1995 (4) TMI 53 - HC - Income Tax

Summary

Issues:
1. Addition of Rs. 85,000 as income from undisclosed sources.
2. Entitlement to a deduction of Rs. 84,000 confiscated by customs authorities as business loss.

Analysis:

Issue 1:
The case involved the assessment year 1965-66 where the assessee was found in possession of Rs. 84,000 and two air tickets worth Rs. 10,185. Initially, the assessee claimed the amount was from the sale of smuggled gold, but later changed the statement to indicate it was a loan from his brother's firm. The Income-tax Officer added Rs. 1,50,000 as income from undisclosed sources and estimated a profit of Rs. 10,185 from the gold business. The Commissioner (Appeals) upheld this decision. However, the Tribunal found that the addition of Rs. 1,60,185 for smuggling business was not supported, but concluded that the Rs. 84,000 found with the assessee was income from undisclosed sources. The court agreed with the Tribunal's findings, stating that the explanation provided by the assessee was unsatisfactory, and there was no legal infirmity in treating the amount as undisclosed income.

Issue 2:
The second question regarding the deduction of Rs. 84,000 as a business loss was deemed irrelevant as the addition was not linked to any specific business activity of the assessee. The court noted that the addition was solely based on the unexplained possession of cash and air tickets, and therefore, there was no basis for allowing any loss or expenditure related to distinct business activities. Consequently, the court answered the first question in favor of the Revenue and against the assessee, and the second question against the assessee and in favor of the Revenue, awarding costs to the respondent.

This judgment highlights the importance of providing satisfactory explanations for income sources during assessments and the implications of unexplained possession of significant amounts of cash in tax matters.