COMMISSIONER OF INCOME TAX Vs. JAWANAL GEMAJI GANDHI

JUDGEMENT

(1.) THE assessee firm carried on the business of purchasing and selling gold and silver ornaments. For the assessment year in question, that is, 1962 63, the accounting period being S. Y. 2017, the assessee showed a gross profit of Rs. 42,428 on sales of Rs. 3,78,064, which worked out to 11.2 per cent. The ITO had in the previous year increased the gross profit to about 14.2per cent, which the AAC reduced to 13.8per cent. For the year in question, therefore, the ITO estimated the sales at Rs. 3,85,000 and gross profit thereon at 13.8per cent. It appeared that during the course of S. Y. 2017, that is, on September 1, 1961, the Central Excise authorities bad seized gold weighing something more than 76 tolas sent to the assessee at Kolhapur. The consignor had admitted in excise proceedings that he was an employee of the assessee. An explanation had been sought to be tendered by the assessee regarding this gold, but the excise authorities did not accept the explanation and confiscated the gold, which order of confiscation was confirmed by the Central Board of Excise and Customs. No further appeal had been preferred. Having regard to this, the ITO did not accept the assessee's claim that the gold that had been seized came out of the stock of gold on hand with the assessee. As no other alternative source to prove the acquisition of gold was shown by the assessee, it was held by the ITO that its value was the income of the assessee from undisclosed sources. The value worked out to Rs. 9,375. The ITO, therefore, added to the income of the assessee the sum of Rs. 10,702 on the basis of the estimated turnover and Rs. 9,375 on account of the gold.

(2.) THE assessee preferred an appeal before the AAC and reiterated its explanation about the acquisition of gold. It did not seriously contest the addition of Rs. 10,702 on account of the estimated turnover. The AAC concluded that the ITO was justified in treating the sum of Rs. 9,375 as income from undisclosed sources. The assessee went up in further appeal before the Tribunal. It was, inter alia, contended on behalf of the assessee that as there had been an intangible addition of Rs. 10,702 for the same assessment year, there was no reason to make a separate addition of Rs. 9,375. It was submitted that even if the assessee's explanation regarding acquisition of gold had to be held to be not true, the source of the disputed amount of Rs. 9,375 could easily be assumed to have come out of the intangible additions. The Tribunal stated that having regard to all the facts before it, it was satisfied that there was no good ground for making a separate addition of Rs. 9,375 and deleted the same.

(3.) MR . Joshi, learned counsel for the Revenue, having taken us through the orders of the ITO, the AAC and the Tribunal, referred us to the judgment of the Supreme Court in Anantharam Veerasinghaiah & Co. vs. CIT (1980) 16 CTR (SC) 189 : (1980) 123 ITR 457 (SC). We may go straight to the observations that Mr. Joshi stressed. The Court observed that there can be no escape from the proposition that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. But it is quite another thing to say that any part of that fund must necessarily be regarded as the source of the unexplained expenditure incurred. The mere availability of such a fund could not, in all cases, imply that the assessee had not earned further secret profits during the relevant assessment year. It was a matter for consideration by the taxing authority in each case whether the unexplained cash deficits and the cash credits could be reasonably attributed to a pre existing fund of concealed profits or they were reasonably explained by reference to concealed income earned in that very year. A number of circumstances of vital significance could point to the conclusion that the cash deficit or cash credit could not reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed income earned during the assessment year under consideration. It was open to the Revenue to rely on all the circumstances pointing to that conclusion.