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Issues involved: Assessment of deposits in the account books of a partnership firm, determination of whether the deposits should be considered as income of the individual partners or the firm from undisclosed sources.
Judgment Summary: The Income Tax Officer (ITO) found deposits in the account books of a partnership firm, entered in the names of its partners, without satisfactory explanation or evidence of their source. The ITO added these amounts as income of the firm. The firm's subsequent explanations were also found not believable, leading to the addition being upheld by the Appellate Authority Commission (AAC). The Tribunal, however, disagreed with the additions, stating that if the partners owned the deposits and offered some explanation, but it was unsatisfactory or unsupported, the deposits should be considered as income of the partners individually. The Tribunal deleted the additions, leading to a reference to the High Court by the Commissioner of Income Tax (CIT). The High Court noted that the firm failed to prove the sources of the deposits adequately. The burden was on the firm to establish the bona fides of the ostensible lender or depositor. As the explanations were disbelieved, it was concluded that the firm had not proven the money belonged to the partners, leading to the deposits being treated as the firm's income. Referring to a previous case, the High Court emphasized that when cash credits are found in a partnership firm's account books in the names of partners, the onus is on the assessee to prove the partners actually deposited the money and that the entries were not fictitious. In this case, the Tribunal was not justified in treating the amount as income of the individual partners due to the lack of evidence supporting the firm's explanations. Therefore, the High Court held that the cash credit entries in the names of the partners could be treated as income of the firm from undisclosed sources. No costs were awarded as the assessee did not appear. End of Summary
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