1978 (8) TMI 54 - HC - Income Tax

Summary

Issues involved: Determination of the applicable section for inclusion of investments in the assessable income - Section 68 u/s Section 69 of the Income-tax Act.

Summary:
The High Court of Allahabad addressed a case where an individual, who was a partner in a firm, made investments in the firm but failed to explain the source of these investments. The Income Tax Officer (ITO) included these investments in the assessable income of the individual. The individual appealed, and it was held that the inclusion was justifiable only under Section 69. The Tribunal, however, held that Section 68 was applicable as the books of the firm were considered as books of the individual. The Tribunal dismissed the appeal, leading to a reference to the High Court.

Section 68 Analysis:
Section 68 of the Income-tax Act pertains to sums found credited in the books of an assessee without a satisfactory explanation. The term "assessee" refers to a person liable for tax under the Act. In the case of a firm, the books maintained by the firm should show the cash credit entry for Section 68 to apply. However, for an individual partner, the cash credit entry must be found in the books of the individual, not the firm, to invoke Section 68.

Section 69 Analysis:
Section 69 deals with unexplained investments where the assessee fails to provide a satisfactory explanation. In this case, the individual partner made investments not recorded in his books of account. As the individual did not maintain any books of account, Section 69 was deemed applicable, satisfying all its conditions.

Judgment:
The High Court held that Section 69 was applicable to the case, not Section 68 as determined by the Tribunal. The Tribunal failed to address the argument that the inclusion under Section 69 might pose difficulties for the assessment year 1970-71. The High Court left this aspect open as it was not part of the referred question. Consequently, the Court ruled that the Tribunal was not justified in upholding the addition based on Section 68. The question was answered in favor of Section 69's applicability, and no costs were awarded in the circumstances.