COMMISSIONER OF INCOME TAX Vs. SHIV SHAKTI TIMBERS

JUDGEMENT

(1.) THIS is a reference at the instance of the Revenue under Section 256(1) of the Income-tax Act, 1961, and the following two questions have been referred by the Tribunal for answer by this court :

(2.) WHETHER, the Tribunal was correct in law to hold that the provisions of Section 68 did not apply in the case of firm if the cash credit, even though unexplained or not satisfactorily explained, stood recorded in the name of a partner ?"

(3.) A close reading of both these Sections makes it clear that in Section 68, there should be a credit entry in the books of account, whereas in Section 69, there may not be an entry in the books of account. This is a fundamental difference between the two provisions. In the case of Section 69 only where investment has been made but has not been satisfactorily explained, the income should be treated to be the income of the assessee whereas in the case of Section 68, there should be a book entry and if that book entry is not satisfactorily explained, then it should be treated as income of the assessee. It appears that these provisions were introduced in order to check bogus entries which are resorted to by firms in order to raise the corpus of the firm and the money which is being invested may not come from a valid source. Therefore, both these Sections were engrafted so as to raise a statutory presumption in the event of unsatisfactory explanation of those entries. This was with a view to check the evil of illegal bogus entries. For the purpose of avoidance of tax, certain black money of the firm is sought to be invested in the names of bogus persons so as to convert it into white investment. Therefore, law has made such a strong presumption so as to deter this kind of tendency.