1959 (3) TMI 55 - HC - Income Tax

Summary

Issues:
1. Addition of sum to profits and gains of business
2. Assessment of undisclosed profits and credits in books and deposits

Analysis:

Issue 1: Addition of sum to profits and gains of business
The case involved a reference under section 66(2) of the Indian Income-tax Act regarding the addition of sums to the profits and gains of a business carried out by the assessee. The Income-tax Officer had estimated the profits of the business due to unreliable accounts maintained by the assessee. The Appellate Assistant Commissioner upheld the estimated additions made by the Income-tax Officer. The petitioner further appealed to the Income-tax Appellate Tribunal, objecting to the estimated income and additions made. The Tribunal rejected the contention that the additional sum could not be sustained as profits of the business had already been estimated. The High Court considered previous cases where it was held that if the assessee fails to provide a satisfactory explanation for cash credits or bank deposits, it can be deemed as income from an undisclosed source. The Court upheld the Tribunal's decision, concluding that the assessee failed in the reference.

Issue 2: Assessment of undisclosed profits and credits in books and deposits
The Court analyzed previous judgments to determine the treatment of undisclosed profits and credits in books and deposits. It referred to cases where the Income-tax authorities were entitled to include undisclosed profits as part of the income, even if profits from the business had already been estimated. The Court highlighted that when the assessee fails to disclose the source of cash credits or bank deposits, the Income-tax Officer can treat them as income from undisclosed sources. The principle established was that if the assessee does not provide a satisfactory explanation for cash credits or bank deposits, it can be considered income from an undisclosed source. The Court emphasized that the Income-tax Officer can rely on evidence from the books of account to conclude that the amounts represent income from an undisclosed source. In this case, the Court affirmed the Tribunal's decision to treat certain credits and bank deposits as secret profits for income-tax purposes, dismissing the possibility of double taxation.

In conclusion, the High Court answered the question referred in the affirmative, holding that the assessee must pay the costs of the Department. The judgment reaffirmed the authority of the Income-tax Officer to treat undisclosed profits and credits as income from undisclosed sources when the assessee fails to provide a satisfactory explanation.