1967 (5) TMI 6 - SC - Income Tax

AO rejected the books of account maintained by the assessees and made several additions to the profits disclosed by them and brought the profits so computed to income-tax and excess profits tax - Tribunal was right in law in deleting the addition to the extent of Rs. 19,796 in the assessment

Summary

Issues:
Assessment of income-tax and excess profits tax for specific years, rejection of books of account by assessing officer, additions made to profits, Tribunal's refusal to consider contentions raised by assessees, High Court's direction to Tribunal to reconsider income estimation, deletion of cash credits, Commissioner's application for reference on questions of law, Tribunal's rejection of applications, Tribunal's competence to allow new grounds in appeal, connection between cash credit entries and income withheld from books, determination of tax liability.

Analysis:
The case involved the assessment of income-tax and excess profits tax for the years 1946-47 and 1947-48, where the assessing officer rejected the assessees' books of account and made additions to the disclosed profits. The Appellate Tribunal upheld the orders, stating that the final assessments were not excessive. However, the High Court directed the Tribunal to reconsider the estimation of income and address the specific contentions raised by the assessees individually. The High Court found in favor of the assessees, stating that the appeals needed to be re-examined by the Tribunal in accordance with the law.

During the hearing before the Tribunal as per the High Court's order, the assessees abandoned certain contentions and sought the deletion of cash credits. The Tribunal examined the ledger accounts and found the explanation for the cash credits unconvincing. However, considering that excess additions to book profits had been accepted in previous years, the Tribunal deemed the cash credits redundant and ordered their deletion, adjusting the tax liability accordingly.

The Commissioner of Income-tax then applied to the Tribunal for a reference on specific questions regarding the deletion of cash credits. The Tribunal rejected the applications, stating that the findings were based on factual determinations and did not raise legal questions. The Commissioner's appeals to the High Court were also dismissed. The Tribunal had the authority to allow the assessees to raise new contentions related to cash credits, even if not initially included in the appeal memorandum. The Tribunal's findings regarding the connection between cash credits and withheld income were considered factual and not speculative.

The Supreme Court held that the first question raised by the Commissioner was a question of fact and could not be referred under section 66. As the real controversy regarding tax liability was settled when the first question was not allowed, the Court deemed the second question, though a legal issue, as academic and dismissed the appeals with costs.

In conclusion, the Supreme Court upheld the Tribunal's decision to delete the cash credits, emphasizing the factual nature of the findings and the Tribunal's authority to adjust tax liability based on its determinations, ultimately dismissing the appeals.