2012 (5) TMI 135 - HC - Income Tax

Amount introduced by the minor partner in the assessee firm at the time of starting of business treated as income of the firm Held that - Failure to take into account that the period in question was the first year of the business of the assessee firm - the partnership firm was formed on 5.7.1990 and on 7.7.1990 Minor partner deposited capital money with the Firm through bank drafts - the accounting period being financial year i.e. ending on 31st of March, 1991, the Firm could not have any income at the time of its formation - if for any reason department was not satisfied with the financial capability of Minor partner the amounts could have been added to his hands and not at the hands of Firm - no material before the Tribunal in holding that amount introduced by minor partner at the time of starting of the business, as income of the assessee Firm against revenue. Tribunal dismissing the appeal without recording any finding on the said grounds Held that - Tribunal was not justified in not considering the ground nos. 2 to 6 of grounds of appeal independently and it committed illegality in dismissing the appeal without recording any finding thereon in favour of assessee.

Issues Involved:
1. Addition of Rs.1,90,000/- as income of the firm.
2. Tribunal's failure to consider and record findings on grounds of appeal independently.

Issue-wise Detailed Analysis:

Issue 1: Addition of Rs.1,90,000/- as Income of the Firm

The appellant, a registered partnership firm, formed on July 5, 1990, filed its income tax return for the assessment year 1991-92, declaring an income of Rs.3,59,620/-. The firm had eight partners, including a minor, Master Shishir Kumar Garg, who contributed Rs.2,62,000/- as capital. The Assessing Officer questioned the source of Rs.1,90,000/- contributed by Master Shishir Kumar Garg and found the explanation provided by his father and guardian, Mr. M.L. Garg, unsatisfactory. Consequently, the amount was added as income of the firm.

The appellant argued that the identity, creditworthiness, and source of the amount were proved, and even if the amount was unexplained, it should be added to the minor's income, not the firm's. The respondent countered that the findings were factual and no substantial question of law was involved.

The court examined Section 68 of the Income Tax Act, which deals with cash credits, and noted that judicial decisions had previously recognized the principle underlying this section. The court referred to the case of Commissioner of Income Tax, Allahabad Vs. Jaiswal Motor Finance, which established that if cash credits are found in the books of a firm and are attributed to partners, they cannot be assessed as the firm's income unless there is material indicating they are profits of the firm.

The court distinguished between the present case and the case of Kapur Brothers, where the cash credits were added as the firm's income because the deposits were made during the business's currency. The court concluded that since the firm was in its first year of business and the identity of the depositor was not in question, the amount should be added to the minor's income, not the firm's.

The court held that the Tribunal and lower authorities erred in treating the deposit as the firm's income and set aside their orders.

Issue 2: Tribunal's Failure to Consider and Record Findings on Grounds of Appeal Independently

The court noted that the Income Tax Appellate Tribunal is the highest fact-finding authority, and its findings are binding unless they are perverse or against the material on record. The Tribunal's order contained a summary of the case history and arguments but lacked discussion on the respective arguments and did not include points for determination or findings thereon.

The court emphasized that even an order of affirmation requires the authority to provide its reasons for concurrence. The Tribunal's order, lacking reasons, was deemed no order in the eyes of law. The court found that the Tribunal failed to consider the grounds of appeal independently and committed an illegality by dismissing the appeal without recording findings.

Given the court's decision on the first issue, it found no need to remand the matter to the Tribunal for reconsideration of the grounds of appeal.

Conclusion:

The court decided both substantial questions of law in favor of the appellant and against the department. The appeal was allowed with costs assessed at Rs.500/-.

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