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Assessment of income from undisclosed source based on share allotment transactions. Analysis: The case involved a reference under section 66(2) of the Indian Income-tax Act, 1922, for the assessment year 1953-54. The assessee, along with family members, started a private limited company and issued fresh shares at the end of the accounting year. The Income-tax Officer doubted the source of funds for share purchases by the wife and major sons, treating a portion as income from an undisclosed source. The assessee explained that shares allotted to him and his minor sons were in exchange for stocks transferred to the company, while funds for shares purchased by the wife and major sons came from their own sources. The Income-tax Officer accepted part of the explanation but treated a portion as undisclosed income. The Appellate Assistant Commissioner upheld the decision, leading to an appeal before the Tribunal. The Tribunal held that since the amounts were recorded in the company's books, it was the company's responsibility to explain the deposits, not the assessee's duty. The Tribunal emphasized that unless it was proven that funds deposited by the wife and major sons actually belonged to the assessee, the addition of undisclosed income was unjustified. The department argued that discrepancies in the assessee's explanation justified taxing the amount. However, the cases cited by the department were deemed inapplicable as they involved funds directly credited to the assessee, unlike in this case where funds were credited to family members in the company's books. The department further contended that due to familial relationships among shareholders, the funds were deemed to belong to the assessee. They referenced a Supreme Court decision but were reminded that the principle of piercing the corporate veil applied only in cases of tax evasion or fraud, which were not established here. The court concluded that without concrete evidence linking the funds to the assessee, the addition of undisclosed income was unwarranted. As a result, the Tribunal's decision to delete the addition was upheld, and the question was answered in favor of the assessee. In conclusion, the court ruled in favor of the assessee, finding no justification for adding the disputed amount as income from an undisclosed source. The decision highlighted the importance of concrete evidence linking funds to the assessee before taxing them as undisclosed income.
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