1. The question of law referred by the Income-tax Appellate Tribunal in this reference under Section 256(1) of the I.T. Act, 1961, is as follows;
" Whether, on the facts and in the circumstances of the case, and having regard to the
provisions of Section 68 of the Income-tax Act, 1961, the Tribunal was justified in confirming the deletion of the amount of Rs. 27,800 considered for assessment as the income of the assessee from undisclosed sources?"
2. The reference arises out of assessment proceedings for the year 1963-64. The ITO disallowed expenditure to the extent of Rs. 25,000. Further, he disallowed certain cash credits shown in the books of account of the assessee which in all amounted to Rs. 26,800. The assessee contended before the AAC in the alternative that the amount of cash credits if found to be not genuine, should be related to intangible additions made by the ITO by deleting the expenses to the extent of Rs. 25,000 and to similar additions made in the assessment of the earlier year. This alternative contention was accepted by the AAC and the addition of Rs. 27,800 was deleted. The Tribunal confirmed this order of the AAC. The Tribunal rejected the contention of the Revenue that the assessee did not discharge the onus of connecting the cash credit deposits with the intangible additions. The Tribunal observed that circumstances did exist to connect the two and that the assessee had excess funds in the form of disallowed expenses and these funds were introduced as alleged cash credits. In the opinion of the Tribunal the link was certainly there and it could not agree with the Revenue that the assessee had not been able to discharge the onus.
3. Learned counsel for the Revenue relied upon two decisions of the Madras High Court to contend that when the assessee's case that the cash credits were real cash credits was negatived by the ITO, it was not open to him to contend in the alternative that these cash credits related to intangible additions. These cases are S. Ahmed Khabeer Rowther v. CIT, [1977] 106 ITR 984 (Mad) and CIT v. Banarsilal Dhawan, [1977] 109 ITR 360 (Mad). It appears that on this question there is some difference of opinion. The Madras High Court does appear to be of the view that such an alternative plea of relating the cash credits to intangible additions cannot be raised for the first time in appeal. But a different view has been taken by the Punjab High Court in CIT v. Ram Sanehi Gian Chand, [1972] 86 ITR 724, Our High Court shares the view of the Punjab High Court in CIT v. Dinanath Dhawale (Misc. Civil Case No. 252 of 1970, decided on 4-4-1972). In that case, the ITO made an addition of Rs. 29,000 which was reduced in appeal to Rs. 19,000. In second appeal it was for the first time contended before the Income-tax Appellate Tribunal that the amount of. Rs. 19,000 was relatable to the intangible additions--made in the income of the earlier year. This explanation was accepted by the Tribunal and the Tribunal's view was confirmed by the High Court. Similar view was taken in CIT v. Sahu Brothers, [1978] 115 ITR 438 (MP). In view of the authorities of our court, it is not possible to accept that it was not open to the assessee to contend before the AAC, in the alternative, that the amount of cash credits was related to intangible additions. The question whether this alternative plea should have been accepted by the AAC and the Tribunal is essentially a question of fact. The Tribunal found that there was sufficient link between the so-called cash credits and the intangible additions. It cannot be said that the Tribunal was wrong in law in holding so.
4. Reference was also made to Section 68 of the Act. This section provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the ITO, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The section, on a proper construction, in our opinion, does not debar the assessee from offering alternative explanations and if either of them is accepted, the cash credit cannot be charged as the income of the assessee.
5. For the reasons given above, we answer the question in the affirmative, in favour of the assessee and against the Department. There will be no order as to costs of this reference.