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Issues Involved:
1. Whether the Tribunal misdirected itself in law regarding the sum of Rs. 2,00,000 credited to the assessee's reserve fund account. 2. Whether it was necessary for the department to prove the possibility of the assessee earning large amounts outside the normal course of business to bring the unexplained cash credit of Rs. 2,00,000 to tax. Issue-wise Detailed Analysis: Issue 1: Tribunal's Misdirection in Law Regarding Rs. 2,00,000 The primary issue was whether the Tribunal erred in concluding that the sum of Rs. 2,00,000 credited to the assessee's reserve fund account on March 29, 1956, originated from withdrawals made in 1948. The assessee, a private limited company incorporated in 1944, had several unrecorded deposits made in 1946, including a deposit of Rs. 3 lakhs by a director, which was split into Rs. 2 lakhs and Rs. 1 lakh. The Rs. 1 lakh was encashed in 1947, while the remaining Rs. 2 lakhs was renewed and later encashed in 1948. The Tribunal accepted the assessee's explanation that the Rs. 2 lakhs credited in 1956 was from this 1946 deposit, despite the Appellate Assistant Commissioner and Income-tax Officer treating it as income from undisclosed sources for the relevant accounting year. The Tribunal found the explanation probable, considering the death of Bhide, the managing director, and the lack of evidence to the contrary. The Tribunal's finding was based on factual appreciation and broad probabilities, which the High Court upheld as being supported by evidence and not inconsistent with the facts on record. Issue 2: Necessity for the Department to Prove Possibility of Earning Outside Normal Business The second issue was whether the department needed to demonstrate that the conditions during the accounting year allowed the possibility of the assessee earning large amounts outside the normal course of business. The Tribunal noted that the conditions in 1956 were not shown to infer the possibility of such earnings, which was one of the surrounding circumstances considered. The High Court clarified that this observation was incidental and not the basis for shifting the burden of proof to the revenue. The Tribunal's acceptance of the assessee's explanation was primarily due to the lack of contrary evidence and the overall probabilities of the case. The High Court referenced several Supreme Court decisions, affirming that unexplained cash credits could be inferred as income from undisclosed sources if the assessee's explanation was unsatisfactory. However, it emphasized that the Tribunal's finding was a factual determination based on the evidence and circumstances, which was not unreasonable or perverse. Conclusion: The High Court answered the first question in the negative, indicating that the Tribunal did not misdirect itself in law. For the second question, the Court noted that it was based on an incorrect assumption about the burden of proof and thus did not require an answer. The revenue was ordered to pay the costs of the assessee.
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