1969 (10) TMI 16 - HC - Income Tax

Addition made by rejecting gross profits disclosed by assessee - in books of accounts there was cash deposts in name of his son - whether the cash deposit of Rs. 6, 531 can be said to come out and covered by the addition of Rs. 18, 000 to the business profits of the assessee - held yes

Summary

Issues Involved:
1. Whether the cash deposit of Rs. 6,531 can be said to come out and be covered by the addition of Rs. 18,000 to the business profits of the assessee.
2. Whether the sum of Rs. 7,329 should be excluded from the assessment.

Detailed Analysis:

1. Whether the cash deposit of Rs. 6,531 can be said to come out and be covered by the addition of Rs. 18,000 to the business profits of the assessee:

The assessee, a dealer in medicines, declared a total sale of Rs. 3,86,329 with a gross profit of Rs. 21,149 for the assessment year 1960-61. The Income-tax Officer did not accept the gross profit disclosed and added Rs. 22,634 to the business profits. Additionally, a cash deposit of Rs. 6,531 in the name of the assessee's son, Krishna Mohan, was treated as "income from an undisclosed source" and added to the total income of the assessee. The Appellate Assistant Commissioner maintained both additions. The assessee appealed to the Appellate Tribunal, which reduced the addition in the trading account to Rs. 18,000 and excluded the cash deposit of Rs. 6,531 from the total income, stating that it was covered by the addition of Rs. 18,000.

The Tribunal's reasoning was that since the profits disclosed were rejected and assessed by estimate, no separate addition should be made for the cash credit of Rs. 6,531. The Tribunal referenced the Andhra Pradesh High Court decision in Maddi Sudarsanam Oil Mills Co. v. Commissioner of Income-tax, which suggested that unexplained cash credits should not be separately added if the books are rejected and profits are estimated. Sahai J. disagreed, stating that the Tribunal's exclusion of Rs. 6,531 was based on legal precedent rather than a factual finding. Beg J. believed the Tribunal's decision was a factual finding and not a legal question. Mukerjee J. agreed with Beg J., stating that the Tribunal's finding was a matter of fact and supported by the Supreme Court decision in Commissioner of Income-tax v. S. Nelliappan, which allowed the Tribunal to adjust tax liability based on its findings, even if inconsistent with the assessee's initial plea.

2. Whether the sum of Rs. 7,329 should be excluded from the assessment:

Both Sahai and Beg JJ. agreed that the sum of Rs. 7,329 should be excluded from the assessment. This agreement was based on the fact that the amount was treated as income from an undisclosed source by the Income-tax Officer but was not required to be considered further as both judges concurred on its exclusion.

Conclusion:

The High Court, after considering the differing opinions of Sahai and Beg JJ., referred the matter to a third judge, Mukerjee J., who concluded that the cash deposit of Rs. 6,531 should be considered as covered by the addition of Rs. 18,000 to the business profits. This conclusion was based on the Tribunal's factual finding and supported by relevant Supreme Court jurisprudence. Consequently, the sum of Rs. 6,531 was excluded from the assessee's taxable income. Additionally, the sum of Rs. 7,329 was also excluded from the assessment, as agreed upon by both Sahai and Beg JJ.