1984 (3) TMI 95 - AT - Income Tax

Summary

Issues:
1. Addition of cash purchases disallowed under section 40A(3) of the IT Act.
2. Disallowance of credits in partners' accounts as income from other sources.
3. Cash credits in various accounts treated as assessee's income.

Analysis:

Issue 1:
The first issue pertains to the disallowance of cash purchases under section 40A(3) of the IT Act. The Income Tax Officer (ITO) disallowed an amount of Rs. 3,404 made in cash on 21st March, 1979, as the payment was found to be in violation of the said section. The Appellate Tribunal found that the payment was actually made on 21st Jan., 1979, a bank holiday, and the assessee had received a cash discount, thus falling under the exceptions of Rule 6DD. Consequently, the addition of Rs. 3,404 was deleted based on the provisions of the Board's Circular No. 220.

Issue 2:
The second issue involves the disallowance of credits in partners' accounts as income from other sources. The ITO had disallowed two credits of Rs. 5,000 each in the accounts of partners, which were explained as capital contributions from past savings. The Tribunal relied on a principle established by the Allahabad High Court, stating that if cash credits in a firm's books are proven to be investments from partners, they cannot be assessed as the firm's income. Following this principle, the additions were deleted as the deposits were capital contributions necessary for commencing the firm's business.

Issue 3:
The final issue concerns cash credits in various accounts treated as the assessee's income. The ITO disbelieved explanations provided for credits in different accounts and considered them as the assessee's income from other sources. The Tribunal found the explanations regarding these credits unconvincing and not genuine. Referring to the burden of proof under section 68 of the Act, the Tribunal upheld the addition of Rs. 13,233, as the assessee failed to establish the nature and source of the credits satisfactorily.

In conclusion, the appeal was partly allowed, with the Tribunal deleting the additions related to cash purchases and partners' capital contributions but upholding the addition of cash credits in various accounts as the assessee's income.