1992 (6) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Explanation of cash credits.
2. Availability of funds for investment.
3. Burden of proof regarding the source of cash credits.
4. Presumption of continued availability of funds.

Summary:

Explanation of Cash Credits:
The assessee, a partner in two firms, Sreedharan & Co. and Kavitha Trading Company, had unexplained cash credits totaling Rs. 3 lakhs in his account with M/s. Sreedharan & Co. (P.) Ltd. for the assessment year 1980-81. The Tribunal accepted the assessee's explanation that these credits originated from substantial receipts from the firms during the assessment year 1976-77, which were later disclosed in a settlement application admitted on July 30, 1979. The Tribunal concluded that the assessee had Rs. 3,87,533 available for investment, thus deleting the addition made by the assessing authority.

Availability of Funds for Investment:
The Tribunal's decision was challenged on the grounds that the "extra income" offered before the Settlement Commission represented unrecorded expenses and could not be available for subsequent investment. The Tribunal dismissed this application, finding no merit in the Department's argument. The High Court upheld the Tribunal's view, stating that the intangible additions made by the Settlement Commission were real income available for investment from the year they were made.

Burden of Proof Regarding the Source of Cash Credits:
The High Court emphasized that the onus is on the assessee to explain the cash credit entries in his books. The assessee argued that the amounts offered and added by the Settlement Commission were available for investment. The Court agreed, noting that the intangible additions made by the Settlement Commission should be treated as the assessee's real income available for investment from 1976-77.

Presumption of Continued Availability of Funds:
The High Court considered whether the time lag of four years between earning the undisclosed income and the assessment year 1980-81 was too long to presume the availability of funds. The Court concluded that the period was not so long as to rebut the presumption of continued availability, especially since the Department did not provide evidence to suggest the amounts had been spent. The Court found that the assessee had discharged the burden of proving the source of the cash credits.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that the assessee had satisfactorily explained the source of the cash credits and that the amounts were available for investment in the relevant assessment year. The question referred was answered in the affirmative, in favor of the assessee, with no order as to costs.