Law: Income Tax Act, 1961

Section: 68

Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment year 1942-43 - Whether burden both with regard to credits in names of partners as also in names of third parties is on assessee to explain credit entries irrespective of in whose names they stand - Held, yes - Whether, therefore, in instant case, in absence of satisfactory explanation on part of assessee-firm in respect of credit entries in names of partners of firm, it was open to department to infer that those monies belonged to assessee and represented suppressed income - Held, yes FACTS The assessee-firm having tanneries at many places had several purchasing centers of raw materials including Calcutta. The assessee had a personal account for the Calcutta agents in its books for the respective periods of their agency. On 31-3-1940, certain amount was transferred to the capital account of the then four partners through the personal account of one partner 'V'. At the close of next year, the entries mentioned above were reversed and the sum was redistributed amongst all the fourteen partners, thereby showing that this was contributed towards the capital by all the partners. Similar entries were made at the end of the next year in favour of all the partners and three outsiders, who are no other than the brothers of some of the partners. In the course of assessment proceedings for 1942-43, the ITO noticed both sets of entries and, since he suspected the genuineness of these credits, he called upon the assessee to prove that they were genuine ones. The explanation offered by the assessee was that the credits in both the years, represented the amounts brought in by the partners by way of additional capital. They explained that they were in respect of income from their agricultural salt-pans etc., that they first deposited these monies with one of the partners 'V', and that when the purchasing agents at Calcutta required monies for making purchases, they sent them in the year 1940-41 in one lump sum and in the accounting year in question in three instalments. Having regard to the nature of this explanation and other factors set out in his order, the ITO felt that it was unconvincing and rejected it.…

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