1987 (7) TMI 138 - AT - Income Tax

Accounting Year, Carrying On Business, Cash Credits, Income From Business, Income From Other Sources

Summary

Issues:
1. Whether cash amounts disclosed in the trading accounts should be treated as income from business or profession or income from other sources.
2. Interpretation of Section 68 of the Income-tax Act, 1961 regarding crediting sums in the books of an assessee.
3. Determination of the head under which the income should be assessed when explanation about the nature and source of the sums credited is unsatisfactory.

Detailed Analysis:
1. The appeals before the Appellate Tribunal ITAT BOMBAY-C involved the issue of whether cash amounts disclosed in the trading accounts of an individual engaged in construction business should be considered as income from business or profession or income from other sources for the assessment years 1980-81 and 1981-82. The Income-tax Officer initially treated the cash amounts as income from other sources under Section 68 of the Income-tax Act, 1961. However, the Commissioner of Income-tax (Appeals) directed the Income-tax Officer to assess the amounts under the head Income from business based on certain decisions and the nature of the business activities. The department appealed against this decision, arguing that the amounts should be treated as income from other sources.

2. Section 68 of the Income-tax Act, 1961 states that if any sum is found credited in the books of an assessee without a satisfactory explanation, it may be charged to income-tax as the income of the assessee. In this case, the assessee provided an explanation that the cash amounts were received as the price of showrooms sold, over and above the amounts mentioned in the agreements with the purchasers. The Tribunal found no reason to disbelieve this explanation, indicating that the amounts should be treated as trading receipts as claimed by the assessee.

3. When the nature and source of the credited sums are unsatisfactory, the assessing authority must determine under which head the income should be assessed. In this case, the assessee had two main sources of income: salary and the business of construction and selling showrooms. The business activities involved significant turnover, and the cash amounts were credited in the business accounts. Considering the surrounding circumstances and legal precedents, the Tribunal concluded that the amounts represented income from the business of construction and selling showrooms, rather than income from other sources. Citing relevant case law, the Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to treat the amounts as income from business.

In conclusion, the Appellate Tribunal dismissed the appeals, affirming the decision to treat the cash amounts as income from the business of construction and selling showrooms, in line with the principles established by legal precedents and the specific circumstances of the case.