Madhya Pradesh High Court
Commissioner Of Income-Tax vs Metachem Industries on 1 September, 1999
Equivalent citations: [2000]245ITR160(MP)
Author: A.K. Mathur
Bench: A.K. Mathur
JUDGMENT A.K. Matiiur, C.J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961 (for short, "the Act"), at the instance of the Revenue and the following question of law has been referred for answer by this court :
"Whether the Income-tax Appellate Tribunal was justified in holding that when there is credit in the capital account of the partner in the books of the firm, the addition therefor cannot be made in the case of the firm under Cection 68 of the Income-tax Act, but the same has to be considered in the case of the partner ?"
2. The brief facts necessary for disposal Of this reference are that the asses-see is a partnership firm. During the accounting year relevant to the assessment year under consideration, it was found that there was a credit of Rs. 11,000 in the account of Shri S. K. Gupta, Certain credits in the accounts of the partners were found as under :
Rs.
1.
Smt. Shakunt Gupta 70,000 2, Shri Vrindavanlal Gupta 80,000
3. Shri A. K. Mukherji 1,68,000
3. The Assessing Officer did not accept the credits and made the addition in the account of the firm. On appeal before the Commissioner of Income-tax (Appeals) by the assessee, the Commissioner of Income-tax (Appeals) deleted these three entries and held that the firm has satisfactorily accounted for the aforesaid three entries. The matter was taken up in appeal by the Revenue before the Tribunal. It may be clarified that we are not concerned with Shri S. K. Gupta, because the question has not been referred qua Shri S. K. Gupta. The Tribunal also affirmed the finding of the Commissioner of Income-tax (Appeals) relying on the decision of the Allahabad High Court in the case of Sundar Lal Jain v. CIT [1979] 117 ITR 316. It was held in the aforesaid case that the credit in the account of a partner is not a loan to the firm and it is not assessable in the hands of the firm. The Tribunal further observed that the Assessing Officer is free to take any action in the hands of the partners. Aggrieved by this order passed by the Tribunal, the Revenue made an application before the Tribunal for referring the aforesaid question of law for answer by this court and accordingly, the aforesaid question has been referred by the Tribunal for answer by this court.
4. We have heard learned counsel for the parties. Section 68 of the Act of 1961 says that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Therefore, according to Section 68, the first burden is on the assessee to satisfactorily explain the credit entry in the books of account of the previous year. If the explanation given by the assessee is satisfactory, then that entry will not be charged with the income of the previous year of the assessee. In case the explanation offered by the assessee is not satisfactory or the source offered by the assessee-firm is not satisfactory, then in that case, the amount should be taken to be the income of the assessee. In the present case, the Assessing Officer did not feel satisfied with the explanation given by the assessee and accordingly assessed all the three credit entries to the account of the assessee as the income.
5. On appeal, the Commissioner of Income-tax (Appeals) examined the matter in detail and found that Shri S. K. Gupta was the real owner of the business. The explanation given by the assessee was found to be satisfactory and he deleted the aforesaid three entries. The same finding of fact has been affirmed by the Tribunal. Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee-firm is over. The assessee-firm cannot ask that person who makes investment whether the money invested is properly taxed or not. The assessee is only to explain that this investment has been made by the particular individual and it is the responsibility of that individual to account for the investment made by him. If that person owns that entry, then the burden of the assessee-firm is discharged. It is open to the Assessing Officer to undertake further investigation with regard to that individual who has deposited this amount.
6. So far as the responsibility of the assessee is concerned, it is satisfactorily discharged. Whether that person is an income-tax payer or not or from where he has brought this money is not the responsibility of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income-tax. It is open to the Assessing Officer to take appropriate action under Section 69 of the Act, against the person who has not been able to explain the investment. In the present case, there is the concurrent finding of both the Commissioner of Income-tax (Appeals) as well as of the Tribunal that the firm has satisfactorily explained the aforesaid entries.
7. We are, therefore, of the opinion that the view taken by the Tribunal is correct and the aforesaid question is answered against the Revenue and in favour of the assessee.