1968 (8) TMI 5 - SC - Income Tax

Unexplained Cash Credits - Rejection Of Accounts - Where there is an explained cash credit, it is open to the ITO to hold that it is income of the assessee and no further burden lies on the ITO to show that that income is from any particular source - ITO was justified in its view that the impugned amount represented the assessee s income from some undisclosed source - Revenue s appeal allowed

Issues:
1. Assessment of business profits based on estimated turnover.
2. Addition of Rs. 20,000 as income from an undisclosed source.
3. Rejection of books of account by the Income-tax Officer.
4. Tribunal's decision on the nature of the Rs. 20,000 deposit.
5. High Court's direction to the Tribunal to submit a statement of the case.
6. Questions raised before the Tribunal and the High Court.
7. Legal position on taxing cash credits and estimating business profits.
8. High Court's decision on the source of income and burden of proof.
9. Correct legal position regarding explained cash credits.

Analysis:
The Supreme Court judgment involved a case where the Income-tax Officer assessed a firm's business profits for the year 1946-47 by applying a flat rate to the turnover due to the rejection of the books of account. Additionally, the Officer added Rs. 20,000 as income from an undisclosed source based on an entry in the books. The firm's appeals against this addition were unsuccessful before the Appellate Assistant Commissioner and the Tribunal. The Tribunal found the evidence regarding the deposit unreliable and upheld the Income-tax Officer's decision on estimating profits and adding the Rs. 20,000. The firm then filed an application under section 66(1) to submit a case to the High Court, which was initially rejected but later directed by the High Court. The Tribunal was directed to consider if the Rs. 20,000 was income from another source or part of the assessed income. The High Court ruled in favor of the firm, prompting an appeal by the Commissioner.

The Supreme Court highlighted the ability of the Income-tax Officer to tax both cash credits and estimated business income in appropriate cases where the source is unexplained. The Court referenced a previous case to establish this principle but emphasized that the decision to tax both elements depends on the specific facts of each case. In this instance, the Court found that the question directed by the High Court did not arise from the Tribunal's order, as only specific arguments were raised during the appeal process. The High Court's direction was deemed improper as it focused on a question not previously raised or decided by the Tribunal.

Regarding the questions raised before the Tribunal and the High Court, the Supreme Court clarified that the burden of proof lies with the assessee to demonstrate that even if a cash credit represents income, it is from a source already taxed. The Court disagreed with the High Court's view that the Income-tax Officer must specify the source of income before taxing it, asserting that the burden to prove the source rests with the assessee. Consequently, the Supreme Court set aside the High Court's order, allowed the Commissioner's appeal, and declined to answer the questions raised, attributing the costs to the assessee.

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