2005 (7) TMI 601 - HC - Income Tax

Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs.87,250/- being deposits in the accounts of partners?

Summary

Issues involved:
- Whether the Appellate Tribunal was right in law and on facts in deleting the addition of Rs.87,250/- deposits in the accounts of partners?

Comprehensive Analysis:
The case involved a reference to the High Court by the Income Tax Appellate Tribunal regarding the deletion of an addition of Rs.87,250/- in the accounts of partners for the assessment year 1984-85. The Income Tax Officer had made the addition due to unexplained cash deposits in the partners' accounts, which the Deputy Commissioner of Income Tax (Appeals) partially deleted. The Tribunal later confirmed the Deputy CIT's findings and dismissed the revenue's appeal. The revenue contended that the partners did not provide sufficient evidence to explain the deposits, invoking Section 68 of the Income Tax Act. However, the Deputy CIT (Appeals) found that the partners had produced satisfactory evidence for the deposits and deleted the addition. The Tribunal upheld this decision.

The High Court referred to relevant legal principles, including the interpretation of Section 68 of the Act, which requires the assessee to explain any credits in their books. The Court cited precedents emphasizing that the burden of proof shifts to the department only if the assessee provides a satisfactory explanation for the credits. It was noted that the Income Tax Officer did not dispute that the credits in the partners' accounts were not deposits from the partners themselves. The Court highlighted that the partners had explained the source of the deposits adequately, and the revenue failed to prove that the deposits were undisclosed profits of the firm. The Court also mentioned the Bombay High Court's decision, emphasizing the importance of the department being satisfied with the explanation given by the partners.

Ultimately, the High Court held that both the Deputy CIT (Appeals) and the Tribunal correctly found that the assessee had discharged its burden of proof by offering a satisfactory explanation for the deposits. The Court concluded that there was no infirmity in the Tribunal's order and upheld the deletion of the addition of Rs.87,250/- in the partners' accounts. The question referred to the Court was answered in favor of the assessee, and the reference was disposed of with no order as to costs.