Madhya Pradesh High Court
Commissioner Of Income-Tax vs Sahu Brothers on 21 March, 1978
Author: G.L. Oza
Bench: G.L. Oza
JUDGMENT Oza, J.
1. This is a reference made by the I.T.A. Tribunal, Indore, seeking an answer to the question :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition of Rs. 71,977 as the income of the assessee from undisclosed sources, holding the same to be covered by the intangible addition made to the income of the assessee in the past ?"
2. The facts found by the Tribunal are that the assessee, a registered firm, derived income from its business in iron bars, iron sheets and girders, etc., in the assessment year 1970-71, under reference. The ITO after pointing out various omissions in the books of account of the assessee determined the business income of the assessee by estimating the sales and gross pro-fits. The ITO made an addition of Rs. 66,569 to the trading result of the assessee on account of low gross profit shown by the assessee. This has been maintained on appeal even by the Tribunal. The ITO also found that out of the purchases made outside the books of account, total purchases of Rs. 71,977 were made in unaccounted cash. The explanation of the assessee before the ITO was that one Shri Omprakash, s/o Shri Nathulal, partner of the assessee, had purchased those goods on his own in the name of the firm and had sold them all in his individual capacity and that the profit earned in those transactions as well as the amount invested therein belonged to Omprakash. The ITO after making an inquiry into the claim of the assessee rejected the version of the assessee and made an addition of Rs. 71,977 as the income of the assessee from undisclosed sources.
3. It was contended by the assessee before the AAC in appeal that in any case the investment of Rs. 71,977 should be considered to have arisen out of the intangible additions made to the income of the assessee in the past. Intangible additions totalling Rs. 76,210 were admittedly made to the income of the assessee during the immediately four prior assessment years 1966-67 to 1969-70. Substantial intangible additions were made to the income of the assessee in earlier years as well. The AAC declined to give any relief of these additions to the assessee and he confirmed the addition of Rs. 71,977 to the income of the assessee from undisclosed sources.
4. The Appellate Tribunal took into consideration the evidence adduced before the AAC and held that it was of the view that the household expenses of the two partners of the assessee-firm could reasonably be met from out of their rental and agricultural income coupled with the withdrawals effected by them in the four immediately prior assessment years 1966-67 to 1969-70. It further held that the intangible addition of Rs. 76,210 made to the shown income of the assessee in the assessment years 1966-67 to 1969-70 could reasonably be available with the assessee in the assessment year 1970-71 in question. The Tribunal, also considering the law, held that the sum of Rs. 76,210 of intangible additions made to the income of the assessee during the four assessment years immediately prior to the assessment year 1970-71 in question could be available with the assessee for investment in the assessment year in question and that the source of investment of the disputed sum of Rs. 71,977 was thus satisfactorily explained by the assessee. The Tribunal, therefore, accepted the contention of the assessee and deleted the addition of Rs. 71,977.
5. After this order of the Tribunal on an application made by the CIT, Bhopal, the Tribunal has submitted this reference to this court seeking answer to the question quoted above.
6. Learned counsel for the assessee placed reliance on a decision of this court in Misc. Civil Case No. 352 of 1970 (CIT v. Shri Dinanath Dhawale) decided on April 4, 1972, at Jabalpur. A Division Bench of this court in that decision held that the additions by the ITO in the assessments of the, previous years of the assessee were on the basis that he had earned larger income than what was shown and that he had in fact earned that income. That amount was, therefore, available to him for investment in the assessment year. A similar question was considered by the Allahabad High Court in the decision in CIT v. Ram Achal Ram Sewak [1969] 73 ITR 501 and it was held (page 502):
"The short question raised in the present applications is whether the deposits made by the assessee in various banks from year to year could be set off against the extra profit added during previous years. In Kuppuswami Mudaliar v. CIT [1964] 51 ITR 757, it was held by the Madras High Court that, where the income-tax authorities made an addition to the income of the assessee over and above the income as disclosed by the assessee, on an estimate basis, the amount so added must be treated as the real income of the assessee. It is not open to the authorities to take the view that the addition was only for purposes of taxation, and that it should not be regarded as the true income of the assessee."
7. Apparently, therefore, it could not be contended that this income which had been added up as income from intangible sources in the previous years of assessment was not available to the assessee. Accordingly, our answer to the question is in the affirmative.
8. In the circumstances of the case, parties are directed to bear their own costs.