Law:

Section:

Section 68 of the Income-tax Act, 1961 - Cash credits - Assessee-firm consisted of eight partners - ITO found various cash credits in names of partners in exact proportion to their shares in partnership business - Stand of assessee was that deposits were out of income of partners and should be assessed in their hands - Admittedly, assessee failed to disclose source of said money - Accordingly, ITO added amounts to income of assessee - Whether since explanation given by assessee had not been found to be satisfactory, impugned addition was justified - Held, yes FACTS The assessee was a registered firm consisting of eight partners. At the time of inspection of the books of account, the ITO noticed various cash credits in the names of the partners, the aggregate of which was Rs. 45,900. Each of the seven partners had one-ninth share in the partnership and the eighth one had two-ninths share. The cash credit found deposited was Rs. 5,100 in the name of each of the partners who had one-ninth share each and a sum of Rs. 10,200 was found credited in the name of the partner who had two-ninths share. In other words, the deposits were exactly in proportion to the shares of the partners in the business. The stand of the assessee before the ITO was that the deposits were out of the income of the partners and should be assessed in their hands and that they were not the income of the registered firm. The ITO did not find the explanation of the assessee satisfactory on ground that the source of the money brought in by the partners remained unexplained and added the amounts to the income of the firm. The AAC as well as the Tribunal maintained the addition and dismissed the appeal. HELD The law before the introduction of section 68 was well-settled. The law has been that if cash credits are found in the assessee's books of account then primarily the onus is on the assessee to explain the source from where he got the money for making those deposits. If the explanation is found not to be satisfactory, the amount of cash credits can be added to the income of the assessee. It has also been held that if a cash credit stands in a third party's name and the assessee proves that the…

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