COMMISSIONER OF INCOME TAX Vs. SAHU BROTHERS

JUDGEMENT

(1.) THIS is a reference made by the I.T.A. Tribunal, Indore, seeking an answer to the question :

(2.) THE facts found by the Tribunal are that the assessee, a registered firm, derived income from its business in iron bars, iron sheets and girders, etc., in the asst. year 1970 -71, under reference. The ITO after pointing out various omissions in the books of account of the assessee determined the business income of the assessee by estimating the sales and gross profits. The ITO made an addition of Rs. 66,569 to the trading result of the assessee on account of low gross profit shown by the assessee. This has been maintained on appeal even by the Tribunal. The ITO also found that out of the purchases made outside the books of account, total purchases of Rs. 71,977 were made in unaccounted cash. The explanation of the assessee before the ITO was that one Shri Omprakash, s/o Shri Nathulal, partner of the assessee, had purchased those goods on his own in the name of the firm and had sold them all in his individual capacity and that the profit earned in those transactions as well as the amount invested therein belonged to Omprakash. The ITO after making an inquiry into the claim of the assessee rejected the version of the assessee and made an addition of Rs. 71,977 as the income of the assessee from undisclosed sources. It was contended by the assessee before the AAC in appeal that in any case the investment of Rs. 71,977 should be considered to have arisen out of the intangible additions made to the income of the assessee in the past.

(3.) A Division Bench of this Court in that decision held that the additions by the ITO in the assessments of the previous years of the assessee were on the basis that he had earned larger income than what was shown and that he had in fact earned that income. That amount was, therefore, available to him for investment in the assessment year. A similar question was considered by the Allahabad High Court in the decision in CIT vs. Ram Achal Ram Sewak (1969) 73 ITR 501 and it was held :