DEONITI PRASAD SINGH Vs. COMMR OF INCOME TAX

JUDGEMENT

(1.) In this case, the income-tax Appellate Tribunal has submitted the following, questions of law for being determined by the High. Court: (1) Whether there was' any material to justify the assessment of Rs. 89,000 being the cash reintroduced into business? & (2) Whether the bad debt of Rs. 14,518 could in law be disallowed?

(2.) The questions in this case relate to the assessment made upon a Hindu undivided family for the year 1946-47. The previous year for the assessment year 1946-47 was the sainvat year 2001-2002 ending with Phagun Sudi. The assessee derives income from interest on securities, house property, money-lending, trade in gold and silver, dividends, and other sources. For the assessment year in. question, the essessee filed a return showing an income of Rs. 20,176. Upon an examination of the accounts of the assessee, the Income-tax Officer discovered that there were cash credits in the personal account of Rai Bahadur Balmiki Frasad Singh, father of the assessee, Sri Deoniti Frasad Singh, who is the karta of the undivided family. The Income-tax Officer required the Essessee to furuish explanation as to the sources of these cash credits. The explanation given was that during the Samvat year 1997-1999 the assessee had withdrawn, cash from the business on several occasions and that he had also introduced cash business. In proof of this explanation the assessee furnished the personal account of Balmiki Frasad Singh for the Sarnvat years 1997 to 2000: <FRM>JUDGEMENT_360_AIR(PAT)_1953Html1.htm</FRM> The Income-tax Officer refused to accept the ex planation of the assessee on the ground that there was material to suggest that the amounts with drawn by the assessee were converted into gold. and later on sold in the market when the price of gold had risen due to war conditions. The In come-tax Officer therefore held that the amount of Rs. 86,000 should be added to the income of the assessee and should be assessed to income-tax. There was another point taken by the assessee before the Income-tax Officer. This related to the amount of Rs. 14,518 which according to the assessee was a Bad debt and an allowance had to be made on that account under Section 10(2) (xi), income-tax Act. It appears that the assessee had lent the amount on handnotes to Harihar Prassd Singh. As the money was not paid the assessee instituted a money suit in the court of the first Subordinate Judge of Monghyr and obtained a decree. The assessee filed execution petitions on 6-9-1935, 15-11-1935, 13-2-1939, 16-6-1942 and 7-9-1944. All these execution cases were dismissed by the executing court for non-prosecution. In this connection, the Income-tax Officer observed that the assessee had lent other sums of money on mortgage to Harihar Frasad Singh and the mortgage bonds were transferred by the assessee to one Tuka Singh of Barhiya seven or eight years back. Tuka Singh instituted a suit against Harihar Prcsad Singh for realising the amount due on the mortgage bonds and having obtained a mortgage decree caused all the mortgaged properties of the debtor to be sold in execution. The sale took place about four years previous to the order of assessment. The Income-tax Officer thought that the debt due on the hand- note became irrecoverable on account of the debtor's properties having been sold in execution of the mortgage decree four years before the year of assessment. For these reasons, the Income-tax Officer refused to allow the deduction of Rs. 14,518 which the assessee claimed to be a bad and irrecoverable loan. An appeal was taken by the assessee to the Appellate Assistant Commissioner against the order of the Income-tax Officer. But the appellate Assistant Commissioner affirmed the findings of the Income-tax Officer and dismissed the appeal with respect to the two items with which we are concerned in this case. The matter was taken up in further appeal to the Income-tax Appellate Tribunal. On the question of addition of cash credit to extent of Rs, 86,000, the Appellate Tribunal accepted the argument advanced on behalf of the assessee that the asseasee was not carrying on any trade in gold and silver. But the Tribunal was of opinion that the assessee's account as regards the home chest of Balmiki Prasad Singh even if it be accepted as correct, did not show that a sum of Rs. 86000 could have been introduced into the business. This was the main ground given by the Tribunal for not accepting the explanation of the assessee regarding the source of the cash credit of Rs. 83,000. The relevant passage from the order of the Appellate Tribunal is as follows:

(3.) As regards the sum of Rs. 14,518 the Tribunal took note of the fact that the last execution proceeding was instituted on 7-9-1944 accompanied by a prayer for the arrest of the judgment debtor. But the Tribunal also found that the execution petition was dismissed on 8-12-1945 within the accounting year. The claim of the assessee for allowance on account of this debt as bad and irrecoverable was rejected by the Tribunal on the ground that