1976 (12) TMI 12 - HC - Income Tax

Supreme Court rules cash credit not undisclosed income, emphasizes evidence consideration.

The Supreme Court held that the Tribunal was not justified in treating the cash credit of Rs. 50,000 as the assessee's income from undisclosed sources ... Appeal To AAC, Cash Credits, Finding Of Fact, Income Tax Act, Power To Admit Additional Evidence Issues Involved:1. Whether the Tribunal was justified in upholding the Income-tax Officer's order treating the cash credit of Rs. 50,000 as income from undisclosed sources.Detailed Analysis:1. Background and Facts:The case concerns the assessment year 1962-63 for a Hindu undivided family. The Income-tax Officer (ITO) found a cash credit of Rs. 50,000 in the name of Paliram Pannalal on April 12, 1962, in the books of the assessee. The ITO, based on information that the creditor was of little means and similar credits were not genuine, deemed the amount as the assessee's income from undisclosed sources. The assessee argued that no money was received and the credit was advised by M/s. Industrial Supply and Agency Company. The ITO, however, rejected this explanation and added the amount to the assessment.2. Appellate Assistant Commissioner's Decision:The assessee appealed, and the Appellate Assistant Commissioner (AAC) accepted an affidavit from Pannalal Basniwal stating that loans of Rs. 25,000 and Rs. 50,000 were given to the assessee. The AAC found no new credits in that year and deleted the Rs. 50,000 addition.3. Tribunal's Decision:The department appealed to the Tribunal, which upheld the ITO's decision, stating the assessee failed to prove the genuineness of the cash credit. The Tribunal excluded the affidavit, arguing it was not verified and the ITO was not given an opportunity to verify it.4. Arguments by Assessee's Counsel:The counsel for the assessee argued that the AAC had the jurisdiction to accept the affidavit as there was no objection from the department during the appeal. The Tribunal's exclusion of the affidavit was thus erroneous.5. Arguments by Department's Counsel:The department's counsel contended that the Tribunal considered all materials and found the assessee failed to prove the loan's genuineness, which should be accepted as a finding of fact.6. Court's Analysis:The court examined section 250 of the Income-tax Act, 1961, and relevant rules. It noted that the AAC had the power to admit additional evidence and make further inquiries. The Tribunal's exclusion of the affidavit was incorrect as there was no statutory requirement for the AAC to verify the affidavit or allow the ITO an opportunity to verify it. The Tribunal should have considered the affidavit and could have tested its validity under rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.7. Supreme Court's Observation:Citing Keshav Mills Co. Ltd. v. Commissioner of Income-tax and Udhavdas Kewalram v. Commissioner of Income-tax, the court emphasized that the Tribunal must consider all material evidence. Ignoring significant evidence, like the affidavit, renders the Tribunal's findings unsustainable.8. Conclusion:The court concluded that the Tribunal was not justified in treating the cash credit of Rs. 50,000 as the assessee's income from undisclosed sources without considering the affidavit. The Tribunal's decision was not legally binding as it failed to consider all material evidence.9. Judgment:The court answered the question of law in the negative and against the department, disposing of the reference without any order as to costs.