80 " 6. Somabhai R. Dhorajia (HUF) 10,000 25.8.80 By DD . . 10,000 30.8.80 Cash/Agri . . 10,000 8.9.80 " 7. C.J. Patel 45,000 . From Sub contract 8. S.M.J. Patel 10,000 . By cash (Rs. 5,000 from Agri.) 9. G.D. Dhorajia 10,000 10.7.80 By cash (Agri. loan from father) . Total 3,31,000 . . The ITO found that partners at Sl. Nos. 1 to 3 came from one and the same family and they had brought in credits amounting to Rs. 2,00,000. The case of those partners was that the credits in their names represented their agricultural income. The ITO accepted their explanation to the extent of Rs. 30,000 and treated the balance of Rs. 1,70,000 as income of the assessee-firm from undisclosed sources. 6. With regards to the credits appearing in the names of partners at S. Nos. 4 to 6 above, who represented their HUFs, the ITO found that Rs. 21,000 out of the total amount of Rs. 66,000 brought by them, had been brought in by cheques or demand drafts. The rest of the amount of Rs. 45,000 was stated to have been brought in by the said partners from their agricultural income. The ITO was of the opinion that the said partners could have brought in Rs. 25,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the credits appearing in the names of partners at S. Nos. 4 to 6 and of partner at S. No. 9 had not been satisfactorily explained by the assessee, the CIT(A) should have treated those credits amounting to Rs. 30,000 [Rs. 20,000 + Rs. 10,000—as mentioned in ground No. 1) as the income of the assessee-firm from undisclosed sources and should not have directed the ITO to treat the same as the income of the concerned partners from their undisclosed sources. In this behalf Mr. Shah heavily relied upon the Allahabad High Court decision in the case of CIT vs. Kapur Brothers (1979) 10 CTR (All) 280 : (1979) 118 ITR 741 (All). He further contended that it had not been satisfactorily proved by the assessee that its partners at Sl. Nos. 1 to 3 above had brought in Rs. 2,00,000 out of their agricultural income. In the opinion of the Deptl. Representative the amount of Rs. 1,70,000 represented assessee's own income from undisclosed sources and should have been held so by the CIT(A) and credits appearing in the names of those partners should not have been treated as having been satisfactorily explained. 12. On the other hand, Mr. H.M. Talati, Advocate for the assessee-firm, supported the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to be added as income of the concerned partners from their undisclosed sources. 15. It may be recalled that there was no provision in the 1922 Act corresponding to s. 68 of the 1961 Act. It appears that the dispute whether a cash credit appearing in the books of account of the assessee should be regarded as assessee's income of the year of account and if so can it be so regarded where such cash credit was made in the books in the beginning of the accounting year, had led to the enactment of s. 68. Sec. 68 set at rest such disputes as it unequivocally provides that where any sum is 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 the explanation offered by him is not, in the opinion of the ITO, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Now, credit may be made either in the name of the assessee or his relatives or a third party, where the credit appears in the name of the assessee or his relative rather a heavy burden is cast upon the assessee to explain that the said credit did not represent his inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that where once the Tribunal accepts that the money represented by cash credits in the account books of a partnership was brought into the firm by the financing partner no part of that amount can be held to be the Revenue income of the partnership and in the assessment proceedings of the partnership the incorrectness of the explanation offered as regards the source from which the partner obtained the money is of no effect. 17. The Supreme Court also appears to have considered a similar question in the case of A. Govindarajulu Mudaliar vs. CIT (1958) 34 ITR 807 (SC). In that case the assessee was a partner in a firm and the books of the firm disclosed credits amounting to Rs. 54,600 and Rs. 27,500 appearing in the name of the assessee for asst. yrs. 1945-46 and 1946-47. When the assessee was called upon to give explanation as to how he had come to possess those amounts his explanation was in two parts. He, firstly, stated that his father had made a profit of about Rs.80,000 in the business conducted by him, that he had this amount with him when he died in 1936, that prior to his death he had entrusted that amount to the assessee's aunt who had died in 1944 and before her death she ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case credit entries in the names of partners, proportionate to the shares of each of the partners, were found in the books of the firm and the explanation offered was also found unsatisfactory. The Patna High Court opined that the credit entries represented undisclosed income of the firm and were required to be added as such in firm's total income. 20. The above decision of the Patna High Court was relied upon by the Allahabad High Court in the case of CIT vs. Kapur Brothers where deposits in the books of the firm were found existing in the names of the partners and the explanation offered for those deposits had been disbelieved by the authorities concerned. The Allahabad High Court held that the deposits should be treated as income of the firm and not of individual partners. 21. In a subsequent decision in the case of CIT vs. Jaiswal Motor Finance, the Allahabad High Court held that if there are cash credit entries in the books of a 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 the profits of the firm it cannot be asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive. In so far as the credit of Rs. 10,000 appearing in the name of partner at Sl. No. 9 is concerned the case of the assessee was that the said partner had brought in the amount represented by the cash credit from loan obtained from his father. That case was neither accepted by the ITO nor by the CIT(A). We find that the IT authorities have rejected the case of the assessee in that behalf on sound grounds. No confirmation from the father was ever filed. No promissory note was alleged to have been executed by the son in favour of the father, the loan was not admittedly returned to the father. No interest on the loan advanced was stated to have been paid by the partner to the father. All these factors could have reasonably led the IT authorities to reject the explanation of the assessee in that behalf. But after rejecting the explanation in respect of this cash credit of Rs. 10,000 the CIT(A) held that the same was required to be added as partner's income from undisclosed source in his individual assessment. We would have accepted this approach of the CIT(A) had we not kept the totality of the circumstances of this case in mind. It has not been the case of the assessee that it had s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2 lakhs from agriculture or not. In the opinion of the ITO those partners could have brought in only Rs.30,000 out of their agricultural income. That means that the ITO had accepted (1) that amounts had been brought in by the partners to the assessee-firm and (2) that the partners had agricultural income. Once the nature of the cash credits and the sources had been accepted by the ITO he should not have entered upon the task of examining as to what could be the income to the concerned partners from agriculture. That question should have been left to be considered in detail in their individual assessments. Therefore, the principle laid down by the Supreme Court in the case of Lalchand Bhagat Ambika Prasad vs. CIT squarely applies to the facts obtaining in the instant case. We, therefore, agree with the CIT(A) that the amount of Rs. 1,17,000 [sic] represented by the cash credits standing in the names of partners at Sl. Nos. 1 to 3 above, could not have been treated as the income of the assessee-firm. The question whether the amounts represented by the cash credits to that extent or to any other extent represented partners' income from undisclosed sources or from agriculture would b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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