SRINIVAS RAMKUMAR Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) On an application by the assesses to this Court under Section 66 (2), Income- tax Act, the Appellate Tribunal was called upon to state a case with reference to the following question of law: Whether the department was entitled to include the amount of Rs. 3500 said to have been deposited by Kishundutt as secreted profits of the firm when it had already applied flat rates to cover suppressed incomes and whether the addition of this sum amounted to double taxation.

(2.) The assessee is a Hindu undivided family which owns property and also carries on business. For the year with which we are concerned the assessee's return showed income from property at Rs. 501 and a loss from business of Rs. 4248. Later, the return was amended and showed a loss of Rs. 14,540. With regard to the income from property the Income-tax Officer assessed it at Rs. 5000. With regard to the business of the assessee the Income-tax Officer found the books unreliable, and, therefore, assessed the profits of the business at a flat rate. Against the income so ascertained the assessee claimed to set off certain losses alleged to have been incurred in speculative transaction. The total amount of these losses was alleged to be RS. 19,900. The Income-tax Officer ascertained the nett amount of losses to be RS. 3861 by setting off against the sum of Rs. 19,900 three items totalling RS. 16,089. Of these three items, one was an item of Rs. 8300 which was entered in the suspense account in the books of the assessee's head office at Gaya. The Income-tax officer treated this as undisclosed profits. According to the assessee this sum represented deposits made by one Kishundutt, a member of the family. It consisted of three items; Rs. 1600 alleged to have been deposited in Kartick, Rs. 2000 in Sawan, and Rs. 4800 in Magh. On appeal the Assistant Commissioner held that the item of Rs. 4800 could not be taken as undisclosed profits of the accounting year in question as the month of Magh in which it was deposited was the month prior to the accounting year with which he was concerned. Accordingly, the Assistant Commissioner found that the amount of undisclosed profits was only RS. 3500, and it is this Rs. 3500 which is the subject- matter of this reference.

(3.) The assessee contends that if it is undisclosed profits, it should be held that it has been included in the profits of the business which had been ascertained on the flat rate basis, and that to bring it into account again amounts to double taxation. If this sum had been brought into account as profits of the ordinary trading transactions of the assessee, the assessee's contention must have been upheld. But that was not the assessee's case before the Income-tax Officer, or in any of the proceedings which have followed the assessment. He has always maintained that this sum represents deposits by Kishundutt. For sufficient reasons the income-tax authorities have) found that Kishundutt was not in a position tot make these deposits, and, therefore, the assessee's explanation with regard to it is untrue. The suspense account in the books of the head office at Gaya "showed, in addition to amounts deposited, also the opening balance of the Phatka account, that is to say, the account maintained for recording the speculative transactions, and the income-tax authorities have regarded this sum of Rs. 8500 as undisclosed profits of the speculative transactions. That is clear from the observations of the Assistant Commissioner in his appellate order, where in reference to the deposits attributed to Kishundutt he says: No evidence as to the nature of these credits is forthcoming and there is justification for the Income-tax Officer to hold these credits to be suppressed income inasmuch as he has found that the appellant had extensive speculative business, part of the gains of which he had suppressed in various benami accounts and that there were investments outside the books as in the case of Ballabux Gidwani.