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TMI Blog1986 (4) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... in the balance-sheet. The Income-tax Officer required the assessee under section 143(3) to explain the nature and source of the deposits. After going through the explanation of the assessee given in writing and examining the accounts, the Income-tax Officer came to the conclusion that the said deposits " remained unexplained and will be treated as the assessee's income from undisclosed sources, which shall be added back ". The Income-tax Officer also made an addition of Rs. 18,117 to the trading results of the assessee. After making the aforesaid two additions and few other routine additions, the total income of the assessee was determined to be Rs. 1,10,723. The assessee went up in appeal to the Appellate Assistant Commissioner who gave the finding that the credits are temporary in the squared up accounts. This fact, in his opinion, indicated that the quality of the cash credits and that of the trading additions are not different. Further, section 68 of the Act empowered the Income-tax Officer to consider as income any unexplained cash credits and in the present case, he was of the opinion that the unaccounted trading receipts were temporarily credited in the books, and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer had been adding certain amounts to the profits over and above that shown by the respondent firm and in this year also an amount of Rs, 18,117 was added. He urged that in any case the amount of Rs. 16,950 is covered by the addition of Rs. 18,117. It has been urged that on March 14, 1968, the respondent gave an explanation which is also mentioned in the order of the learned Appellate Assistant Commissioner (annexure B) that cash credit of Rs. 16,950 of the assessee has been considered as the respondent's income and taxed as business profits. But in view of the fact that an addition of Rs. 18,117 has been made to the trading results, this addition should be considered as covering the addition of Rs. 16,950 on account of cash credit. It was further stated by the respondent before the learned Appellate Assistant Commissioner that it will be wrong and unjust to consider the cash credit of Rs. 16,950 as business income and add the same besides and in addition to the addition of Rs. 18,117 to the trading results. It has been contended that these credits are temporary in the squared up accounts. Therefore, the quality of the cash credit and that of the trading addition are not diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... real income as that disclosed by his account books. It has the same concrete existence. It could be available to the assessee as book profits could be. The secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books ....... It is a matter for consideration in each case whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year." In the case of CIT v. S. Nelliappan [1967] 66 ITR 722 (SC), it was held by their Lordships of the Supreme Court that while hearing the appeal, the Tribunal may give leave to the assessee to urge grounds not set forth in the memorandum of appeal and in deciding the appeal, the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal. It was further held that the Tribunal is not precluded from adjusting the tax liabilities of the assessee in the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that secret profits or undisclosed income of an assessee earned in an earlier assessment year can constitute a fund, though concealed, from which the assessee may draw subsequently. In the instant case, the assessee acquired the gold during the latter half of the assessment year and it could be that the undisclosed income earned in that very year constituted a fund from which the asset was acquired. It was further held that though the assessee did not contend before the Income-tax Officer that the source for the acquisition of the gold was the addition made by the Income-tax Officer to the turnover, yet it was the assessee's case before the Income-tax Officer that the gold had been legitimately acquired. The assessee could not then have known that the Income-tax Officer would make an addition to the income on the basis of an addition to the turnover. Even before the Tribunal, the assessee had adopted this stand but the assessee had contended in the alternative that the source of the gold could be assumed to have come out of the intangible additions on account of increased turnover. Therefore, it was held that the Tribunal was justified in deleting the addition of the amount as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm and apart from this, since for the last preceding three years, substantial additions amounting to Rs. 32,797 have been made, the amount of Rs. 16,950 could be taken as having come out of such intangible additions. In the case reported in [1980] 123 ITR 457, their Lordships of the Supreme Court have held that the additions made to the book profits in earlier years are the real income and can be treated as available for use in subsequent years or even in the same year. In the case reported in [1967] 66 ITR 722, their Lordships of the Supreme Court have held that the Tribunal can permit the appellant to raise grounds not set forth even in the memorandum of appeal at the time of arguments and in this case, these grounds were taken before the Appellate Assistant Commissioner also. We are, therefore, of the considered opinion that the question raised in this reference should be answered in favour of the respondent and against the Revenue and we hold that in the facts and in the circumstances of the case, the Tribunal was right in treating the unexplained cash credit entries to the extent of Rs. 16,950 as covered by added gross profit in the sum of Rs. 18,117 on the basis of the e ..... 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