Unexplained cash credit treated as undisclosed income where records contradicted the assessee's explanation; penalty issue raised no legal question.

Documentary records and surrounding circumstances showed that the cash credited in Rameshwar Dass's account had been withdrawn from the bank and quickly disbursed as loans, which contradicted the assessee's explanation of safe custody and instalment withdrawals. The credit was therefore treated as the assessee's own money and sustained as income from undisclosed sources. On penalty, the Tribunal held that levy under section 28(1)(c) depended on whether the statutory conditions were proved on the facts, and the record did not disclose a distinct legal question. The penalty cancellation was upheld and no referable question of law was found.

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Issues: (i) Whether the cash credit of Rs. 20,000 in the account of Rameshwar Dass was income of the assessee from undisclosed sources; (ii) Whether the Tribunal was right in cancelling the penalty imposed under section 28(1)(c) and whether any question of law arose for reference.

Issue (i): Whether the cash credit of Rs. 20,000 in the account of Rameshwar Dass was income of the assessee from undisclosed sources.

Analysis: The account books of the co-operative society, together with the entries made by Rameshwar Dass himself, showed that he had withdrawn the money from the bank and disbursed it as loans within a short time. That evidence contradicted the assessee's version that the amount had remained with the assessee for safe custody and had been withdrawn in instalments over a later period. The explanation offered for the entry in the assessee's books was therefore rejected, and the material on record supported the inference that the deposit represented the firm's own money.

Conclusion: The cash credit was rightly treated as the assessee's income from undisclosed sources, in favour of the Revenue.

Issue (ii): Whether the Tribunal was right in cancelling the penalty imposed under section 28(1)(c) and whether any question of law arose for reference.

Analysis: Penalty under the Act is not automatic and must rest on material showing that the statutory conditions are satisfied. The Tribunal found that the department had not produced material sufficient to justify the inference necessary for levy of penalty and treated the matter as one depending on the facts of the case rather than on any legal controversy. On that footing, it declined reference because no question of law arose from its order.

Conclusion: The cancellation of penalty was upheld and no referable question of law was made out, in favour of the assessee on the penalty issue.

Final Conclusion: The assessment addition was sustained, while the challenge to the penalty order failed to raise any referable question of law, so the matter ended with the Revenue succeeding on the substantive cash-credit issue and the petition for reference being rejected.

Ratio Decidendi: Where documentary material and surrounding circumstances support the inference that a third-party cash credit is in truth the assessee's own money, the finding is one of fact; and penalty or reference cannot be founded unless the record discloses a distinct question of law.

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