Double taxation of estimated profits and cash credits disallowed; estimated excess treated within cash credits, not separately taxed.

Where estimated business profits were assessed by rejecting books and the same cash credits in partners' accounts were treated as secreted profits, the estimated excess cannot be added separately unless material shows distinct independent receipts or separate businesses; on the facts the cash credits encompassed the estimated excess, so the excess estimate is not separately taxable and must be treated as part of the cash credits, with costs awarded to the assessee.

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Issues: Whether, on the facts and circumstances of the case, the assessee is liable to be taxed both on Rs. 15,644 as estimated excess profit and on Rs. 85,000 shown as cash credits (i.e., whether such treatment results in double taxation).

Analysis: The Income-tax Officer rejected parts of the books and estimated business profits at Rs. 15,644 for the accounting year; separately the authorities treated cash credits of Rs. 85,000 in partners' accounts as secreted profits or income from undisclosed sources and included that amount in assessment (also for excess profits tax). There is no material to show the assessee carried on any independent business apart from the declared trading in sugar, salt and kirana, nor is there evidence that the Rs. 85,000 represented income from a source independent of the business for which assessment was made. Where estimated profits are made by rejecting books and cash credits are treated as secreted profits of the same business, the authorities cannot add the estimated excess to the cash credits as if they were independent distinct items unless there is material showing independent separate businesses or receipts. The Tribunal itself found no evidence connecting the gross profit estimates with the credits in the capital accounts; on the facts found, the cash credits would include the estimated excess profit.

Conclusion: The assessee should not have been taxed both on Rs. 15,644 and on Rs. 85,000; the Rs. 15,644 is included within the Rs. 85,000 and is not separately taxable. The question is answered against the Revenue and in favour of the assessee; the assessee is entitled to costs of the reference (hearing fee Rs. 250).

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