1970 (11) TMI 31 - HC - Income Tax

Cash credits - whether the cash credits can be treated as suppressed business income or income from other sources - revenue is entitled to include the cash credits as income from undisclosed sources

Summary

Issues:
Assessment of cash credits as undisclosed income from other sources and estimation of business income based on turnover.

Analysis:
The case involved an application under section 256(2) of the Income-tax Act, 1961, requesting the court to direct the Income-tax Appellate Tribunal to state a case regarding the correctness of assessing cash credits amounting to Rs. 15,350 and the estimation of business income. The petitioner, engaged in a wholesale and retail business, declared a net profit of Rs. 4,866 for the assessment year 1962-63. The Income-tax Officer found cash credits in the accounts of eleven persons totaling Rs. 15,350, which the petitioner claimed were sales. The Income-tax Officer estimated the turnover at Rs. 1,35,000 and gross profit at 12%, resulting in a net business income of Rs. 13,200, including the cash credits as undisclosed income from other sources.

On appeal, the Appellate Assistant Commissioner reduced the estimated business income to Rs. 12,000 but upheld the inclusion of cash credits as undisclosed income. The Income-tax Appellate Tribunal affirmed the assessment of cash credits as undisclosed income but reduced the business income to Rs. 10,000. The petitioner contended that the cash credits represented sales, which should have been telescoped into the business income. However, the Tribunal rejected this contention, stating there was no proof that the cash credits were sales, especially since the books were not closed and stock inventory was unavailable.

The petitioner relied on previous court decisions to argue that the onus was on the department to prove the source of undisclosed income. However, the court referenced a Supreme Court judgment stating that if there is an unexplained cash credit, it is for the assessee to prove the source. Since the Tribunal did not accept the petitioner's claim that the cash credits were sales, the court concluded that the burden of proof rested on the assessee. Therefore, the court found no question of law arising from the Tribunal's order and rejected the application with costs, including an advocate's fee of Rs. 100.