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TMI Blog1983 (1) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the AAC was as follows: " Since I am sustaining the addition of a sum of Rs. 1,05,000 out of production expenses as either not incurred or deliberately inflated, it would be reasonable to hold that money to this extent would be available to the appellant. Therefore, the addition under " other sources " would be restricted to a sum of Rs. 1,91,520." For some reason known only to themselves, the Department did not object to the deletion by the AAC of Rs. 1,05,000 from the total income. They apparently agreed that the amount had to be set oft against the year's unaccounted expenditure of Rs. 2,96,520. The assessee, however, preferred an appeal to the Tribunal. In that appeal, the assessee raised an additional ground to the effect that the amount of income assessed under " Other sources " and sustained by the AAC in the sum of Rs. 1,91,520 must be still further reduced by Rs. 50,000. This sum of Rs. 50,000, according to the assessee, represented expenditure, which was disallowed in an earlier assessment for the year 1961-62, and it had to be given a set-off in this year. The Tribunal allowed the appeal and reduced the addition of Rs. 1,41,520. The Tribunal accepted the plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as between one disallowance and another, or as between one addition and another in income-tax assessments would sound extremely artificial but for the fact that they have had all-round judicial approval. The theory of set-off of intangible additions made in an assessment as against unexplained cash credits or unexplained investments became respectable with the decision of this court in Kuppuswami Mudaliar's case [1964] 51 ITR 757, and the earlier decision of the Andhra High Court in Lagadapati Subba Ramaiah v. CIT [1956] 30 ITR 593. In both these decisions, the doctrine which was handed down was that where intangible additions are made in an assessment, these additions would, for the purpose of income-tax, represent the assessee's real income so that they must be regarded as available to him when subsequently he is asked to explain cash credit entries in his accounts, or unexplained investments in his resources. In Anantharam Veerasinghaiah's case [1980] 123 ITR 457 (SC), the Supreme Court recently had had occasion to deal with the way in which this doctrine has got to be applied in given cases. They observed that when intangible additions to book profits are made during an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessments of taxpayers who hail from the business class. We must, therefore, proceed to examine the present case on the basis of the tests laid down by the Supreme Court. But, before doing so, we would express our perplexity about the lack of any inherent basis for the assessee claim in this case, which has not been realised, much less commented upon, either by the AAC or by the Tribunal. Here is case, where there was actual proof of the assessee not having brought into account outgoing towards remuneration of artists amounting to Rs. 2,96,520. Since this expenditure did not pass through the assessee's accounts, but there was evidence all the same to show that the expenditure had been actually incurred, the ITO was justified in holding that the assessee must have earned income outside the books at least to an extent sufficient to meet this unaccounted expenditure during the year. On that footing, the officer was within his rights in making the addition under the head " Other sources " to the income returned by the assessee. In these circumstances, it is difficult for us to understand how this amount of undisclosed income can, to any extent, be argued away by reference to any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 963-64 could be set off against the disallowance of expenditure in an earlier year 1961-62. For, the Assistant Commissioner's order alone contains a justification on principle for the set-off, although briefly stated. The Tribunal's order on the point is far too sketchy for an examination or review to be made of it on the basis of principles or precedents. We can only gather that the Tribunal must have proceeded on the footing that the disallowance of the expenditure of Rs. 50,000 in the assessment year 1961-62 was a kind of disallowance on which the doctrine of set-off of intangible additions can properly be worked out. The Tribunal did not go into the question whether the disallowances to the extent of Rs. 50,000 in the year 1961-62 was on the ground that the expenditure, though incurred, has been disallowed as not proved, or on the ground that it was not incurred at all. It does not seem that the Tribunal was aware of the distinction between the two kinds of disallowance of expenditure. Where, for instance, an expenditure is held actually to have been incurred, but disallowed by the assessing officer on the ground of want of proof, the money representing that expenditure, could ..... X X X X Extracts X X X X X X X X Extracts X X X X
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