DHARMAVAT PROVISION STORES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference arises on a case stated by the Income -tax Appellate Tribunal under s. 256(2) of the I.T. Act, 1961 (referred to hereinafter as 'the said Act'), at the instance of the assessee. The following question has been referred to us in this reference :

(2.) THE facts giving rise to this reference are as follows : The assessment year in question is the assessment year 1962 -63 for which the assessee's relevant accounting year was S.Y. 2017 (October 20, 1960, to November 8, 1961). The assessee, an individual, was doing grocery and money -lending business in the name and style of M/s.Dhramavat Provision Stores. In the course of the assessment proceedings for the assessment year 1962 -63, the assessee filed a balance -sheet as at the end of S.Y. 2016, which was the previous year for the assessment year 1961 -62, and also a balance -sheet as at the end of S.Y. 2016, which was the previous year for the assessment year 1961 -62, and also a balance -sheet as at the end of S.Y. 2017, the material accounting year. These balance -sheet were filed for the first time before the ITO during the course of the assessment proceedings for the assessment year 1962 -63 as aforesaid. The balance -sheet as at the end of S.Y. 2016 showed a credit balance of Rs. 24,604.95 in the assessee's personal account. The capital account stood at Rs. 26,000. In the next balance -sheet, namely, as at the end of S.Y. 2017, the capital account was unchanged, while the personal account stood at Rs. 24,903. After considering the explanation given by the assessee, the ITO held that the assessee could not have built up a capital of Rs. 26,000 by the end of S.Y. 2017, and assessed the entire amount of Rs. 26,000 appearing in the capital account as the undisclosed income of the assessee for the assessment year 1962 -63. The ITO applied the provisions of s. 68 of the said Act in rejecting the contentions of the assessee. The ITO rejected the balance -sheet filed for the end of S.Y. 2016 as untrue. He also disbelieved the explanation given by the assessee to the effect that he had received Rs. 7,000 from his mother in S.Y. 2016, and added this amount also as the undisclosed income of the assessee in the relevant assessment year. He found that the said amount must have been credited in the personal account in the relevant assessment year. On an appeal by the assessee, the AAC restricted the additions made to Rs. 17,614, having regard to certain tangible additions made to the book profits in past years and by giving credit for some probable savings. The assessee preferred an appeal to the Tribunal which dismissed the appeal holding that the provisions of s. 68 of the said Act were rightly applied by the ITO to the case. One other fact which may be mentioned is that the order of the ITO shows that it was found by the ITO that the undisclosed income from the business to the extent of Rs. 26,000 had been brought by the assessee into the capital account.

(3.) IN order to appreciate this contention, it is necessary to note the provisions of s. 68 of the said Act. The said section runs as follows :