Unexplained cash credits and peak-credit treatment fail without factual basis; High Court may recast tax reference questions.

Unexplained cash credits in separate accounts could not be treated as one composite account for peak-credit computation where there was no factual basis to show a single consolidated cash stream. The assessee also had the burden to prove that the credits were covered by earlier intangible additions already taxed; absent such proof, the credits could be assessed as income of the year in which they appeared, and deletion of the addition was unsustainable. In a tax reference, the High Court may recast the questions referred to bring out the real controversy arising from the statement of case.

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Issues: Whether the Tribunal was justified in treating the several cash-credit entries in different accounts as one composite account and computing a peak credit on rearrangement; whether the deletion of the addition on the footing that the credits were covered by past intangible additions was sustainable; and whether the High Court had power under section 66(5) to recast the questions referred.

Issue (i): Whether the Tribunal was justified in treating the several cash-credit entries in different accounts as one composite account and computing a peak credit on rearrangement.

Analysis: The entries stood in the names of different persons and there was no factual foundation for treating the accounts as a single account. The assessee had never put forward a case that the several accounts were in truth one consolidated cash stream to be arranged chronologically. In the absence of such a basis, the rearrangement of the credits to arrive at a peak figure was unwarranted.

Conclusion: The Tribunal was not justified in making out a new case for the assessee by treating the separate accounts as one account for peak-credit computation.

Issue (ii): Whether the deletion of the addition on the footing that the credits were covered by past intangible additions was sustainable.

Analysis: Once the assessee failed to establish the genuineness of the credits, the amounts could be treated as income of the year in which they appeared. The burden lay on the assessee to show that the credits represented earlier undisclosed profits already taxed as intangible additions. No such case had been made at any stage, and the Tribunal could not sustain the deletion on conjecture or probability.

Conclusion: The deletion of the addition was unsustainable and was rightly rejected.

Issue (iii): Whether the High Court had power under section 66(5) to recast the questions referred.

Analysis: The statutory duty to decide the questions of law raised by the reference carries with it the power to frame them so as to bring out the real controversy. The High Court is not confined to the exact form in which the questions were originally drafted if the statement of the case warrants a broader or clearer formulation.

Conclusion: The High Court had power to recast or reframe the questions under section 66(5).

Final Conclusion: The reference was answered in favour of the Department, the addition could not be deleted, and the assessee was saddled with costs.

Ratio Decidendi: Where unexplained cash credits are not proved to be genuine, the assessee bears the burden of showing that they were already absorbed in earlier assessed income, and the High Court may recast the questions in a tax reference to reflect the real controversy arising from the statement of the case.

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