JUDGMENT
Inder Sen Israni, J.
1. This income-tax reference under Section 256(2) of the Income-tax Act has been sent by the Income-tax Appellate Tribunal, Rajasthan. This court, vide its order dated July 5, 1973, in D.B. Income-tax Case No, 84 of 1972, had directed the Tribunal to draw up the statement of case arising out of the Tribunal’s order in Income-tax Appeal No. 2288 of 1969 in respect of the assessment year 1966-67 and refer the same to this court for its opinion.
2. The assessee-respondent is a firm and derives its income from the sale of jewellery, curios, presentation articles, etc. While examining the account books of the assessee, the Income-tax Officer noted that there were deposits from various persons on different dates aggregating to Rs. 16,950. These deposits were paid off to the various parties before the close of accounting year itself, so that the balance of none of them was reflected in the balance-sheet. The Income-tax Officer required the assessee under Section 143(3) to explain the nature and source of the deposits. After going through the explanation of the assessee given in writing and examining the accounts, the Income-tax Officer came to the conclusion that the said deposits “remained unexplained and will be treated as the assessee’s income from undisclosed sources, which shall be added back”. The Income-tax Officer also made an addition of Rs. 18,117 to the trading results of the assessee. After making the aforesaid two additions and a few other routine additions, the total income of the assessee was determined to be Rs. 1,10,723. The assessee went up in appeal to the Appellate Assistant Commissioner who gave the finding that the credits are temporary in the squared up accounts. This fact, in his opinion, indicated that the
quality of the cash credits and that of the trading additions are not different. Further, Section 68 of the Act empowered the Income-tax Officer to consider as income any unexplained cash credits and in the present case, he was of the opinion that the unaccounted trading receipts were temporarily credited in the books, and therefore, he deleted the addition of Rs. 16,950, but sustained the addition of Rs. 18,117, The Revenue felt aggrieved of the aforesaid order of the Appellate Assistant Commissioner and went up in appeal to the Tribunal. The Tribunal confirmed the order of the Appellate Assistant Commissioner and observed that the amount of Rs. 16,950 has been rightly excluded from the total income of the assessee, as even during the present assessment, an addition of Rs. 18,117 has been made, which would sufficiently cover any unexplained income to the extent of Rs. 16,950. It has also been held that the amount of Rs. 16,950 represents the total of the cash credit and not the peak amount, of unexplained credit, which will be of a lesser amount. Moreover, substantial additions have been made even in the earlier years and taking all these factors into account, the decision of the Appellate Assistant Commissioner could not be characterised as unreasonable or perverse.
3. On the basis of the aforesaid facts, this court formulated the following question which arises out of the aforesaid order of the Tribunal :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in treating the unexplained cash credit entries to the extent of Rs. 16,950 as covered by the added gross profit in the sum of Rs. 18,117 on the basis of estimate ?”
4. Learned counsel for the Revenue, Shri R.N. Surolia, contended that the amount of Rs. 16,950 was rightly treated to be unexplained income by the Income-tax Officer, from undisclosed sources. The addition of Rs. 18,117 to the trading results of the respondent firm was made by the Income-tax Officer as no stock account was available with the respondent firm and maintenance of stock account was denied. For this reason, year after year, a rate was applied in the assessee’s case. The sales of the assessee-firm were estimated at Rs. 9,70,000 and gross profit at the rate of 12.5% was determined at Rs. 1,21,250. The Income-tax Officer deducted the profit shown as Rs. 1,03,133 and made an addition amounting to Rs. 18,117 and correspondingly enhanced the turnover. He, therefore, supports the view taken by the Income-tax Officer and contends that both the amounts were rightly added to the income of the respondent.
5. Learned counsel for the respondent, Shri V.K. Singhal, on the other hand, contended that since last few years, the Income-tax Officer had been adding certain amounts to the profits over and above that shown by the respondent firm and in this year also an amount of Rs. 18,117 was added.
He urged that in any case the amount of Rs. 16,950 is covered by the addition of Rs. 18,117. It has been urged that on March 14, 1968, the respondent gave an explanation which is also mentioned in the order of the learned Appellate Assistant Commissioner (annexure B) that cash credit of Rs. 16,950 of the assessee has been considered as the respondent’s income and taxed as business profits. But in view of the fact that an addition of Rs. 18,117 has been made to the trading results, this addition should be considered as covering the addition of Rs. 16,950 on account of cash credit. It was further stated by the respondent before the learned Appellate Assistant Commissioner that it will be wrong and unjust to consider the cash credit of Rs. 16,950 as business income and add the same besides and in addition to the addition of Rs. 18,117 to the trading results. It has been contended that these credits are temporary in the squared up accounts. Therefore, the quality of the cash credit and that of the trading addition are not different. It has also been urged that under Section 68, the Income-tax Officer has power to consider as income any unexplained cash credit and in the present case, the respondent’s explanation as given before the Appellate Assistant Commissioner also is that unaccounted trading receipts were temporarily credited in the books. The following chart shows the trading additions made to the income of the respondent in previous years :
Asstt. years
Sales/G.P.
Sales/G.P. dst.
Addition
Rs.
Rs.
Rs.
1963-64
6,02,804/11.5
6,10,000/12.5
8,319
1964-65
6,29,562/11.7
6,37,000/12.5
6,677
1965-66
8,92,634/10.9
9,05,000/12.5
17,801
1966-67
9,30,058/10.2
9,70,000/12.5
18,117
6. It has been further contended that the respondent took up the plea before the Appellate Assistant Commissioner that as the addition of Rs. 18,117 has been made for the present assessment year and very substantial and intangible additions had been made for the earlier years also as shown above, the unproved cash credit of Rs. 16,950 should be taken as having come out of such intangible additions. He has, therefore, urged that the learned Appellate Assistant Commissioner and the learned Tribunal were justified in holding that there was no basis for considering the amount of Rs. 16,950 as income over and above Rs. 18,117 since additions of various amounts have been made during the last three years also over and above the profit shown by the respondent-firm itself.
7. Learned counsel for the respondent has drawn our attention to the case of Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR 457 (SC), in which their Lordships of the Supreme Court have held that “when an
‘intangible’ addition is made to the book profits during the assessment proceedings, it is on the basis that the amount represented by that addition constitutes the undisclosed income of the assessee. That income, although commonly described as ‘intangible’, is as much a part of his real income as that disclosed by his account books. It has the same concrete existence. It could be available to the assessee as book profits could be. The secret profits or undisclosed income of an assessee earned in an 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……. It is a matter for consideration in each case
whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year.”
8. In the case of CIT v. S. Nelliappan [1967] 66 ITR 722 (SC), it was held by their Lordships of the Supreme Court that while hearing the appeal, the Tribunal may give leave to the assessee to urge grounds not set forth in the memorandum of appeal and in deciding the appeal, the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal. It was further held that the Tribunal is not precluded from adjusting the tax liabilities of the assessee in the light of the findings merely because the findings are inconsistent with the case pleaded by the assessee. The inference of the Tribunal that there is a connection between the profits withheld by the assessee from his account books and the cash credit entries found therein and the conclusion that since additions were made to the book profits in excess of the amount of cash credits, the addition of the cash credits becomes redundant, are findings of facts and no question of law can arise therefrom. In the case of CIT v. K.S.M. Guruswamy Nadar and Sons [1984] 149 ITR 127, it was held by the Madras High Court that when there are two separate additions, one on account of suppression of profit and another on account of cash credit, it is open to the assessee to explain that the suppressed profits had been brought in as cash credits and one has to be telescoped into the other resulting only in one addition. It was, therefore, held that the Tribunal was right in its view in telescoping the additions made towards the cash credits. In the case of Addl. CIT v. Dharamdas Agarwal [1983] 144 ITR 143 (MP), it was held that when cash credits were treated as income from undisclosed sources, the assessee can take an alternative contention before the Appellate Assistant Commissioner that the cash credits were out of undisclosed income taxed in earlier years and the assessee is entitled to raise such alternative plea before the Appellate Assistant Commissioner for the first time. In the case of Kuppuswami Mudaliar v. CIT [1964] 51 ITR 757, it was held by the
Madras High Court that where the Income-tax Authorities make an addition to the income of the assessee over and above the income as disclosed by the assessee, on an estimate basis, the amount so added must be treated as the real income of the assessee. It is not open to the authorities to take the view that the addition was only for purposes of taxation and that it should not be regarded as the true income of the assessee. In the case of CIT v. Jawanmal Gemaji Gandhi [1985] 151 ITR 353 (Bom), the assessee was a dealer in gold ornaments. The excise authorities seized and confiscated certain quantity of gold from the assessee. The value of the gold was added as income from undisclosed sources and other intangible additions were also made in the same assessment year on the basis of estimated rate of gross profit and turnover. It was held that secret profits or undisclosed income of an assessee earned in an earlier assessment year can constitute a fund, though concealed, from which the assessee may draw subsequently. In the instant case, the assessee acquired the gold during the latter half of the assessment year and it could be that the undisclosed income earned in that very year constituted a fund from which the asset was acquired. It was further held that though the assessee did not contend before the Income-tax Officer that the source for the acquisition of the gold was the addition made by the Income-tax Officer to the turnover, yet it was the assessee’s case before the Income-tax Officer that the gold had been legitimately acquired. The assessee could not then have known that the Income-tax Officer would make an addition to the income on the basis of an addition to the turnover. Even before the Tribunal, the assessee had adopted this stand but the assessee had contended in the alternative that the source of the gold could be assumed to have come out of the intangible additions on account of increased turnover. Therefore, it was held that the Tribunal was justified in deleting the addition of the amount as income from undisclosed sources.
9. It has been, therefore, urged by the learned counsel for the respondent that the learned Appellate Assistant Commissioner and the Tribunal have committed no error of law in holding that the unproved cash credit of Rs. 16,950 should be taken to have come out of intangible additions as substantial additions have been made even in the earlier years. It has also been rightly held by the Tribunal that even during the present assessment, an addition of Rs. 18,117 has been made, which would sufficiently cover any unexplained income to the extent of Rs. 16,950. On both these counts, the learned Tribunal and the Appellate Assistant Commissioner have rightly held that the amount of Rs. 16,950 should not be added as income from unproved sources.
10. Learned counsel for the Revenue, Shri Surolia, has on the other hand drawn our attention to the case of Kale Khan Mohammed Hanif v. CIT
[1963] 50 ITR 1, in which their Lordships of the Supreme Court have held that the onus of proving the source of a sum of money found to have been received by the assessee is on him and has further held that the amount of cash credit could be assessed to tax as income from undisclosed sources in addition to the business income computed by estimate. The taxing authorities were not precluded from treating the amount of credit entries as income from undisclosed sources simply because the entries appeared in the books of a business whose income they had previously computed on a percentage basis. In the matter of CIT v. Devi Prasad Viswanath Prasad [1969] 72 ITR 194, it has been held by their Lordships of the Supreme Court that where there is an unexplained credit, it is open to the Income-tax Officer to hold that it is the income of the assessee and it is for the assessee to prove that even if the cash credit is taken as income, it is income from the source which has already been taxed.
11. It is clear from the law discussed above, that the Income-tax Officer was within his right to tax the amount of Rs. 16,950 as income from undisclosed source, even though he had added the amount of Rs. 18,117 in addition to the profit shown by the respondent-firm in its account books. However, in the present case, the respondent was well within his rights to plead that this amount of Rs. 16,950 is covered by the intangible income assessed at Rs. 18,117 and added to the income of the firm and apart from this, since for the last preceding three years, substantial additions amounting to Rs. 32,797 have been made, the amount of Rs. 16,950 could be taken as having come out of such intangible additions. In the case reported in [1980] 123 ITR 457, their Lordships of the Supreme Court have held that the additions made to the book profits in earlier years are the real income and can be treated as available for use in subsequent years or even in the same year. In the case reported in [1967] 66 ITR 722, their Lordships of the Supreme Court have held that the Tribunal can permit the appellant to raise grounds not set forth even in the memorandum of appeal at the time of arguments and in this case, these grounds were taken before the Appellate Assistant Commissioner also.
12. We are, therefore, of the considered opinion that the question raised in this reference should be answered in favour of the respondent and against the Revenue and we hold that in the facts and in the circumstances of the case, the Tribunal was right in treating the unexplained cash credit entries to the extent of Rs. 16,950 as covered by added gross profit in the sum of Rs. 18,117 on the basis of the estimate.
