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Issues Involved:
1. Applicability of Section 68 of the Income-tax Act, 1961. 2. Determination of the "previous year" for the cash credit entry. 3. Validity of the Tribunal's decision to delete the cash credit from the assessee's total income for the assessment year 1962-63. Issue-wise Detailed Analysis: 1. Applicability of Section 68 of the Income-tax Act, 1961: The core issue revolves around whether Section 68 of the Income-tax Act, 1961, applies to the cash credit entry of Rs. 20,000 in the books of the assessee dated April 7, 1961. Section 68 states, "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." The Tribunal found that the cash credit entry dated April 7, 1961, did not fall within the previous year relevant to the assessment year 1962-63, thus it could not be taxed under Section 68 for that year. This interpretation was based on the precise wording of Section 68, which mandates that the unexplained credit must be taxed in the previous year in which it is found. 2. Determination of the "previous year" for the cash credit entry: The assessee's accounting periods were from April 16, 1960, to April 15, 1961, for the assessment year 1961-62, and from April 16, 1961, to April 15, 1962, for the assessment year 1962-63. The cash credit entry dated April 7, 1961, fell within the previous year for the assessment year 1961-62. The Tribunal held that the term "previous year" under Section 68 should be interpreted as the accounting year opted by the assessee under Section 3(1)(b) of the Act, which was accepted by the department. The Tribunal rejected the revenue's contention that the previous year should be as defined under Section 3(1)(a) for the purposes of computing tax on the undisclosed income. The Tribunal emphasized that Section 68's language is decisive and does not allow the department to shift the opted previous year to include the unexplained entry. 3. Validity of the Tribunal's decision to delete the cash credit from the assessee's total income for the assessment year 1962-63: The Tribunal's decision to delete the cash credit of Rs. 20,000 from the total income for the assessment year 1962-63 was based on the interpretation of Section 68 and the definition of "previous year." The Tribunal found that the cash credit entry did not relate to the previous year beginning on April 16, 1961, and ending on April 15, 1962, which corresponds to the assessment year 1962-63. The Tribunal further noted that this anomalous position arose due to the change in law and that the saving clauses in Section 297 of the Income-tax Act, 1961, did not assist in resolving this issue. The Tribunal cited the principle from Commissioner of Income-tax v. C. S. Shastri that a taxing statute must be construed strictly, and any ambiguity should benefit the taxpayer. Consequently, the Tribunal deleted the addition of Rs. 20,000 for the assessment year 1962-63. The High Court upheld the Tribunal's decision, stating that no tax can be levied without clear words in the Act indicating an intention to impose a burden on the taxpayer. The Court found no justification for giving a different connotation to the term "previous year" for undisclosed income than the previous year opted by the assessee and accepted by the department. The Court referenced Section 69 to highlight the legislative intent, noting the distinction between unexplained income recorded in books (Section 68) and investments not recorded in any books (Section 69). The Court concluded that the Tribunal was correct in deleting the cash credit from the total income for the assessment year 1962-63. Conclusion: The High Court answered the reference against the department, affirming that Section 68 of the Income-tax Act, 1961, applies, and the Tribunal was right in law to delete the cash credit of Rs. 20,000 from the assessee's total income for the assessment year 1962-63. The judgment underscores the importance of adhering to the precise language of the statute and the principle that any ambiguity in taxing statutes should benefit the taxpayer.
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