K.S.JHAVERI,J. - (1.) By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has reversed the finding of the CIT(A).
(2.) This Court while admitting the appeal on 23.08.2012, has framed the following substantial questions of law: "(i) Whether the findings of the Tribunal are perverse in holding that the cash credits of Rs.22.46 lacs are not genuine? (ii) Whether under the facts and circumstances of the case the Ld. Tribunal was justified in confirming the additions of Rs.22,46,000/- under Section 68 when the confirmations and identity of such cash creditors were assessed with the same Assessing Officer and no attempt under Section 131 was made by the Assessing Officer?"
(3.) Counsel for the appellant Mr. Gupta has taken us to the order of the CIT(A) and contended that the observations are made by it at page 38. 3.1. The observation of the CIT(A) are as under: "I have considered the arguments of both the sides and the evidences produced during the course of appellate proceedings. I have also considered the various case laws cited by the appellant. As per the decision of Hon'ble Rajasthan High Court in the case of CIT v. Kishori Lal Santoshi lal 216 ITR, 914 where some cash credits are found in the books of the firm the burden of providing the identity, capital and genuineness is on the firm. The firm has to establish that the amount was actually given by the leaders. No distinction can be made between the cash credit of a partner of a third party. If the cash credits are not satisfactorily explained the AO is justified to treat them as income from undisclosed sources. If the explained offered is not supported by documentary for other evidences, then also the deeming fiction under Section 68 of the Income Tax Act can be invoked. Therefore, simply because the amount is credited in the books of the firm in the partners capital account it cannot be said that it is not the undisclosed income of the firms and in all cases it has to be assessed as an undisclosed income of the partner alone. The AO is therefore, justified in examining the sources of the credits in the capital accounts of the partners appearing in the books of the firm. The decisions of the Hon'ble Allahabad High Court in the cases of India Rice Mills v. CIT and Surendra Mohan Seth v. CIT cited by the appellant are not applicable on the facts of the case because the capital contributions made by the partners have not been made prior to the commencement of the business by the appellant firm. However, if there are credit entries in the books of the firm through the capital account of the partners and it is found as a fact that the cash was received by the firm from its partners, then, in the absence of any material to indicate that these were the profits of the firm, it could not be assessed in the hand of the firm. This is so because in such a case the onus placed on the assessee firm by section 68 of the IT Act could be deemed to have been discharged. (CIT v. Jaiswal Motor Finance 141 ITR 706, All.) The fact that an assessee was unable to satisfy the authorities as to the source from which the depositor received the money cannot be used against the assessee. (CIT v. Daulat Ram Rawat Mull 87 ITR 349 SC). If the firm has satisfactorily explained the nature and source of the credit then it is absolved from any further liability. The obligation will then be of the partner concerned to explain the source etc. and his case may fall in section 69 of the IT Act. Therefore, it is only in those cases where the firm offers no explanation or the explanation offered is found false, that the capital contributions or the cash credits in the names of the partners can be treated as the unexplained income of the firm under section 68 of the IT Act. In this case it is not so. The firm has offered an explanation in regard to the sources of the capital contributions by the partners. It has also given enough evidences in the shape of entries in the books of accounts of the firm as well as the partners for these capital contributions, in the shape of confirmations from the creditor who have given the money to the partners and in the shape of the copies of the returns of income/ statements of computation of income/ capital accounts of all the creditors for AY 92-93, 93-94 and 94-95, to support the explanation. The onus cast upon the appellant firm in regard to the capital contributions made by the partners as per section 68 of the IT Act has therefore been duly discharged. This fact has even been admitted by the present AO in his remand report dated 11.3.2003 wherein he has suggested that action should have been taken in the hands of the partners. But in this case even the sources in the hands of the creditors to the partners have also been prima facie explained. All the 25 creditors are assessed to tax since past sevral years and have incomes from various businesses such as trading in consmetics, kirana goods, garments etc., running printing press and agency of life insurance etc. besides income from house rent, interest, salary and agriculture. Though it has been alleged by the AO that no interest has been paid to the depositors by the partners but actually interest has been duly paid by the partners on the loans obtained by them from these creditors. The returns filed by these creditors have also been accepted by the AO who incidentally is the AO of the firm. There is no evidence on records brought by the AO to indicate that the funds brought in by the partners as the capital were from the profits of the firm. Under these facts, the AO is not at all justified in treating the capital contributions made by the partners of Rs.22.46 lacs as undisclosed income of the firm according the provision of section 68 of the IT Act. The addition made to the income of the firm on this account of Rs.22.46 lacs is therefore deleted." ;