Commissioner of Income Tax vs Burma Electro Corporation

G.S. Singhvi, J.—In this appeal, the Revenue has sought determination of the following question of law by this court:

"Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in law in allowing the appeal of the assessee relating to the addition of Rs. 35,000 made by the Assessing Officer as also confirmed by the learned Commissioner of Income Tax (Appeals) on account of unexplained credits in the capital accounts of the partners appearing in the account books of the assessee in the assessment year 1989-90, holding that the amount of such cash credits cannot be assessed as the income of the assessee u/s 68 but may be assessed in their individual hands as their unexplained investments if permissible u/s 69 of the Income Tax Act, 1961 ?"

A perusal of the record shows that the assessee is a partnership concern comprising the following partners :

Per cent (i) Sh. Gurbax Singh 10 (ii) Smt. Jas Kaur 10 (iii) Sh. T.R. Batra 10 (iv) Smt. Dhan Raj 5 (v) Sh. Surinder Singh 20 (vi) Sh. Baksha Singh 10 (vii) Sh. Sampuran Singh 5 (viii) Smt. Gurmit Kaur 10 (ix) Sh. Harmail Singh 5 (x) Sh. Mahohar Singh 5 (xi) Sh. Hari Singh 5 (xii) Sh. Gurdev Singh 5

It is engaged in the manufacture and transmission of line material which is sold to the State Electricity Boards. It filed a return u/s 139(1) of the Income Tax Act, 1961 (for short "the Act"), declaring a total income of Rs. 67,730 for the assessment year 1989-90. Vide order dated March 28, 1990, passed u/s 143(3), the Assessing Officer assessed its income at Rs. 1,32,331 and also issued penalty notice u/s 271(1)(c) of the Act. The appeal filed by the assessee was partly allowed by the Commissioner of Income Tax (Appeals), Jalandhar (for short "the CIT (Appeals)"), and its income was reduced to Rs. 1,10,331. In the second appeal filed by the assessee, the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (for short, "the Tribunal"), further reduced the income of the assessee by deleting the additions of Rs. 35,000.

Shri R.P. Sawhney argued that the Tribunal has gravely erred in deleting the additions of Rs. 35,000 shown as credits in the accounts of six partners, namely, Smt. Dhan Raj, S/Sh. Sampuran Singh, Harmail Singh, Manohar Singh, Hari Singh and Gurdev Singh, because no tangible explanation had been offered by the assessee in respect of those credits. Learned counsel further argued that the view taken by the Tribunal is contrary to the decision of this court in Shanta Devi v. CIT [1988] 171 ITR 552 and, therefore, the question sought by the Revenue may be framed and decided by this court.

We have thoughtfully considered the arguments of learned counsel. While dealing with the issue relating to the credits shown in the names of six partners, the Tribunal referred to the provisions of Section 68 of the Act and observed as under :

"11. In our opinion, for establishing the genuineness of cash credits the assessee is required to prove the following ingredients :

(1) Proof of identity of his creditors ;

(2) Capacity of creditors to advance money ;

(3) Genuineness of the transaction.

It means that the assessee''s duty to prove that an unexplained entry in his account books does not represent his undisclosed income is not discharged by merely showing :

(a) that the entry appears in the account of third party, and

(b) that the party in whose name the amount is credited is not a fictitious party but a real party,

(c) the assessee is further required to prove that the entry made in the account books is a genuine entry.

Counsel has argued that Sh. Sampuran Singh is the father of S. Harmail Singh and Manohar Singh. He is a retired captain from the Army. The assessee produced before the Income Tax Officer his statement and also jamabandi in proof of his owning nine acres of agricultural land. The assessee has also produced J. Forms in proof that Sampuran Singh has sold paddy to Jaswant Singh and Sons for Rs. 50,000 and has received payment in cash on the date of sale of paddy as mentioned on the J. Form. Over and above this Sampuran Singh has been getting pension and since his sons are out of India, he is living alone. Besides this he has sold the crops on the spot as well as to some other persons. So he was very much competent and in the capacity of making an investment of Rs. 30,000 in the name of his sons as well as in his own name. The Income Tax Officer has added back Rs. 15,000 which is wrong and the same should be deleted. It is not out of place to mention that Sh. Sampuran Singh, Shri Harmail Singh and Manohar Singh has also introduced cash in the year, 1981, which is standing accepted, so they can be said to be in the capacity to introduce this minor amount of Rs. 10,000 in the year 1988, has also filed copies of the capital accounts of S/Shri Sampuran Singh, Harmail Singh and Manohar Singh."

The Tribunal then proceeded to deal with the individual credits and recorded its findings in the following words :

"13. Now, before us, the uncontroverted facts are that Shri Sampuran Singh has retired from the Army as captain and drawing some pension. However, the assessee has not filed any record of this monthly pension or any bank pass book to reveal his monthly pension or monthly savings from his pension. Shri Sampuran Singh is also alleged to be owning nine acres of agricultural land but again we find that we are deprived from his earning monthly or yearly savings from the agricultural income as no record of savings has been maintained by him. May be that through the records he is able to show that he sold paddy worth Rs. 30,000 and received cash in lieu of the same but he was further required to prove through the evidence that it was this very particular amount of Rs. 30,000 which was available to him from the sale of paddy which he had introduced in the assessee-firm as cash amount of Rs. 10,000 each (total Rs. 30,000) in the assessee-firm in his own name as well as in the names of his two sons.

On the other hand, we find that Shri Sampuran Singh, Shri Harmail Singh and Shri Manohar Singh have not been able to bring on record any evidence to show that on the date of investment they had in their possession a sum of Rs. 30,000 (Rs. 10,000 each) and from that amount they have made the investment in the capital account. On further perusal of the capital account of Shri Sampuran Singh, we find that on May 16, 1981, he deposited a sum of Rs. 10,000 by cash and his credit balance stood at Rs. 48,803.50 and thereafter every year profits/losses were credited and debited in the account. Ultimately, up to March 31, 1988, his capital balance was shown at Rs. 46,963.78 which means that this capital account (for the year April 1, 1978 to March 31, 1989) makes one thing clear that Shri Sampuran Singh has not withdrawn a penny from this account either for his personal/household or for making any other expenditure or for making any investment as has been done in the case of the assessee. However, he has shown to have introduced an amount of Rs. 10,000 in cash in the capital account on February 17, 1989, for which, of course, he has no evidence as to from which savings account or from where he made this investment. The capital accounts of Shri Harmail Singh and Shri Manohar Singh on analysis are also found to be similar as that of Shri Sampuran Singh excepting that he has introduced again the amount of Rs. 10,000 each on two different dates, i.e., February 17, 1989 and February 20, 1989, respectively.

Now, looking to the above evidence, we can simply infer that Shri Sampuran Singh, the father of Shri Harmail Singh and Shri Manohar Singh, being a pensioner from the Army, owner of nine acres of land was a man of means and was in a capacity to make investment to the tune of Rs. 30,000 in one year on his behalf, as well as, on behalf of his two sons, who were living abroad. But the issue, in fact, is not only restricted to these facts wherein the assessee was only required to prove that he was a man of means and he had the capacity to make such investment but in a broader sense in this issue, the assessee was also required to prove that, in fact, on the date of investment S/Shri Sampuran Singh, Harmail Singh and Manohar Singh also genuinely have cash in their possession from the savings of Shri Sampuran Singh out of which he made investment in the assessee-firm. But our detailed discussion clearly shows that the assessee failed in proving that on the date of investment a particular amount of cash was available with Shri Sampuran Singh for making the investment in the assessee-firm on his behalf or on behalf of S/Shri Harmail Singh and Manohar Singh.

From our discussion, it clearly stands established that in this case the assessee is able to establish that S/Shri Sampuran Singh, Harmail Singh and Manohar Singh are the partners of the assessee-firm, it is also confirmed by them that they invested Rs. 10,000 each in the partnership firm, i.e., the assessee, and the credit entry in their names is found entered in the books of the assessee-firm. However, in our finding as above, it has been held that the assessee has been able to properly explain the cash credits to the extent of Rs. 15,000 in total invested by the above creditor and the assessee is not able to explain the cash credit of Rs. 15,000, i.e., Rs. 5,000 each by Shri Sampuran Singh, Harmail Singh and Manohar Singh.

We are of the opinion that if it is found upon confirmation by the partners that the money was, in fact, received from them by the firm, in the absence of any material to indicate that it is the profit of the firm, it cannot be assessed as the firm''s income though it may be assessed in the hands of individual partners as unexplained investment, if that is permissible u/s 68 of the Income Tax Act, 1961. Hence, we conclude that since the Revenue has failed to establish the availability of funds at the time of investment with the assessee-firm but since it stands established that these partners admitted to have made these investments in the assessee-firm and further because the Revenue failed to bring on record any material to indicate that these unexplained investments were the profits of the firm then the amount of Rs. 15,000 each invested by Shri Sampuran Singh, Shri Harmail Singh and Shri Manohar Singh cannot be assessed as the income of the firm being the income of the firm u/s 68 of the Income Tax Act but it may be assessed in their hands as individual partners as their unexplained investment, if that is permissible u/s 69 of the Income Tax Act, 1961. Thus, the result is that Rs. 15,000 out of the investment of Rs. 30,000 made by Shri Sampuran Singh, Shri Harmail Singh and Shri Manohar Singh together, cannot be added in the income of the assessee as its unexplained income.

Now coming to the investment made by Shri Gurdev Singh, we find that he invested a sum of Rs. 10,000 on November 11, 1988, and explaining the investment with the assessee-firm out of his savings from the sale of milk. It has been observed by the Assessing Officer that in proof of his income, he filed a certificate from the village Sarpanch in which he was residing and he has stated that he has working as milk vendor but he has not able to provide any evidence regarding the extent of his earning from the sale of milk, etc., to justify the source of investment of Rs. 10,000 with the assessee-firm. The Assessing Officer treated the credit to the extent of Rs. 5,000 as explained and added the balance of Rs. 5,000 to the income of the assessee.

Having considered the entire facts and circumstances with regard to the investment of Shri Gurdev Singh, as discussed above, we are of the opinion that the Assessing Officer has already considered Rs. 5,000 as genuine investment by Shri Gurdev Singh in the assessee-firm is more than sufficient and so the assessee is not entitled to further relief with regard to the genuineness of the investment made by Shri Gurdev Singh. Thus, investment to the extent of Rs. 5,000 is allowed as genuine investment by Shri Gurdev Singh in the assesee-firm.

It is not in dispute that Shri Hari Singh, Shri Gurdev Singh and Smt. Dhan Raj are partners of the assessee-firm. They have confirmed having made investments in the assessee-firm and as such their identity is not in dispute and they are also assessed to Income Tax. We have already held that the cash credit to the extent of Rs. 10,000 of Shri Hari Singh, Rs. 5,000 of Shri Gurdev Singh and Rs. 5,000 of Smt. Dhan Raj have not been properly explained by the assessee as sufficiency of funds at the time of assessment in their cash to the extent have not been explained. In these circumstances, as also discussed in the case of cash creditors Shri Sampu-ran Singh, etc., mentioned above, this total amount of cash credits of Rs. 20,000, i.e., of Shri Hari Singh, Shri Gurdev Singh and Smt. Dhan Raj cannot be assessed as the income of the assessee-firm u/s 68 of the Income Tax Act but it may be assessed in their individual hands as their unexplained investments, if that is permissible u/s 69 of the Income Tax Act.

Thus, the result is that the above calculated unexplained cash credit totalling to Rs. 20,000 cannot be added in the income of the firm as its unexplained income."

In our opinion, the reasons assigned by the Tribunal for deleting the additions are directly referable to the provisions of Section 68 of the Act and we do not find any cogent reason to interfere with the same merely because on a reappraisal of the entire matter, it may be possible to form a different opinion.

For the reasons mentioned above, the appeal is dismissed.