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Issues Involved:
1. Whether the Tribunal was justified in holding that Rs. 40,000 constituted the income of the assessee from undisclosed sources assessable to tax in the assessment year 1949-50. 2. Whether the Tribunal was justified in holding that Rs. 12,230 constituted the income of the assessee from undisclosed sources liable to be assessed in the year of assessment 1950-51. Issue 1: Rs. 40,000 as Income from Undisclosed Sources for 1949-50 The assessee, a tanner, had a shortage of 7,182 skins in the year ending March 31, 1947. The Income-tax Officer (ITO) did not accept the assessee's explanation for the shortage and added Rs. 27,500 (value of skins) and Rs. 1,000 (inflation of purchase) to the assessee's income for 1947-48. For 1948-49, the ITO added Rs. 23,730 for gross profit deficiency, totaling Rs. 52,230 for both years. The ITO later found that the assessee had lent Rs. 40,000 on a mortgage in 1948 and initiated proceedings under Section 34 of the Indian Income-tax Act, adding Rs. 40,000 to the 1949-50 assessment. The Appellate Assistant Commissioner (AAC) found that the Rs. 40,000 came from the Rs. 52,230 previously added and deleted the addition. However, the Tribunal reversed this, stating the assessee failed to disclose the source. The High Court held that the Rs. 52,230 was real income, not notional, and the department must accept it as the source for the Rs. 40,000 loan unless proven otherwise. The Tribunal's decision was found erroneous. Issue 2: Rs. 12,230 as Income from Undisclosed Sources for 1950-51 In the 1950-51 assessment, the ITO included Rs. 27,625 as unexplained income. The AAC found only Rs. 12,230 unabsorbed from the Rs. 52,230 should be added. The Tribunal reversed this, but the High Court found no material to support the Tribunal's addition. The Rs. 12,230 was part of the Rs. 52,230 previously assessed as real income. The Tribunal's concept of "intangible additions" was criticized as illogical, and the High Court emphasized that additions are real income, not merely for taxation purposes. The Tribunal's reasoning was deemed faulty, and the High Court held there were no materials for the Rs. 12,230 addition. Conclusion: The High Court concluded that there were no materials for the additions of Rs. 40,000 and Rs. 12,230 for the assessment years 1949-50 and 1950-51, respectively. The Tribunal's order was unsustainable, and the questions were answered in favor of the assessee, who was awarded costs.
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