1974 (4) TMI 17 - HC - Income Tax

Summary

Issues:
The judgment involves the issue of whether the income-tax authorities were justified in treating a certain amount as income of the assessee-firm from undisclosed sources.

Analysis:
The case involved a registered firm deriving income from business, with cash credits found in the account books credited to four ladies, wives of the partners. The Income-tax Officer added the amount to the firm's income from undisclosed sources. The Tribunal upheld the assessment, leading to a reference to the High Court. The main contention was the burden of proof regarding the ownership of the credited amounts. The assessee argued that if the amount stands in the names of third persons, the burden of proof lies on the department to show it does not belong to the assessee. Conversely, the revenue argued that the burden is on the assessee to prove the ownership of the credited amounts.

The High Court referred to previous judgments on burden of proof in similar cases. It cited a Division Bench ruling stating that the burden lies on the assessee to explain credit entries, and failing to do so allows the assessing authority to infer the amounts as taxable income. The Supreme Court also upheld this principle in various cases, emphasizing that the onus is on the assessee to prove the source of received sums. The Court highlighted that if an assessee fails to satisfactorily explain cash credits, the Income-tax Officer can treat them as taxable income. This principle was further supported by statutory recognition in the Income-tax Act, 1961, under section 68.

The High Court rejected contrary views from other cases where the burden of proof was shifted to the department if the amount was credited in the name of a third party. It emphasized that in cases of entries in the name of third persons in account books, the burden to explain lies on the assessee. The judgment concluded that the assessing authorities were justified in treating the credited amounts as income from undisclosed sources, ruling in favor of the revenue and directing the assessee to pay the department's costs. Both judges concurred with the decision, answering the question in the affirmative.