Unexplained business credits treated as taxable business income; consequential relief in excess profits tax claim denied.

Whether a credit entry representing a purported purchase from a fictitious creditor could be treated as firm business income under the Excess Profits Tax Act is examined by applying the principle that unexplained or spurious credits in business books may be inferred as business receipts and therefore taxable as business income; on the facts the accounting entry was held to be fictitious, the Tribunal's application of that evidentiary principle was accepted, and consequential relief in the excess profits tax appeal was refused, with the reference answered against the assessee.

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Issues: Whether the sum of Rs. 1,31,957, found by the Appellate Tribunal to be income from an undisclosed source, could be treated as business income of the firm for the purposes of the Excess Profits Tax Act and whether consequential relief in the excess profits tax appeal should be refused.

Analysis: The question arises under a reference made under Section 66(2) of the Income-tax Act, 1922. The amount in question was entered in the firm's books as a credit purporting to represent a purchase from a fictitious creditor and was introduced several months after commencement of business. The Income-tax Officer and Appellate Assistant Commissioner found the account fictitious and treated the entry as representing undisclosed business profit; the Appellate Tribunal affirmed that finding, observing that credits appearing in business books, when unexplained and shown to be spurious, are properly inferable as business receipts. No separate argument was advanced in the excess profits tax appeal and the appellant sought only consequential relief dependent on the income-tax determination. The Tribunal applied the principle that entries credited in business books, when not satisfactorily explained, may be treated as business receipts and therefore taxable as business income; the court accepted the Tribunal's application of that principle to the facts and found no reason to interfere.

Conclusion: The sum of Rs. 1,31,957 is to be treated as business income of the firm for the purpose of the Excess Profits Tax Act and the assessee's claim for consequential relief is refused; the reference is answered against the assessee.

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