M.A.A. Khan, Judicial Member - (1.) THIS appeal by the Revenue is directed against the order dated 21-3-1985 whereby the Commissioner of Income-tax (Appeals), Rajkot [Commissioner (Appeals)] deleted an addition of Rs. 1,40,000 made by the Income-tax Officer, Cir. II, Rajkot (the ITO) to the total income of the assessee as being investment made out of books from income from undisclosed sources. The controversy, which makes the sole ground in this appeal, arises under the following circumstances.
(2.) The respondent (the assessee) is a partnership firm dealing in sarees exclusively at Rajkot under the business name of M/s. Silk Museum. This firm has been doing its said business since Nov. 1, 1979 under a partnership deed dated Nov. 23, 1979. It consists of one male partner, Shri Amritlal Dhanji and three lady partners, viz., Smt. Chandanben Mukeshbhai, Smt. Meenaben Maheshkumar and Smt. Bhartiben Harshadkumar. Though the male partner contributed Rs. 50,000 towards his share capital and one lady partner contributed Rs. 9,000 each, yet, all the partners share the profits and losses of the business in equal proportion. The assessee maintains its accounts according to mercantile system of accounting. The assessment year under consideration is 1981-82 for which the accounting period ended with S.Y. 2036. The assessee filed the return of its income on 17-7-1981 declaring total income at Rs. 98,200. On scrutiny of relevant books of account, the ITO noted that on the total sales of Rs. 15,84,308 the declared gross profit of Rs. 2,28,442 worked out at 14.4 per cent only. In the opinion of the ITO it was somewhat low in view of the exclusive nature of business of the assessee specially when the clientele of the assessee could only be from upper strata of society. He, therefore, made a lump sum addition of Rs. 5,000 thus thereby raising the G.P. to around 15 percent. The addition did not find favour with the Commissioner (Appeals) and was deleted. Revenue is not aggrieved in this behalf.
(3.) ON further scrutiny, the 1TO noted that the male partner Shri Amritlal Dhanji introduced his share capital of Rs. 50,000 in the following manner: Rs. 20,000 by cheque from Chandrana Art Rs. 30,000 by cash from Chandrana Art Doubting the source and on that ground the genuineness of the cash credit of Rs. 30,000 in the name of Shri Amritlal Dhanji partner, the ITO called for an explanation in that behalf and relevant evidence in support thereof. No explanation could be offered. The books of Chandrana Art negatived the withdraval of Rs. 30,000. The ITO rejected the assessee's version in the copy of accounts and added the aforementioned sum of cash credit to total income of the assessee. The Commissioner (Appeals) agreed with the ITO that the cash credit of Rs. 30,000 was not having a genuine source but declined to approve of the addition in that behalf on the ground that the same did not represent an income of the assessee from undisclosed sources but, instead, it was such an income of Shri Amritlal Dhanji to be taxed in his hands and that had already been done by the ITO in the individual assessment of the said partner. This matter too is not alive for our consideration in this appeal.;