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Issues involved: Interpretation of section 68 of the Income-tax Act regarding treatment of books of account of a partnership firm as those of an individual partner.
Summary: The High Court of Punjab and Haryana addressed the question referred by the Appellate Tribunal regarding the treatment of a cash credit entry in the books of a partnership firm as the individual partner's income under section 68 of the Income-tax Act, 1961. The assessee, a partner of the firm, had a cash credit entry of Rs. 8,400 in the firm's accounts, which the Income-tax Officer sought to tax as undisclosed income. The Appellate Assistant Commissioner initially accepted the assessee's explanation and removed the amount from taxable income, but the Tribunal disagreed and included Rs. 8,400 in the assessment under section 68. The key issue was whether the firm's books should be considered as those of the individual partner. The court acknowledged that a partnership firm is a separate assessable entity from its partners, citing the Supreme Court decision in CIT v. A. W. Figgies and Company [1953] 24 ITR 405. The central question was whether the firm's books should be attributed to the individual partner. Sections 68 and 69 of the Income-tax Act were examined, emphasizing that section 68 applies when the sum is found in the books of the assessee, and the explanation is unsatisfactory. If the firm's books are not considered the partner's, section 69 would apply for undisclosed investments. The court noted that section 68 focuses on the books of the assessee, and since the individual partner did not maintain any books, the firm's books could not be treated as the partner's. Therefore, section 68 did not apply in this case. The decision was supported by the case of Laxmi Narain Gupta v. CIT [1980] 124 ITR 94 (Pat). No conflicting decisions were presented. Consequently, the court ruled in favor of the assessee, rejecting the addition of Rs. 8,400 as undisclosed income and disposing of the reference without costs.
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