1963 (2) TMI 33 - SC - Income Tax

Court Upholds Decision: Credit Entry Income Classified as Undisclosed Profits; Assessee's Appeals Dismissed with Costs.

Kale Khan Mohammad Hanif Versus Commissioner Of Income-Tax, MP And Bhopal

The SC upheld the HC's decision against the assessee, affirming the treatment of credit entry income as profits from undisclosed sources. The judgment ... Burden Of Proof, Business Income, Cash Credits, Income From Undisclosed Sources, Original Assessment Issues:- Assessment orders under the Income-tax Act for the years 1945-46 and 1947-48- Re-opening of assessments due to credit entries in the assessee's books- Burden of proving the source of cash credits on the assessee- Tribunal's inference on credits as income from undisclosed sources- Justification of treating certain sums as profits from undisclosed sources- Dispute regarding income derived from undisclosed sources based on credit entriesAnalysis:The judgment by the Supreme Court pertains to two appeals arising from assessment orders made under the Income-tax Act for the years 1945-46 and 1947-48. The assessee, engaged in trading businesses and property income, faced re-opening of assessments due to credit entries in the books that had escaped initial assessment scrutiny. The Income-tax Officer, with the Commissioner's sanction, added the amounts of the credit entries to the previously estimated incomes, leading to fresh assessments under section 34 of the Act. The assessee appealed these fresh assessments to higher authorities, eventually reaching the High Court for decision.The first issue addressed was the burden of proving the source of cash credits on the assessee. The High Court affirmed that the onus of proving the source of received sums lies with the assessee. The judgment cited precedent to establish that the assessee must demonstrate that the receipt was not income or was exempt under tax provisions; otherwise, it is treated as taxable income.The next issue involved the Tribunal's inference on the credits as income from undisclosed sources. The High Court's response to a related question was deemed unnecessary, as it pertained to factual inferences made by the Tribunal, which are beyond the High Court's purview. The judgment clarified the distinction between factual and legal inferences, emphasizing that questions of fact are under the Tribunal's jurisdiction.Regarding the justification of treating specific sums as profits from undisclosed sources, the High Court's affirmative answer was upheld by the Supreme Court. The judgment dismissed the notion that income from disclosed sources computed on estimates precludes treating credit entry income as undisclosed. It highlighted the need to assess the source of income based on all case facts, rather than solely on the method of income computation.In conclusion, the Supreme Court upheld the High Court's decision against the assessee, affirming the treatment of credit entry income as profits from undisclosed sources. The judgment emphasized the importance of evaluating income sources based on all case facts and rejected the argument that income from disclosed sources computed on estimates precludes treating credit entry income as undisclosed. The appeals were dismissed, with costs awarded against the assessee.