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Issues Involved:
1. Whether the unexplained cash credit entries of Rs. 16,950 should be treated as covered by the added gross profit of Rs. 18,117. Summary: Issue 1: Unexplained Cash Credits and Added Gross Profit The Income-tax Officer (ITO) noted deposits totaling Rs. 16,950 in the assessee's account books, which were not reflected in the balance sheet by the end of the accounting year. The ITO, u/s 143(3), required the assessee to explain these deposits. The explanation was deemed unsatisfactory, and the ITO treated the deposits as the assessee's income from undisclosed sources, adding Rs. 16,950 to the total income. Additionally, the ITO made a trading addition of Rs. 18,117 due to the absence of a stock account, estimating sales at Rs. 9,70,000 with a gross profit rate of 12.5%. The Appellate Assistant Commissioner (AAC) found that the cash credits were temporary and squared up, indicating that the quality of the cash credits and trading additions were not different. The AAC, u/s 68, deleted the Rs. 16,950 addition but sustained the Rs. 18,117 addition, considering the unaccounted trading receipts temporarily credited in the books. The Revenue appealed to the Tribunal, which confirmed the AAC's order, stating that the Rs. 16,950 was rightly excluded from the total income as the Rs. 18,117 addition covered any unexplained income. The Tribunal also noted that substantial additions had been made in earlier years, supporting the AAC's decision. The court formulated the question: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in treating the unexplained cash credit entries to the extent of Rs. 16,950 as covered by the added gross profit in the sum of Rs. 18,117 on the basis of estimate?" Arguments by Revenue: Counsel for the Revenue argued that the Rs. 16,950 was rightly treated as unexplained income by the ITO and that both amounts (Rs. 16,950 and Rs. 18,117) were correctly added to the income. Arguments by Respondent: Counsel for the respondent contended that the Rs. 16,950 was covered by the Rs. 18,117 addition, as similar additions had been made in previous years. The respondent cited several cases, including Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR 457 (SC), supporting the view that unexplained cash credits could be attributed to intangible additions from previous years. Court's Decision: The court held that the ITO was within his rights to tax the Rs. 16,950 as income from undisclosed sources. However, the respondent was justified in arguing that this amount was covered by the Rs. 18,117 addition and previous years' intangible additions. The court cited various precedents, including CIT v. S. Nelliappan [1967] 66 ITR 722 (SC), supporting the Tribunal's decision to treat the unexplained cash credits as covered by the added gross profit. Conclusion: The court answered the question in favor of the respondent, holding that the Tribunal was right in treating the unexplained cash credit entries of Rs. 16,950 as covered by the added gross profit of Rs. 18,117.
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