1987 (1) TMI 48 - HC - Income Tax

Summary

Issues:
1. Setting off fictitious loss against unexplained cash credits
2. Deletion of income assessable under section 68 of the Income-tax Act, 1961

Analysis:
The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, involving the setting off of a fictitious loss against unexplained cash credits and the deletion of assessable income for the assessment year 1963-64. The assessee, a Hindu undivided family engaged in various businesses, declared a net loss of Rs. 1,35,049 for the year. The Income-tax Officer disallowed a fictitious loss of Rs. 1,47,767 and treated unexplained cash credits of Rs. 1,57,708 as income from undisclosed sources. The Appellate Assistant Commissioner upheld this decision, leading the assessee to appeal to the Income-tax Appellate Tribunal.

Before the Tribunal, the assessee did not dispute the estimated income or the fact that the cash credits were unexplained. The Tribunal, however, allowed the set-off of the disallowed loss against the cash credits based on the argument that they were interconnected and introduced to balance the account books. The Revenue challenged this reasoning, citing legal precedents emphasizing the treatment of unexplained amounts as income from undisclosed sources.

The Tribunal's decision was found to lack merit as the assessee's books were deemed unreliable, rendering the fictitious loss irrelevant. The only intangible addition made by the taxing authorities was Rs. 73,708, which remained unexplained after setting off the estimated income of Rs. 84,000 against the cash credits. The judgment highlighted that the Tribunal's reasoning of interconnectedness between the loss and cash credits was unfounded, as the unexplained amount should be treated as income from undisclosed sources.

Drawing upon legal precedents, including decisions by the Supreme Court and various High Courts, the judgment emphasized the need for assessing unexplained cash credits independently and not presuming a connection with other additions or losses. Ultimately, the High Court ruled in favor of the Revenue, directing the assessee to pay the costs of the reference.