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TMI Blog2019 (5) TMI 1438X X X X Extracts X X X X X X X X Extracts X X X X ..... orically found that the partners did not have sufficient withdrawals on matching dates of introduction of capital / current account credits. We also notice that the A.O. had given due credits for source when there was matching withdrawal / explanation by partners CIT(A) was of the view that the partners of the assessee-firm had disclosed substantial additional income before the Income Tax Settlement Commission and that would be sufficient to cover the introduction of capital / credit in their current account. We have perused the order of the Settlement Commission dated 23.06.2014. There are variations in the additional income computed by the Income Tax Settlement Commission and the details of the additional income that was furnished by the learned AR before the Tribunal. AO also did not have the benefit of Income Tax Settlement Commission s order (The assessment order was completed on 28.03.2014, whereas the Income Tax Settlement Commissioner s order was dated 23.06.2014). Since the A.O. did not have the benefit of Income Tax Settlement Commissioner s order and for a proper examination of availability of funds with the partners of the assessee-firm for making investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfactory, the sum so credited may be charges to income tax as the income of the assessee of the previous year. This section leaves no doubt that the addition u/s 68 has to be made in the hands of the assessee in whose books the credits appear and not in the hands of the creditor of the assessee. 2. The CIT(A) in deciding that unexplained credits brought into the books of the firm by the partners need to considered in the hands of the partners and not the firm, has overlooked the decision of the Hon. High Court of Rajasthan in CIT vs. Kishorilal Santhoshilal [1995] 216 ITR 9 (Raj.) wherein it was held that unexplained credits attributed to partners in the books of the firm is assessable in the hands of the firm itself. 3. The CIT(A) has erred in holding that additional income declared by the partners of the assessee firm before the Income Tax Settlement Commission was sufficient to explain their credits in the books of the firm. This is illustrated below: AY Name of the partner Income returned Additional income be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T.Act was completed for assessment years 2006-2007 to 2012-2013. The Assessing Officer had made addition u/s 68 being the capital investments and current account cash credits made by the partners in the assessee-firm. The partners of the assessee-firm had introduced cash in the books of account of the assessee on dates starting from 23.05.2015 to 06.03.2006. The Assessing Officer concluded that the partners did not have sufficient withdrawals on matching dates of introduction of capital and current account credits. Accordingly, the Assessing Officer treated the introduction of credits as unexplained and added the same to the income of the assessee-firm u/s 68 of the I.T.Act. The relevant finding of the Assessing Officer in making the addition u/s 68 of the I.T.Act, concerning assessment year 2006-2007 reads as follows:- 4.1 Cash credits in the form of current account capital: On verification of the cash book maintained for the period, it is seen that the following cash credits made in the accounts of the assessee firm in the names shown against them. Date Amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Thomas 07-12-2005 20000 Reeny Johnson 07-12-2005 20000 P.T.Benny 07-12-2005 20000 P.T.Davis 07-12-2005 20000 P. T. Varghese 08-12-2005 20000 Gracy Thomas 08-12-2005 20000 Reeny Johnson 08-12-2005 20000 P.T.Benny 08-12-2005 20000 P.T.Davis 08-12-2005 20000 P.T.Varghese 09-12-2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt statement as in proprietary business of Best Poultry Farm was studied. No matching withdrawals seen on dates immediate precede the dates of deposit. P.T. Varghese : His current account statement as in proprietary business of Anna Poultry Farm was studied. No matching withdrawals seen on dates immediate precede the dates of deposit. Hence, the source for difference of sum of ₹ 5,90,000 (610000-20000) credited into cash book is treated as un-explained and taxed under section 68 of the Act. 6. Aggrieved by the addition made u/s 68 of the I.T.Act for assessment years 2006-2007 to 2012-2013, the assessee preferred appeals to the first appellate authority. The CIT(A) deleted the addition made u/s 68 of the I.T.Act. The CIT(A) noticed that additional income was disclosed by the partners before the Income Tax Settlement Commission and such additional income offered by the partners would be sufficient to cover the introduction of capital / credits in the partners account for the respective assessment years. The relevant finding of the CIT(A) concerning assessment year 2006-2007 reads as follows:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners, the partnership deed, the income tax returns of the assessee-firm and its partners etc. The learned Counsel has also filed details of additional income disclosed by partners before the Income Tax Settlement Commission. The AR also placed on record the order of the Income Tax Settlement Commission dated 23.06.2014. 8. We have heard the rival submissions and perused the material on record. The CIT(A) had deleted the addition made u/s 68 of the I.T.Act primarily for the reason that the creditors are identified and the additions are to be made in the hands of the creditors. This reasoning of the CIT(A) goes against the provisions of section 68 of the I.T.Act. When an assessee records credit in the name of third party in its books of account, it must prove not only the identity of the creditors, the capacity of the creditors to advance money, but also the genuineness of the transaction. The onus of proving the source of a sum of money found to have been received by the assessee is on the assessee itself. When the nature and source of the receipt cannot be satisfactorily explained by the assessee, it is open for the Revenue to hold that it is the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lability of funds with the partners of the assessee-firm for making investments in assessee-firm, necessary the matter needs to be remanded to the A.O. for fresh consideration. The assessee is directed to furnish the orders of the Income Tax Settlement Commission and also cash flow statement to prove that there the disclosure made before the Income Tax Settlement Commission towards unexplained income was directly invested in these funds as their respective capital and there should be direct nexus between the disclosure made by the assessee before the Settlement Commission and the investment in these firms. If so the A.O. shall take into consideration the additional income computed by Income Tax Settlement Commission in the hands of partners of assesseefirm for giving due credits in partners account. The A.O. shall also consider whether there was duplication in source of investments by partners in the other group companies / concerns out of additional income computed by the Income Tax Settlement Commission and reduce the same for giving due credit in the hands of partners for introduction of capital in assessee-firm. It is ordered accordingly. 9. In the result, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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