1975 (12) TMI 8 - HC - Income Tax

Business Income, Estimated Income, Income From Business, Income From Other Sources, Undisclosed Income, Unexplained Cash Credits

Summary

Issues Involved:
1. Justification of separate addition on the basis of unexplained cash credits when an addition has already been made on the basis of gross profit.

Detailed Analysis:

Background:
The respondent-assessee, a firm involved in the cloth business, had its returns for the assessment year 1960-61 rejected by the Income Tax Officer (ITO). The ITO added Rs. 47,348 for extra profit in the trading account and Rs. 1,41,729 for unexplained cash credits under "Income from other Sources." The Appellate Assistant Commissioner (AAC) upheld the addition of Rs. 47,348 but deleted Rs. 51,008 of unexplained cash credits for the period after April 1, 1959. The Income-tax Appellate Tribunal (Tribunal) agreed with the AAC, leading to the present reference.

Issue 1: Justification of Separate Addition for Unexplained Cash Credits:
The primary issue was whether the ITO was justified in adding Rs. 51,008 as unexplained cash credits under "Income from other Sources" in addition to Rs. 47,348 added as extra profit in the trading account.

Arguments by Income Tax Department:
- The ITO is justified in making the addition for unexplained cash credits besides the addition for extra profit.
- The Tribunal and AAC's view is illegal and erroneous.

Arguments by Assessee:
- The cash credits of Rs. 51,008 are genuine.
- It is not permissible to add Rs. 51,008 separately once Rs. 47,348 has been added as extra profit.
- The cash credits should be considered as undisclosed business income already subjected to an estimate.

Findings:
1. Binding Nature of Findings:
The Tribunal found that the assessee had not substantiated its claim that Rs. 51,008 represented genuine credits. This factual finding is binding on the court.

2. Jurisdiction and Competence:
The court examined whether the ITO had the jurisdiction to add unexplained cash credits under "Income from other Sources." It is well established that the onus of proving the source of cash credits lies with the assessee. Failure to satisfactorily explain these credits allows the ITO to treat them as taxable income.

3. Legal Precedent:
- Govindarajulu Mudaliar v. CIT: The burden of proof lies with the assessee.
- Kale Khan Mohammad Hanif v. CIT: The ITO can treat unexplained cash credits as income from an undisclosed source even if the business income is estimated.
- CIT v. Devi Prasad Vishwanath Prasad: The ITO can tax both the unexplained cash credits and the estimated business income.

4. Distinct Heads of Income:
The ITO is not precluded from making additions under different heads of income. Unexplained cash credits can be treated as income from an undisclosed source distinct from the business income.

5. No Double Taxation:
There is no double taxation as the unexplained cash credits are treated as income from an undisclosed source, not from the known business source.

6. Assessee's Failure to Prove:
The assessee failed to establish that the unexplained cash credits were part of the business income already estimated by the ITO.

Conclusion:
The court held that the ITO was competent and justified in treating the unexplained cash credits as income from an undisclosed source under "Income from other Sources," despite the business income being estimated. The AAC and the Tribunal were not justified in holding that a separate addition for unexplained cash credits was impermissible.

Judgment:
The question was answered in the negative, in favor of the CIT and against the assessee. The assessee was ordered to pay the costs of the reference, with the advocate's fee fixed at Rs. 250.