The assessee in this case is a partnership firm engaged in the business of Angadia. The first grievance of the revenue is that the learned Commissioner (Appeals), Surat, is not justified in directing the assessing officer to tax/add the amount of Rs. 7,50,000 seized on 18-4-1989 in assessment year 1989-90 on substantive basis as disclosed for taxation by the assessee. On 17-4-1989 Rajkot police authorities had seized cash of Rs. 7,50,000 from Shri Ramehandra P. Patel, the assessee's employee. The said cash of Rs. 7,50,000 was requisitioned by the income-tax department under section 132A of the Income Tax Act, 1961. During the course of action under section 132A, the said Shri R.P. Patel, the carrier of the said cash had stated that on 17-4-1989, at Junagadh, he was given the suit case and a bag containing the said cash by Shri Babubhai A. Patel, the manager of the assessee-firm to be delivered to Bhavnagar office. Shri Babubhai Patel, manager of the assessee-firm had stated that the said cash belonged to the partners of the assessee-firm. On examination the partner Shri Bhogilal P. Patel and Shri Kantilal K. Patel stated that the cash belonged to the assessee firm. The assessee-firm had offered the said cash of Rs. 7,50,000 for taxation for the assessment year 1989-90. However, the assessing officer has mentioned that there were some discrepancies in the statement of Shri Babubhai Patel, manager and in the statements of Shri Bhogilal Patel and Shri Kantilal Patel, the partners and he accordingly held that the sum of Rs. 7,50,000 is to be taxed on substantive basis in the assessment year under appeal, i.e., assessment year 1990-91 and on protective basis in the assessment year 1990-91. He accordingly, made an addition of Rs. 7,50,000 to the income of the assessee on account of alleged unexplained cash seized.
The assessee appealed to the Commissioner (Appeals). He went through the statements of Shri Babubhai P. Patel, the manager of the assessee-firm and the statements of the two partners referred to supra and held that there was no discrepancy as alleged by the assessing officer. He accordingly, directed the assessing officer to tax the said amount of Rs. 7,50,000 on substantive basis in the assessment year 1989-90 and not in the assessment year 1990-91 observing as under :- I have considered the facts and the appellant's submissions.
Considering the facts and the appellant's submissions discussed above, it is held that the said sum of Rs. 7,50,000 was in the appellant's possession in the month of March, 1989. Accordingly, it is held that the said sum of Rs. 7,50,000 is to be taxed as the appellant's income for the assessment year 1989-90. Therefore, though the assessing officer's action in taxing the sum of Rs. 7,50,000 in the assessment year 1989-90 stands confirmed, the assessing officer is directed to tax the said sum of Rs. 7,50,000 on a substantive basis in the assessment year 1989-90 and not in the assessment year 1990-91.
Shri Ramesh Chander, the learned departmental Representative, submitted that the Commissioner (Appeals) failed to appreciate and apply the provisions contained in section 69A of the Act in relation to taxability of the unexplained cash of Rs. 7,50,000 seized on 18-4-1989 which fell in previous year relevant to the assessment year 1989-90 and based his finding on entirely irrelevant consideration that the unexplained cash was in possession of the assessee prior to 1-4-1989 and thus totally disregarded the legal position contained in section 69A of the Act. He therefore, prayed that on this issue the finding of the assessing officer be restored back.
Shri S. N. Soparkar, the learned counsel for the assessee, supported the order of the Commissioner (Appeals). He drew our attention to the statement of Shri Babubhai Patel and submitted that the statement is very clear regarding the fact that the said cash was received by him from the partner Shri Bhogilal Patel on 1-4-1989 when he came to Junagadh office at the time of opening ceremony. He submitted that the assessing officer's action in relying on a part of the statement and ignoring the remaining part of the statement of Shri Babubhai Patel is untenable. He submitted that the assessee firm is having its branch offices at different stations and that the said partners had started from their different branches towards the end of March, 1989 for Junagadh and had given the said amount to Shri Babubhai Patel on 1-4-1989 at Junagadh. According to the learned counsel, this fact proves that ' the assessee firm was having the said amount of Rs. 7,50,000 with it in the month of March, 1989 and therefore, the said amount was correctly shown by the assessee-firm as the income for the period ending on 31-3-1989, i.e., for assessment year 1989-90. In support of this contention he relied upon the judgment of Madhya Pradesh High Court in the case of Harlal Mannulal v. CIT(1984) 147 ITR 11 (MP) and the decision of ITAT, Pune Bench (Third Member) in the case of Abbasbhai E. Lokhandwala v. ITO (1990) 35 ITR 50 (Pune-Trib)(TM).
We have considered the rival submissions and perused the facts on record. Section 69A reads as follows :- Where in any financial year the assessee is found to be the owner of any money. bullion. jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of accounts, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year." From the perusal of the section as reproduced supra it is pertinent to note from the underlined portion of the said section that it is not merely the finding of the money, but the section also states that the ownership of the said should be with the assessee; and in other words the word used is "ownership" and not "possession". From the statement of the manager Shri Babubhai Patel and the two partners viz. Shri BhogiIal Patel and Shri Kantilal Patel which have to be read as a whole and not in part as done by the assessing officer (a statement cannot be half truth and half lie), it is evident that the said cash was brought by the partners and handed over to the employee Babubhai Patel on 1-4-1989, the day on which the Junagadh office was opened. It is thus very clear that the partners had brought cash on their visit to Junagadh and handed over to the employee on 1-4-1989. This goes to show that the cash was in existence as on 31-3-1989 or prior to that and that, therefore, is referable to assessment year 1989-90. Accordingly, the direction of the Commissioner (Appeals) to tax the said cash of Rs. 7,50,000 under section 69A in the assessment year 1989-90 is justified.
Such direction gets support from the judgment of the M. P. High Court in the case of Harlal Mannulal v. CIT (supra) and Pune Bench of ITAT in the case of Abbasbhai E. Lokhandwala v. ITO (TMC) (supra), Accordingly, we deline to interfere and uphold the finding of the learned Commissioner (Appeals).
The next grievance of the revenue is that the Commissioner (Appeals) is not justified in directing the assessing officer not to add unexplained capital of partners as appearing in the firm's case in the cases of partners and thereby deleting the addition of Rs. 6.39,109 made under section 68 by the assessing officer in the case of the assessee-firm, The assessee, firm started its business in the assessment year 1989-90, with effect from 8-7-1988. There are 8 partners in the firm out of which only 4 partners introduced capital on the following dates :- The other four partners did not introduce any capital. Whereas Shri Kantilal K. Patel introduced capital in cash the other three partners had brought their capital by cheques. Regarding the capital of Rs. 2,85,000 introduced by Shri Kantilal Patel the assessee-firm had explained the source of the said cash to be income disclosed by Shri Kantilal Patel under the Amnesty Scheme. However, the assessing officer did not accept the contention of the assessee on the ground that the assessee had not been able to correlate the amount disclosed under the Amnesty Scheme and the amount introduced by Shri Kantilal Patel as his capital. The assessing officer also rejected the source of capital introduced by Shri Somabhai R. Patel on the ground that the claim regarding the sale of ornaments was not supported by necessary evidence. He was also not satisfied with regard to the source of capital introduced by other partners. In the circumstances, the assessing officer added the sum of Rs. 6,39, 109 as the assessee's income under section 68 of the Income Tax Act, 1961.
On appeal, the Commissioner (Appeals), deleted the addition following and the principle laid down by the judgments, reported at (1983) 141 ITR 706 (All) : (1980) 124 ITR 94 (Pat) and (1979) 117 ITR 316 (All) in which it was held that the unexplained capital can be taxed only in the hands of the partners not in the hands of the firm.
Shri Ramesh Chander, the ld. Departmental Representative submitted that since the cash credits in the names of the partners in the books of accounts are not properly explained the same can be added under section 68 of the Act in the hands of the firm. In support of this argument be relied upon the following decisions :-- Shri S. N. Soparkar, the learned counsel for the assessee strongly supported the order of the learned. Commissioner (Appeals). He submitted that the action of the learned Commissioner (Appeals) is justified in view of the decision reported at (1952) 22 ITR 18 (Bom); (1983) 141 ITR 706 (All): (1980) 124 ITR 94 (Pat) : (1988) 171 ITR 532 and (1992) 42 ITD 451 (Ahd-Trib). He further submitted that some of the partners are assessed to tax in their own right and as such there is no justification for adding the capital account by the partners to the income of the firm.
We have considered the rival submissions and perused the facts on record. It is noted that the capital amounts were introduced by the partners on the first day of the accounting period relevant to the assessment year under consideration. The assessee also filed explanation with regard to the sources of the capital amounts introduced by the partners. Since the partners did own up the capital introduced by them there is no justification for adding the same in the hands of the firm in view of the judgments relied upon by the Commissioner (Appeals) and referred to supra. Further, we find no.justification in the action of the assessing officer in view of the decision of the ITAT Ahmedabad Bench-C in the case of Dhorajia Construction Co. v. ITO (1992) 42 ITD 450 (Ahd-Trib) where under exactly similar circumstances the Tribunal held that the capital introduced by the partners could not be added in the hands of the firm.
Accordingly, we uphold the finding of the Commissioner (Appeals) and decline to interfere.