Section 69 inapplicable where receipts reflect gross sales, not unexplained investments; revenue's appeal dismissed, assessee succeeds

HC upheld the Tribunal's order deleting the addition made as "income from other sources" towards alleged unexplained cost of materials and manufacturing costs for goods supplied to the Defence Department. It held that s.69 applies only to unexplained investments not recorded in the books, which was not the situation here. The receipts from the Defence Department represented gross amounts inclusive of expenditure and profit, not unexplained income. As the Tribunal's factual findings were neither challenged nor shown to be perverse, HC declined to interfere in reference jurisdiction. The question of law was answered in the affirmative, in favour of the assessee and against the Revenue.

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Issues involved: Interpretation of Income Tax Act, 1961 regarding deletion of unexplained cost of material and manufacturing cost of goods supplied to Defence Department.

Summary:
The High Court of Calcutta addressed a question of law forwarded by the Tribunal under section 256(1) of the Income Tax Act, 1961, regarding the justification of upholding the deletion of the unexplained cost of material and manufacturing cost of goods supplied to the Defence Department. The assessment year in question was 1973-74, with the relevant accounting year ending on March 31, 1973. The legal representative of the deceased assessee informed the income-tax authorities about the death, and no substitution was made. The Income-tax Officer initially treated the sum received from the Defence Department as "income from other sources." However, the Commissioner (Appeals) later ruled that the addition of Rs. 1,01,649 was not warranted and directed its deletion.

The Department appealed this decision to the Tribunal, which upheld the order of the appellate authority. Both the Commissioner (Appeals) and the Tribunal agreed that the entire amount invested in raw materials could not be added as income, considering the expenses incurred by the assessee in earning that income. The Revenue argued for the application of section 69 of the Act to add the unexplained investment as income, but the Court disagreed, stating that section 69 does not apply in this case. The Court affirmed the Tribunal's findings, noting that the sum received from the Defence Department included profit and expenditure, not just net income. As the Tribunal's findings were not challenged for perversity, the High Court upheld the decision in favor of the assessee. The question of law was answered in the affirmative, and no costs were awarded.

*By Bhagabati Prasad Banerjee J.:* The Tribunal's decision to delete the additional sum of Rs. 1,01,649 as unexplained income was justified based on the circumstances of the case and the expenses incurred by the assessee in supplying goods to the Defence Department.

*By Suhas Chandra Sen J.:* Agreed with the decision and reasoning provided by Bhagabati Prasad Banerjee J.

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