ORDER–Question raised before nor adjudicated upon by Tribunal–Reference under s. 256(1) not permissible.
HELD :
A reference under s. 256(1) is permissible where any
question of law arises out of the order of the Tribunal passed
under s. 254 .Since the question was neither pleaded
nor adjudicated, it does not arise out of the order of the
Tribunal.
Income Tax Act 1961 s.256(1)
JUDGMENT
A. Pasayat, J.
1. At the instance of M/s. A. S. Sandhu and Company (hereinafter referred to as “the assessee”), the following question has been referred under Section 256(1) of the Income-tax Act, 1961 (in short, “the Act”), by the Income-tax Appellate Tribunal, Cuttack Bench, Cuttack (in short, “the Tribunal”) :
“Whether, in the facts and circumstances of the case, further addition to Rs. 35,753 as unexplained investment is justified when estimate is reported to and further if the said Rs. 35,753 even on estimate should have been, in any view, held to have been included in the intangible addition to income during the year ?”
2. The facts, as indicated in the statement of the case drawn up by the Tribunal, are as follows :
The assessee is a registered firm which had filed its return of income for the assessment year 1977-78. It carries on business in contract execution work and had disclosed income at Rs. 1,38,866. The following two additions were made by the Income-tax Officer to the disclosed income on assessment :
Rs.
(1) Shortage of cash on working out available cash position
35,737
(2) Cash introduced through unpaid wages account
70,616
Total
1,06,353
3. For making the first addition, the Income-tax Officer worked out the peak shortage of cash at Rs. 35,735. The assessee challenged the additions in appeal before the Commissioner of Income-tax (Appeals). The additions on the aforesaid accounts were assailed before the said authority. On going through the accounts, the Commissioner of Income-tax (Appeals) was satisfied that the peak shortage of cash as worked out by the Income-tax Officer was correct. The assessee had also not given any cogent explanation for the shortage. It had also stated that it was covered by agricultural income. The plea did not find acceptance by the Commissioner of Income-tax (Appeals) who held that there was no evidence that any portion of the so called agricultural income was ever introduced into the business account. The addition, therefore, was upheld. So far as the other addition is concerned, the Commissioner of Income-tax (Appeals), on consideration of the materials, restricted the same to Rs. 20,000. In other words, he granted relief of Rs. 50,616 to the assessee. Both the asses-see and the Assessing Officer filed appeals before the Tribunal. By a common order, the Tribunal disposed of the appeals. It allowed the Department’s appeal so far as it related to cash introduced through unpaid wages account. So far as the assessee’s appeal is concerned, the Tribunal held that there was no cogent explanation offered for the shortage and, therefore, the authorities were justified in making the addition. The asses-see filed an application under Section 256(1) making a motion for reference of four questions to this court. But the Tribunal only referred the question indicated above.
4. On consideration of the materials on record, we find that the question whether the addition could be covered by intangible addition of income during the year is essentially one of fact. The secret profits or undisclosed income of an assessee earned in a particular assessment year or in any 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 cannot be laid down as a general proposition that any part of that fund must necessarily be regarded as the source of unexplained expenditure or investment. The mere availability of such a fund cannot, in all cases, imply that the assessee has not earned undisclosed income during the relevant assessment year. It is a matter of consideration by the taxing authority as to whether the unexplained expenditure or investment could be reasonably attributed to a pre-existing fund of concealed income. The true nature of the deficit and the pre-existing fund, if any, have to be ascertained. A number of circumstances of vital significance which are almost difficult to enumerate have to be considered. The assessee who wants to take the benefit of the so called pre-existing fund has to establish it. In the instant case, that has not been done.
5. Additionally, there was neither any plea before nor adjudication by the Tribunal in this regard. The question, therefore, does not flow from the order of the Tribunal. A reference under Section 256(1) is permissible where any question of law arises out of the order of the Tribunal passed under Section 254 of the Act. Since the question was neither pleaded nor adjudicated, it does not arise out of the order of the Tribunal. We therefore, decline to answer the question.
6. Reference is, accordingly, disposed of. No costs.
S.K. Mohanty, J.
7. I agree.