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[2007] 291 ITR 232 (MAD.) HIGH COURT OF MADRAS Commissioner of Income-tax v. Taj Borewells P.D. DINAKARAN AND P.P.S. JANARTHANA RAJA, JJ. TAX CASE (APPEAL) NO. 36 OF 2004 APRIL 2, 2007 Section 68 of the Income-tax Act, 1961 - Cash Credits â–  Where it was first year of assessment of assessee-firm, no books of account were maintained, and assessee's explanation was that amount added under section 68 represented capital contribution of partners, addition of said amount in assessee's hands as unexplained was not justified [Assessment year 1995-96] The assessment year in question was the first year of assessment of the assessee. The assessee did not maintain books of account. Certain amounts were added under section 68. The assessee had explained that those amounts represented only capital contribution made by the partners. The Assessing Officer was of the view that the accounts of the assessee-firm were in the form of profit and loss account and balance-sheet and held that they were the books of account. The Assessing Officer did not reject the explanation of the assessee-firm. Later, however, he examined the partners of the firm and rejected their explanations and made addition of the amounts in question. Held that the profit and loss account and the balance-sheet are not books of account as contemplated under the provisions of the Act. The Assessing Officer cannot ask the assessee-firm to prove source of a source. Once the firm has offered an explanation and established that the capital was contributed by the partners, the same could not be assessable in the hands of the firm. Unless there are contradictions and inconsistencies in the statement of the partners, the credit cannot be treated as unexplained and cannot be added under section 68 in the hands of the assessee-firm. The most striking feature of the present case was that all the partners made contribution during the accounting year and the assessee-firm also explained the source and the same was not rejected and only the partners' explanations were rejected. Hence the Tribunal, had rightly taken a view that, if at all, the Assessing Officer could assess the same in the hands of the partners. In the…

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