Revenue cannot rely solely on a taxpayer's third-party statement (e.g., bank) to prove undisclosed income; burden remains on Revenue

HC upheld the Tribunal's deletion of a Rs.26,000 addition for alleged income from undisclosed sources, ruling that the ITO cannot base assessment solely on the assessee's statement to a third party (e.g., a bank) absent corroborative material. The court held the burden of proving undisclosed income rests on Revenue, and mere statements to non-assessment parties do not create an irrebuttable presumption of suppression. The Tribunal accepted the assessee's explanation on facts, and the HC found no scope to interfere with that factual conclusion.

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Issues involved: Assessment of addition of Rs.26,000 from undisclosed sources representing excess stock hypothecated to the bank under 'open loan account'.

Summary:
The High Court of Madras addressed the issue of whether the Appellate Tribunal was justified in deleting the addition of Rs.26,000 from undisclosed sources, which represented the excess stock hypothecated to the bank under an 'open loan account' for the assessment year 1977-78.

The Income-tax Officer had added the difference between the value of stock in the books and the value declared to the bank as income from undisclosed sources. The assessee argued that the declared value was inflated, denying any suppression of stock value or undisclosed income. The Appellate Assistant Commissioner reduced the addition amount, and the Tribunal members had conflicting opinions. The Vice-President of the Tribunal concurred that there was no undisclosed income, noting the absence of verification by the bank officials and the assessee's admission of higher profits.

The Revenue relied on a previous case but the High Court disagreed, emphasizing that the burden of proving undisclosed income lies with the Revenue. The Court cited established propositions regarding the burden of proof in income taxation cases.

Ultimately, the Court upheld the Tribunal's decision to accept the assessee's explanation, stating that it was a factual matter within the Tribunal's jurisdiction. The question was answered in favor of the assessee, with no costs imposed.

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