VASUDEVA SETTY P Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN compliance with the directions made by this Court in CPs. Nos. 426 and 427 of 1961 under s. 66 (2) of the INdian IT Act, 1922, the Tribunal, Madras Bench, has referred the following question together with a statement of the case :

(2.) THE petitions mentioned above related to two asst. yrs. 1949- 50 and 1950-51 in respect of which two appeals were heard together and disposed of by a common order by the Tribunal. Before the AAC, there were three appeals relating to three assessment years, namely, the two years mentioned above as well as the subsequent asst. yr. 1951-52. THEy were disposed of by him by a common order and the question framed above has reference to certain alterations made by the AAC in the findings recorded by the ITO. THE brief facts are the following : THE assessee follows an account year which is different from the financial year. His account year commences on the first of September every year and closes on the 31st August of the immediately succeeding year. THE relationship between the account years and the assessment years with which we are now concerned is as follows : For convenience, we shall refer to these years respectively as first year, second year and third year. THE assessment of the first year was completed on the 31st Dec. 1953, by one ITO. THE assessments for the second and the third years were completed by another ITO in February, 1955. Both the ITO's discovered that there were several credit entries referred to as cash credits in the record in the books of account maintained by the assessee in the names of his mother, wife and a minor daughter. In the first year, the officer found that such cash credits aggregated to about to Rs. 8,896. Having regard to the nature of the entries and his opinion that the income returned by the assessee on account of his business was low, he regarded these entries as merely giving rise to serious suspicion that the assessee had not been disclosing his entire profits from his business. He, therefore, estimated the business profits at 33-1/3 per cent of the turnover and determined the same at Rs. 11,795. THE officer who dealt with the assessment for the second and the third years, however, added to his estimate of the business income, the full total of the cash credits appearing in the books of the assessee during the relevant accounting years of the assessee as his undisclosed or diverted income arising out of the business itself. THE amount added during the second year was Rs. 19,130 and during the third year Rs. 11,000. THE assessee appealed against all these three assessment orders and they were heard together and disposed of by a common judgment by the AAC on 21st Dec., 1956. THE AAC thought that the manner in which the original authorities had estimated the income from business would suggest an exhorbitanties high percentage of return which was practically impossible in the business carried on by the assessee. In that view, he reduced the business income for the first year to Rs. 4,201. In regard to the other to years, he took the view that the cash credits cannot possibly be regarded as suppressions or diversion from out of the business income, but must be regarded as undisclosed income derived from undisclosed sources. Now this view necessarily led to a considerable, if not complete, change in the general features of the entire assessment itself. THE reason therefor was the fortuitous circumstance that the entries going to make up additions on account of cash credits fell not within the account year of the assessee corresponding to the relevant assessment year, but within the financial year corresponding not to the relevant assessment year but to the immediately preceding assessment year. Thus the sum of Rs. 19,130 was made up of entries during the period September, 1948, and March, 1949, within the financial year relating to the first year 1949-50; and Rs. 11,000 added by the ITO for the third year fell within the period November, 1949, and January, 1950, and therefore within the financial year corresponding to the second of the asst. yrs. 1950-51. Now, although it may be in certain circumstances and subject to certain conditions open to an assessee to choose his own account year with respect to particular sources, so far as income from undisclosed source is concerned, the previous year is the previous year as defined, namely, Account year Assessment year 1-9-1947 to 31-8-48 1949-50 1-9-1948 to 31-8-49 1950-51 1-9-1949 to 31-8-50 1951-52 the financial year immediately preceding the assessment year. THE result of the findings of the AAC, therefore, was that on a proper examination of the accounts and the situation, Rs. 19,130 should have been assessed as income from undisclosed sources for the asst. yr. 1949-50 and Rs. 11,000 should have been assessed as income from undisclosed sources during the asst. yr. 1950-51. Acting on this legal result, the AAC deleted Rs. 11,000 from the assessment for the year 1951-52 and shifted it back to the immediately preceding asst. yr. 1950-51; likewise he shifted the sum of Rs. 19,130 from the asst. yr. 1950-51 to the asst. yr. 1949-50. But for reasons which it is not possible for us to gather, he did the substitution himself in the first case, but directed the ITO to make the addition of Rs. 19,130 in the other case.

(3.) THE question necessarily involves an examination of the extent of the powers of the AAC as an appellate authority with the subsidiary question whether the manner in which he has dealt with the appeals in the circumstances stated above would be within the scope of his appellate power.