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TMI Blog1962 (7) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... ting income under the proviso to section 13, at the rate of 10% profit. In the account books there was an entry of a cash deposit of ₹ 20,000 standing in the name of one Banshidhar Rawatmal. The income-tax authorities called upon the assessee to prove the nature and source of the deposit. They disbelieved the explanation offered by it and held that the sum of ₹ 20,000 was its income from some undisclosed source, i.e., from sources within their knowledge and not disclosed to the department . They added this sum of ₹ 20,000 to the estimated amount of profit and assessed it on an income of ₹ 35,883. The assessment was maintained by the Tribunal on appeal, which rejected both the contentions advanced before it, namely, (1) the income-tax authorities were not justified in treating the cash deposit of ₹ 20,000, as the assessee's income from an undisclosed source and (2) that they were not justified in rejecting the books of account and in making an assessment by estimate. The assessee did not at all contend before the Tribunal that, if the sum of ₹ 20,000 was to be treated as its income, it could be treated as its income from its business and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to add as income from the business. Therefore, they could not add the sum of ₹ 20,000 to the estimated income from the business, unless they could say that it was income not from the business but from some other source. This they could not say in view of their professed ignorance. As far as they were concerned, the income might have been from this business or might not have been. If it might have been from the business, it could not be added. When they did not know the facts regarding the source at all, they could not proceed as if they know them; when they were in doubt, their duty was to resolve it in the assessee's favour and not against it, i.e., treat it as forming part of the estimated income, if it could be, i.e., it was less than it. They had absolutely no material to justify the finding that it was from some other source, and, without such material, they could not treat it as such and add it to the estimated income from the business. Income from the six sources enumerated in section 6 is taxable: they include (iv) profits and gains of business, profession or vocation and (v) income from other sources . That income from other sources means income, prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been rejected, and the explanation for which entry has been found to be false or unacceptable, is to be treated as income from an undisclosed source and capable of being added to the estimated income or undisclosed income from the business and to be deemed to have been included in the estimated income. One of the earliest cases dealing with the question is Srinivas Ramkumar v. Commissioner of Income-tax [1948] 16 I.T.R. 254. Agarwal C.J. and Meredith J. of the Patna High Court repelled the assessee's contention that the amount of the deposit was undisclosed income from the business and was included in the estimated income from it and that to add to it the estimated income would amount to double taxation. The learned Chief Justice, who delivered the judgment, conceded that, if the amount had been income from the business, the assessee's contention would have to be upheld, but went on to observe that it was not his case at any time that it was his income from the business, that his case always was that it was money deposited by a third person and that after rejecting his explanation for the entry the income-tax authorities could rely on circumstantial evidence that he had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. (page 308). On the facts found by the Tribunal the amount of ₹ 15,644 could not be said to be unconnected with the amount of ₹ 85,000 and odd and, therefore, it was held by the learned judges that the former amount was included in the latter amount and could not be added to it. This case is on all fours with the case at hand. There is no evidence in the instant case also about the assessee's carrying on any business other than that of handloom cloth, Kashi silk, etc. Next we come to a Calcutta case in D.C. Auddy and Bros. v. Commissioner of Income-tax [1955] 28 I.T.R. 713. Chakravartti C.J., with whom Lahiri J. concurred, approved of the addition of an amount of a cash credit to the estimated income. He agreed with Ramcharitar Ram Harihar Prasad [1953] 23 I.T.R. 301, but distinguished it on the ground that the income disguised as a cash credit was income from an undisclosed source. The statement of the assessee that the amount was received from third parties was held to be an admission that it was not an income from the business. The learned Chief Justice observed at page 723: If their explanation as to the particular source fails, they can hardly c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances, neither the existence nor the non-existence can be presumed. Therefore, the income-tax authorities could presume that the amount was an undisclosed income and also that it was an undisclosed income of the year in which the entry was made, but could not go further to assume that it was income not from the business but from another source. The learned Chief Justice said at page 723: If he finds good reason to take the view that the cash credits really represent a part or the whole of the suppressed profits of the known source of income, he will assess it as a part of the income from that source......... If, on the other hand, the Income-tax Officer thinks that the deposits cannot be properly related to the known source to which the accounts relate, he will be quite entitled to treat them as they are, namely, merely as undisclosed profits from some source which is not known to him or, in other words, as concealed profits from undisclosed other sources. He equates source which is not known to him with undisclosed other source , for which I can find no justification. Undisclosed source means, source, the nature of which is not known ; it does not mean a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided by Bhargava and Upadhya JJ. The first proposition laid down by the learned judges was that when the assessee failed to give an adequate explanation for the deposit it could be assumed by the income-tax authorities that it was a concealed income from business. Coming to the next question of what year it could be presumed to be the income, they observed that it could be presumed to be the income of the year in which the deposit entry was made. There was no suggestion on the part of the income-tax authorities that during the year in which the deposit entry was made, and which was the previous year in relation to the assessment year, the assessee carried on any business other than the disclosed business (that is, for which he had filed the return and the accounts). The learned judge held that the amount of the deposit could be treated as a concealed income of the previous year from the business. They stated at page 825 that double taxation of the same income is not permissible , and that the amount of the deposit should be added to the estimated income after deducting from the former the amount already added by the income-tax authorities in estimating the income. This decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee gives no evidence,....the Income-tax Officer is entitled to reject his explanation and then hold that the income is from an undisclosed source.....The very term 'undisclosed sources' shows that the disclosure which the assessee ought to have made has not been made. At page 675 they said: ....the department was not bound to show categorically what that source was..... The very fact that there was some undisclosed source which was outside the normal business transactions of the assessee postulates that the income which was assessed on the normal working cannot be held to include the profits from undisclosed sources....The cash credits do not show that the income which is in the hands of the assessee is from the self-same source. It may be from another source. If the assessee does not disclose that source and the existence of such hidden source is deducible from the proceedings and the account books, then the department is not required to deduct the amount from the income which has been deduced at an enhanced flat rate on the ordinary business of the assessee. There is no explanation in the judgment for the view that undisclosed source excludes the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities have rejected the books, they cannot have it both ways, namely, adopting a flat rate to compute gross profit as well as rely on the books for the purposes of adding unexplained cash credits which were part of the scheme of balancing the accounts. I respectfully agree with this observation of Jaganmohan Reddy J. made with the concurrence of Chandra Reddy C.J. Ratanchand Dipchand v. Commissioner of Income-tax [1960] 38 I.T.R. 188 is another case of the Madhya Pradesh High Court. Bhutt C.J. and Srivastava J. followed the cases of Srinivas Ramkumar [1948] 16 I.T.R. 254, Seth Kalekhan Mahomed Hanif 1958] 34 I.T.R. 669, D.C. Auddy Bros.(1) and Chenna Basappa(2) and distinguished that of Ramcharitar Ram Harihar Prasad(3) and held that the income-tax authorities are not bound to indicate what other sources the assessee has got, that the finding that a certain income is from undisclosed sources does not require a preliminary finding that he has got other sources and that if he was found to have other sources, there could be no finding that the income was from undisclosed sources. I respectfully disagree from their observation that a finding about a certain income being from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the income as from it and, therefore, in addition to the income estimated from the business. At page 595, the learned judges remarked: We accordingly proceed on the footing that the amount of ₹ 17,402 did not represent part of the profits which had already been estimated. That was the amount of the cash credits and if it was income and income not from the business, it could not be contended that the estimated income of the business was exhaustive. The last case that we have to consider is Homi Jehangir Gheesta v. Commissioner of Income-tax [1961] 41 I.T.R. 139 (S.C.). It was a case of inclusion of the value of high denomination notes in the income. The following statement of law at page 142 is of importance in the instant case: ...it is not in all cases that by mere rejection of the explanation of the assessee, the character of a particular receipt as income can be said to have been established; but where the circumstances of the rejection are such that the only proper inference is that the receipt must be treated as income in the hands of the assessee, there is no reason why the assessing authorities should not draw such an inference. Such an inference i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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