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Issues:
1. Interpretation of section 69 of the Income-tax Act, 1961 regarding unexplained investment. 2. Constitutional validity of section 69 of the Act in light of taxation principles. Analysis: The judgment by the High Court of Patna involved a case where the assessee, an individual, claimed to have invested a sum of Rs. 1,62,000 in the construction of a house during the assessment year 1973-74. The source of Rs. 78,000 out of this investment was attributed to a loan from the Hindu undivided family fund of the assessee's husband, a medical practitioner. However, discrepancies arose during the assessment process when the Income-tax Officer found inconsistencies in the explanation provided by the assessee and her husband regarding the source of the loan. The Income-tax Officer added the sum of Rs. 78,000 in the hands of the assessee under section 69 of the Act as unexplained investment, a decision upheld by the Appellate Assistant Commissioner and the Tribunal. The crux of the matter revolved around the interpretation of section 69 of the Income-tax Act, which deals with unexplained investments. Section 69 allows for deeming unexplained investments as the income of the assessee if satisfactory explanations are not provided. In this case, the Tribunal found the explanation regarding the source of Rs. 78,000 unsatisfactory, leading to the amount being deemed as the income of the assessee for the relevant financial year. The Tribunal's decision was based on the factual circumstances and materials available on record, affirming the addition of the sum in the hands of the assessee. The legal challenge in this case pertained to the constitutional validity of section 69 of the Act. The petitioner contended that taxing deemed or fictional income, as allowed under section 69, was beyond the legislative power granted by the Constitution. The argument was based on the premise that taxation should only apply to actual or real income, not fictional income created by legislative provisions. However, the court rejected this argument, emphasizing that the legislative power to levy taxes must be read broadly to prevent tax evasion. The court held that the provision under section 69 was a measure to prevent tax evasion by ensuring that unexplained investments are not used to avoid taxation. In conclusion, the High Court dismissed the writ application challenging the constitutional validity of section 69 of the Act. The court answered all three questions posed in the reference application in favor of the Department, affirming the addition of the sum of Rs. 78,000 in the hands of the assessee as unexplained investment. The judgment underscored the importance of preventing tax evasion through legislative measures like section 69 of the Income-tax Act.
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