COMMISSIONER OF INCOME TAX Vs. BANARSILAL DHAWAN

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal under Section 256(1) of the Income-tax Act, 1961, has referred the following questions of law for the opinion of this court:

(2.) THE assessee is a dealer in crepe soles, raw rubber, etc. For the assessment year 1963-64, the relevant accounting year being the preceding financial year, he returned an income of Rs. 10,260 under "business". At the time of hearing before the Income-tax Officer, it was submitted for the assessee that the proviso to Section 145(1) of the Income-tax Act was applicable and that the assessee had no objection to the estimate of gross profit as in the preceding year. This resulted in an addition to Rs. 15,500 to the disclosed trading results. THEre were also some hundi transactions during the previous year and the assessee filed a peak credit statement showing a peak credit of Rs. 31,000. By his letter dated September 2, 1966, the assessee's representative admitted that a sum of Rs. 31,000 said to be hundi loans was not capable of verification and, therefore, may be treated as having been admitted under Section "F" of the return of income. It was also claimed on behalf of the assessee that a sum of Rs. 8,500 out of the total amount of Rs. 31,000 pertained to the previous year and that it should be deducted. It was further claimed that the said sum of Rs. 31,000 should be set off against the intangible additions of the earlier years. THE Income-tax Officer declined to comply with this request of the assessee. He held that the assessee had not linked the intangible additions of the past years with the appearance of the credits and unless the assessee proved that the hundi credits were introduced out of profits made in the trading account outside the books, it was not possible to telescope the two additions, with the result, he assessed a sum of Rs. 31,000 as income from other sources.

(3.) WE are of the opinion that the decision of this court in S. Kuppuswami Mudaliar v. Commissioner of Income-tax [1964] 51 ITR 757 (Mad) has no bearing whatever on the present case and the facts of the present case are totally different. In S. Kuppuswami Mudaliar's case [1964] 51 ITR 757 (Mad), what happened was this. The assessee was a tanner carrying on business at Ambur. For the assessment year 1947-48, the income from the business was estimated by addition of Rs. 28,500. For the assessment year 1948-49, the income was again estimated by addition of Rs. 23,730. For these two years together there was an addition of Rs. 52,230. The assessments for the years 1949-50 and 1950-51 were made by the officer on March 29, 1950, and March 21, 1951, respectively. In the assessment of the latter year, he included the sum of Rs. 27,625 as income from other sources not explained by the assessee and which income was kept outside his books of account. Subsequently, the Income-tax Officer received information that the assessee had lent a sum of Rs. 40,000 on a mortgage in the name of his brother, Murugesa Mudaliar, on August 29, 1948, which was within the "previous year" for the assessment year 1949-50. The officer also came to know that the assessee's wife and married daughter had advanced sums of Rs. 15,000 and Rs. 10,000, respectively, as and for their share capital in the firm of S. Kuppuswami Mudaliar and Co. on February 10, 1950, which came within the "previous year" for the assessment year 1950-51. With this information in his possession, the Income-tax Officer initiated proceedings under Section 34 of the Act and issued appropriate notices to the assessee for reopening the assessment of the years 1949-50 and 1950-51. The contention of the assessee was that the mortgage loan and other investments made in the name of his wife and daughter came out of Rs. 52,230 which had been found to have been earned by the assessee by the Income-tax Officer himself in the assessment proceedings relating to the years 1947-48 and 1948-49. However, the Income-tax Officer rejected this contention, because he was of the opinion that the assessee could not have got these amounts from the additions made, which additions, according to him, were "intangible additions". The assessee filed appeals before the Appellate Assistant Commissioner and the said officer found that the department was not justified in making the addition of Rs. 40,000 in the reassessment for the year 1949-50, as there was no reason to disbelieve the assessee's version that this sum came out of Rs. 52,230, the addition made by the department in the previous years. He also found that the excess amount of Rs. 12,230 which remained unabsorbed out of the total of Rs. 52,230 after deducting the mortgage loan advanced would still be available with the assessee for investment. The department preferred appeals to the Income-tax Appellate Tribunal. The Tribunal held that the assessee had failed to disclose the sources for the mortgage loan and other advances and that the order of the appellate authority deleting the addition of Rs. 52,230 in all was erroneous and unsustainable. It was the correctness of that order which was challenged before this court in a reference under Section 66(1) of the Income-tax Act. This court held that the addition of Rs. 52,230 made in thereafter two years was not an "intangible addition" ; it represented the real estimate of the profits earned by the assessee and, therefore, that amount was available with the assessee. This court also pointed out that the only question the Tribunal had to decide was whether the assessee could have derived the amount of Rs. 52,230 from the prior years which, according to the department, the assessee did earn and the Tribunal did not say, nor would the materials on record enable it to say, that the sum was not available to the assessee either to advance the mortgage loan in the name of Murugesa Mudaliar or for other advances. This court observed--See [1964] 51 ITR 757, 761, 762 (Mad):