2014 (1) TMI 345 - HC - Income Tax

Unexplained cash credit - Held that - As per section 68 - The reference to any sum which is found to be credited in the assessee s book for any particular year can mean only one thing, i.e. the actual sum found in the books for the concerned previous year and which is unexplained - If the profits reported by the assessee are not accepted on the basis of the supporting accounts, the ITO can process such profits by estimation after rejecting the books - For separate heads of income such as profits, capital gains, etc., which would involve reporting of accounts maintained on an elaborate basis and also detailing expenditure etc., the Assessing Officer may have the discretion to reject accounts and arrive at the income on the basis of estimation - There cannot be any estimate for section 68, even if for the rest of the accounts, such an exercise is validly undertaken - This is for the simple reason that the expression any sum refers to any specific amount and nothing more Decided in favour of assessee.

Summary

Issues:
Interpretation of Section 68 of the Income Tax Act regarding estimation of income beyond credited amounts.

Analysis:
The appeal in question pertains to the interpretation of Section 68 of the Income Tax Act concerning the estimation and taxation of income beyond the credited amounts in the assessee's books. The Assessing Officer (AO) observed an unexplained cash entry of Rs.15,17,060 during the assessment for the year 1989-1990. The AO, suspecting undisclosed profits and other income sources, rejected the accounts and completed the assessment on an estimate basis by adding Rs.25 lakhs to the unexplained amount. The matter was taken to the Appellate Commissioner, who upheld the AO's decision but reduced the estimation to Rs.17 lakhs. The Tribunal also ruled against the assessee, leading to the present appeal.

The crux of the issue lies in the interpretation of Section 68, where the appellant argued that the tax authorities' estimation was unjustified based on the explicit language of the provision. The appellant contended that once the assessee's accounts are rejected, the AO cannot resort to estimation, as mandated by Section 68. Conversely, the Revenue's counsel argued that the AO has the discretion to estimate income after rejecting accounts, citing a decision of the Madras High Court in support. The pivotal section 68 states that if a sum is credited in the assessee's books without satisfactory explanation, it may be charged to income tax for that year.

The High Court scrutinized the language of Section 68 and emphasized that the phrase "any sum" credited in the assessee's books refers to the specific unexplained amount found in the accounts for the relevant year, in this case, Rs.15,17,060. The Court differentiated between estimation permissible for various income heads and the strict application of Section 68, which allows no room for estimation beyond the credited sum. The Court concluded that the AO's estimation of Rs.15,17,060 was not in accordance with Section 68 and ruled in favor of the assessee, allowing the appeal.

In light of the detailed analysis and the specific provisions of Section 68, the High Court's judgment favored the appellant, highlighting the importance of adhering to the precise wording and intent of tax laws, especially in cases involving unexplained credits in the assessee's books.