Undisclosed source income cannot be linked to a known business year without separate accounts or a valid previous-year option.

Income credited in the cloth business books was not treated as income of that business merely because it was placed in a suspense account. An undisclosed source remained distinct from the known cloth business, so the entry reflected only disposal of income after it arose and did not show accounts being kept for that source. A different previous year could be adopted only if separate accounts for that source were made up for a different period and the assessee had exercised the relevant option; neither condition was shown on the facts. The amount was therefore not assessable on the cloth business previous-year basis.

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Issues: Whether income found credited in the books of the cloth business, but found to be income from an undisclosed source, could be assessed for the same accounting period as the cloth business under section 2(11)(i)(a) of the Income-tax Act, 1922.

Analysis: The sum credited in the business books did not become income of the cloth business merely because it was entered in a suspense account. An undisclosed source is distinct from the known business source, and the entry only showed disposal of the income after it had arisen, not the keeping of accounts for that source. A different previous year from the financial year could be adopted only if accounts for that separate source were made up for a different period and the assessee exercised the option to treat that period as the previous year. On the facts found, there was no material to show either condition. The Department could not substitute the cloth business accounting period for the previous year applicable to the undisclosed source.

Conclusion: The amount could not be taxed in the assessment year 1945-46 on the basis of the cloth business previous year; the question was answered in the negative, in favour of the assessee.

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