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TMI Blog1955 (8) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment years was the period between the 30th June, 1944, and the 13th April, 1945, and that relative to the second assessment year was the period between the 14th April, 1945, and 13th April, 1946. The deed of partnership was thus executed long after the expiry of even the second of the assessment years. The firm's application for registration having been refused by all the authorities, the following question has been referred to this Court with reference to both the assessment years. "Whether the assessee firm constituted orally in June, 1944, can validly be registered in the assessment years 1945-46 and 1946-47 under section 26A of the Indian Income-tax Act on the basis of a Memorandum of Partnership executed in June, 1948?" We have already held, in Income-tax Reference No. 44 of 1954(1) and for the reasons given by us in our judgment in that case, that no registration can be claimed under section 26A of the Act with respect to any assessment year, unless at or prior to the commencement of the relative accounting year there was an instrument of partnership creating the firm and unless such an instrument governed the distribution of profits in the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght view to take would be to treat the amount of the unexplained cash credits as included within the sum of ₹ 50,000 added by the Income-tax Officer to the book profits of the firm. He apparently thought that the Income-tax Officer should have taken the view that of the concealed profits of ₹ 50,000 which the books did not show and which had been kept out of the books, the assessee firm had re-introduced the sum of ₹ 23,563 under the guise of cash deposits and therefore that sum could not be twice assessed. In accordance with that view, the Appellate Assistant Commissioner not only reduced the amount of the unexplained cash credits by ₹ 9,000 but he also reduced the addition to the business profits of the assessee by ₹ 23,563. He might have wiped out the addition of undisclosed profits from other sources altogether, retaining the addition of ₹ 50,000 to the business profits, but what he appears to have done was that of the amount added as undisclosed profits from other sources, he retained ₹ 23,563 and deducted a corresponding sum from the ₹ 50,000 added to the book profits of the business. The Commissioner of Income-tax was not prep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h profits could have been derived. Following up that argument, Mr. Khaitan contended that in view of the definite finding of the Appellate Assistant Commissioner, the Appellate Tribunal was not justified, in law, in restoring the addition made by the Income-tax Officer without definitely finding that the assessee had some other source of income from which the amount concerned might possibly have come. In my opinion, the argument of Mr. Khaitan proceeded on a fallacy. He relied, in particular, on a decision of the Patna High Court in the case of Ramcharitar Ram Harihar Prasad v. Commissioner of Income-tax, Bihar and Orissa [1953] 23 I.T.R. 301. There, the Income-tax Officer rejected the assessee's books of account and made an estimate of the profits of the business for the accounting year. Having done that, he took up certain cash credits which were shown in the books of account and held that they too were the secreted profits of the business. The High Court rightly pointed out that since the Income-tax Officer had made an estimate of what he considered to be the real profits of the business and had made an addition on that basis, he could not, at the same time, add a further a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Officer had added the amount of the cash credits as undisclosed profits of the business, he would have been mistaken and such an addition could not have been sustained. The partners of the firm themselves introduced the sums as cash credits or deposits made by themselves of monies which they say they had received from third parties. They were, therefore, themselves saying, in effect, that these sums had not been derived from the business and were no part of its profits. When thrown into the business and utilised in carrying on trading operations, the amount may have earned profits and those profits had either been shown in the books or were included in the sum added by the Income-tax Officer. But so far as the deposits themselves are concerned, the case made by the partners themselves obviously was that they came from an outside source. If their explanation as to the particular source fails, they can hardly complain that their contention that the amounts came from outside is accepted and the sums concerned are brought under assessment as undisclosed profits from other sources. When certain amounts appear in the books of an assessee as cash credits or capital deposits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other sources. There is no error of law in so regarding amounts of cash credits as undisclosed profits derived from some independent and unknown source. It might, however, be said that the Income-tax Officer does not seem to have applied his mind in this case to the question as to whether the amount of the cash credits might not be a part of the business profits which he thought had been concealed. Mr. Meyer pointed out that the Tribunal, at least, had done so and he referred to the order of the Tribunal. The contention pressed before us by the assessee was precisely the contention pressed before the Tribunal and they, as the final court of fact, dealt with it. As I have already said, they examined the accounts afresh, reduced the addition made by the Income-tax Officer to the business profits to a figure which brought down the percentage of profit from 12? to 8 per cent. and after doing so, and having the contention of the assessee present to their mind, they decided to treat the amount of the cash credits as income from an independent undisclosed source. I am unable to see that the Tribunal committed any error of law. Indeed, unless there be strong reasons to connect unexplain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contention is one which I am unable to accept. I can see no objection in law to the view taken by the Tribunal that if the assessee's explanation regarding the sources from which the credits under review were derived was not found satisfactory, it did not necessarily follow that such credits represented suppressed business receipts. This was obviously an answer to the assessee's contention that if these cash credits represented income receipts at all, they could be only income receipts from the business and from no other source. The Tribunal pointed out that the conclusion insisted on by the assessee did not necessarily follow, because it could not be said that whatever amounts of the nature of receipts which the assessee was found to be in possession of and the possession of which he could not satisfactorily explain, was liable, as a matter of law, to be attributed to the business and could not, either as a matter of fact or as a matter of law, be treated as income from some undisclosed source. Indeed, if the assessee's contention be correct, there cannot possibly be any addition under the head, undisclosed income from other sources, if the assessee has some known so ..... X X X X Extracts X X X X X X X X Extracts X X X X
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