COMMISSIONER OF INCOME TAX Vs. ARUNACHALA MUDALIAR K

JUDGEMENT

(1.) THIS reference has been made at the instance of the Commissioner of Income-tax on the following facts. The assessee owns a rice mill. He purchases paddy, hulls them and sells the rice. He hulls paddy for hire also. In the relevant previous year which ended on 13th April, 1960, he showed in his books Rs. 1,25,736 as sales. The Income-tax Officer had information from the commercial tax authorities that certain transactions in rice with N. V. Vadivel Mudaliar & Co., Kancheepuram, had been totally left out of the assessee's books. The total of the transactions with the said firm amounted to Rs. 1,38,811. In the corresponding sales tax assessment, the sales tax authorities enhanced the turnover to this extent and the addition was confirmed by the Sales Tax Appellate Tribunal. The transactions as reflected in the books of N. V. Vadivel Mudaliar thus represent sales of goods to them. The Income-tax Officer in making the assessment now under consideration added 10% as the profit which arises on the transactions with the said N. V. Vadivel Mudaliar & Co. In making the assessment, he observed as follows :

(2.) IN addition to the above, the income-tax Officer asked the assessee to ledgerise the transactions with N. V. Vadivel Mudaliar & Co. and he found that there was a deficit balance in the said account. The peak of the deficit was Rs. 17,840 on 27th May, 1959. The assessee had no explanation to offer with reference to this position and he, therefore, added the sum of Rs. 17,840 as income from undisclosed sources.

(3.) THE question as framed above proceeds on an assumption that there are cash credits to the tune of Rs. 17,840 in the assessee's account on 27th May, 1959. In fact, from the narration of facts given above, it would be seen that there are no cash credits in the assessee's books and that the sum of Rs. 17,840 is only an unexplained transaction in the entries as made in the books of N. V. Vadivel Mudaliar & Co. It is necessary to bear this aspect in mind in disposing of the question referred to us.