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Issues involved: Interpretation of tax law regarding addition of unexplained accretion in partner's capital account to firm's income.
The High Court of Punjab & Haryana dismissed the revenue's appeal against the Tribunal's order. The assessing officer doubted a partner's investment of Rs. 6,10,000 claiming it was from gifts received from NRIs. The Commissioner (Appeals) accepted the claim's genuineness. The Tribunal set aside the Commissioner's finding on the gift's validity but noted the partner admitted to investing in the firm and had been taxed accordingly. The Tribunal held that in such a scenario, addition to the firm's income was not warranted. The revenue cited a judgment from Allahabad High Court, stating that if a firm fails to explain the source of a deposit, it is liable to be taxed. However, in this case, the partner, Suresh Bhandari, admitted to making the deposit with the firm, even if the claimed gift was rejected. Therefore, while Suresh Bhandari may be taxed for undisclosed income, the firm cannot be taxed on that basis. The Court found the Tribunal's decision to be correct, as no substantial question of law arose for consideration. Thus, the appeal was dismissed.
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