ADDITIONAL COMMISSIONER OF INCOME TAX Vs. USMANBHAI ISLAMBHAI

JUDGEMENT

(1.) These two applications under Section 256(2) of the Income Tax Act, 1901 at the instance of the Additional Commissioner of Income-Tax, Rajasthan, Jaipur relate to the same assessee and raise an identical question and can be disposed of by one order.

(2.) M/s Usmanbhai Islambhai, Tonk, is a registered partnership firm which derives income from the manufacture and sale of "Beedies". For the assessment year 1965-66 the assessee returned an income of Rs. 12,345/-, At the time of the scrutiny of the accounts the Income Tax Officer noticed cash credit entries in the name of five persons totalling Rs. 21,300/-. Further, another cash credit entry in the sum of Rs. 4,000/- in the name of Abdul Karim was also noticed although the account had stood squared up. The assessee was asked to explain these entries and it produced confirmatory letters purporting to be signed by the five creditors in the sum of Rs. 21,300/-. The Income Tax Officer ordered the production of the five persons for verification but the assessee neglected to do so. The plea of the asseseee that the aforesaid amount of Rs. 21,300/- represented the additional made to the assessee's income in the earlier years was rejected by the Income Tax Officer He rejected the plea on the ground that the assessee was unable to show whether the amount was lying in liquid cash or invested by the assessee somewhore and in view of the meagre withdrawals by the partners from the funds of the firm the amount of the secreted profits was probably spent by the partners and he accordingly added Rs. 25,300/- as income from an undisclosed source On appeal, the Appellate Commissioner after examining the accounts of the assessee of earlier years came to the conclusion that this amount represented the additional made to the income in the earlier years by the Department as secret profits. The Income Tax Officer went up in appeal to the Tribunal but without success. An application was moved before the Tribunal for making a reference to this Court under Section 256(1) of the Income Tax Act, 1961 to state and refer the question of Jaw. The Tribunal declined on the ground that no question of law arose. The Department now asks us to direct the Tribunal to refer the following question:

(3.) For the assessment year 1966 67 the aforesaid assessee returned as income of Rs. 17,387/-. While examining the account the Income Tax Officer noticed certain cash credit entries in the name of four persons totalling Rs. 10,200/-. When the assessee was asked to explain, the assessee neither filed any letters by way of confirmation signed by the four creditors in whose favour the entries stood nor did he produce the persons despite several opportunities afforded for the purpose. The assessee, however, later admitted that the sum of RS. 10,200/- represented its own secreted business income. The Income Tax Officer, however, added this amount as the assessee's income from an undisclosed source rejecting the assessee's theory that this sum represented the additions made by the Income Tax Officer in regard to its income in the earlier years on the ground that the assessee produced no evidence to show whether the amount was lying with it in a liquid cash or invested by it and if so, where. Moreover, the withdrawals by the partners during the earlier years, added the the Income Tax Officer, ware so meagre that they suggested that the secret profits of the earlier years were expended by the partners. On appeal by the assessee the Appellate Assistant Commissioner, B-Range, Jaipur by his order dated 22nd February 1969 deleted the addition of Rs. 10,200/- on the ground that the sum represented the secreted profits already taxed in the earlier years. An appeal was taken by the Income Tax Officer to the Trubunal. The Jaipur Bench of the Tribunal affirmed order of the Appellate Assistant Commissioner & dismissed the Department's appeal by its order dated 24th August, 1971 holding that the fictitious cash credits represented the secret profits of earlier years and the explanation offered by the assessee was satisfactory in the light of the detailed analysis of the accounts made by the Additional Assistant Commissioner by examining relevant entries. The Additional Commissioner of Income Tax, Rajanthan made an application before the Tribunal under Section 256(1) of the Income Tax Act, 1951, requiring it to draw up a statement of the case and refer the question of law mentioned in D.B. Civil Income Tax Reference No. 86 of 1972 to this Court. The Trubunal dismissed the application on the aground that no question of law arose. The Department has now come to this Court and prays for directing the Tribunal to refer the question indicated in Reference No. 86 of 1972.