1970 (10) TMI 14 - HC - Income Tax

Unexplained credits in the firm s books - whether sum was rightly assessed in the hands of the assessee as income from undisclosed sources in addition to the addition made to the share income of the assessee from the firm

Summary

Issues:
Assessment of income from undisclosed sources in addition to the share income from a firm.

Analysis:
The judgment pertains to a reference under section 66 of the Indian Income-tax Act, 1922, involving the assessment of an individual, a partner in a registered firm, for the assessment year 1960-61. The individual's share in the firm was 8 annas, and deposits amounting to Rs. 8,500 were noticed during assessment, along with a withdrawal of Rs. 500 from the firm's accounts. The Income-tax Officer added Rs. 2,000 to the deposit, inferring a total income of Rs. 10,500 from undisclosed sources. The firm's profit was estimated at Rs. 44,000, with the individual's share fixed at Rs. 21,975, to which the Rs. 10,500 was added, resulting in a total assessment of Rs. 32,475.

The Appellate Assistant Commissioner accepted the individual's contention that assessing Rs. 10,500 as income from undisclosed sources in addition to the firm's share was unfair and deleted the sum from the assessment. However, the Tribunal, relying on a Supreme Court decision, reversed this decision, restoring the Income-tax Officer's assessment. The Tribunal referred a question of law to the High Court regarding the correctness of assessing the Rs. 10,500 as undisclosed income.

The High Court analyzed previous Supreme Court judgments, emphasizing that the burden of proving the source of cash credits lies with the assessee. In this case, the explanation offered by the individual for the Rs. 8,500 credit was rejected, allowing authorities to infer it as income from undisclosed sources. The question then arose whether this undisclosed source was related to the firm's business or another source, with conflicting arguments presented by the department and the assessee.

The High Court considered relevant case law, including a decision regarding the treatment of unexplained income in business profits. Despite the assessee's reliance on a previous High Court decision, the Supreme Court's reversal of that decision was noted. Citing the Supreme Court's stance on unexplained cash credits, the High Court upheld the Tribunal's decision, ruling in favor of the department. Both parts of the question referred to the court were answered affirmatively against the assessee, who was directed to pay costs to the Commissioner of Income-tax.

In conclusion, the judgment addresses the assessment of undisclosed income in addition to a partner's share in a firm's profit, highlighting the burden of proof on the assessee and the application of relevant legal principles to determine tax liability.