1981 (12) TMI 9 - HC - Income Tax

Summary

Issues involved: Interpretation of section 68 of the Income-tax Act, 1961 regarding deletion of income from undisclosed sources.

Summary:
The High Court of Madhya Pradesh considered a reference under section 256(1) of the Income-tax Act, 1961, regarding the deletion of an amount of Rs. 27,800 as the income of the assessee from undisclosed sources. The Income Tax Officer (ITO) disallowed certain cash credits and expenses during the assessment proceedings for the year 1963-64. The assessee contended that if the cash credits were not genuine, they should be related to intangible additions made by the ITO. The Appellate Authority accepted this alternative contention, leading to the deletion of the amount. The Tribunal upheld this decision, stating that there was a link between the disallowed expenses and the alleged cash credits, and the assessee had discharged the onus of proof.

The Revenue argued that the assessee could not raise an alternative plea connecting the cash credits to intangible additions, citing decisions from the Madras High Court. However, the High Court of Madhya Pradesh disagreed, aligning with the view of the Punjab High Court that such alternative pleas are permissible. The Court emphasized that the acceptance of alternative explanations by the authorities is a question of fact, and in this case, the Tribunal found a sufficient link between the cash credits and intangible additions.

Additionally, reference was made to section 68 of the Income-tax Act, which allows for the charging of unexplained sums as income if the assessee fails to provide a satisfactory explanation. The Court clarified that the section does not prevent the assessee from offering alternative explanations, and if any of them is accepted, the cash credit cannot be treated as income.

In conclusion, the Court answered the question in favor of the assessee, stating that the Tribunal was not wrong in holding that there was a connection between the cash credits and intangible additions. No costs were awarded in this reference.