Laxmi Narain Gupta v. Commissioner Of Income-Tax, Bihar.

1. The Patna Bench of the Income-tax Appellate Tribunal has referred, under s. 256(1) of the Income-tax Act, 1961, the undermentioned question of law for the opinion of this court:

“Whether, on the facts and in the circumstances of the case, the addition of Rs. 38,500 sustained in the assessment year 1969-70 is legal and valid?”

2. The brief facts giving rise to the said question are that the assessee, an individual, while being assessed in respect of his share income from a partnership business for the assessment year 1969-70, his capital account in the books of the firm, M/s. Baldeo Prasad Basudeo Prasad, in which he was a partner, indicated a cash deposit of Rs. 25,500. The assessee explained the source of the said cash deposit to be the share of his income from a joint venture with one Baleshwar Prasad. The assessee's share from the said joint venture was Rs. 38,500. The ITO now assessing the assessee's income for the assessment year 1969-70, besides assessing the share income of the assessee from the said firm, added Rs. 38,500 as the assessee's income from undisclosed sources. The accounting period taken for the purpose of the said assessment for the said assessment year was the year ending the 30th of September, 1968. To put it in other words, although the sum of Rs. 38,500 was being assessed as income from undisclosed sources, the ITO adopted the accounting period, which was for the assessee's business income, as the accounting year for the income from undisclosed sources as well and assessed it for the assessment year 1969-70. The assessee appealed to the AAC on the merits of the said addition of Rs. 38,500 and in that context one of the contentions raised on behalf of the assessee was that the sum of Rs. 38,500 could not have been added in its entirety and that too in terms of the provisions of s. 68 of the I.T Act, 1961. The AAC, however, confirmed the ITO's order.

3. The assessee then appealed to the Income-tax Appellate Tribunal. The arguments made before the AAC were once again reiterated in vain. The Judicial Member of the Tribunal found, in respect of the earning of the said sum of Rs. 38,500: “No account showing capital introduction and profit in the firm, M/s. Baleshwar Prasad could be produced before us.” The Accountant Member further found: “there was no taking of accounts on any earlier date and only in this year the profit was worked out and determined…” The Tribunal confirmed the addition of the said sum of Rs. 38,500 as income from undisclosed sources and as having been rightly assessed for the year in question.

4. After the Tribunal gave its order, the assessee filed an application for rectification of certain mistakes of fact which had crept in the Tribunal's order. One such was that the Tribunal had observed that the AAC had found as a fact that the said sum of Rs. 38,500 had been received by the assessee during the year under appeal. According to the assessee, no such finding had been given by the AAC in his order. The Tribunal, agreeing with the assessee's contentions, rectified that mistake, but all the same observed that so far as the Tribunal's order was concerned, it did not get affected by that rectification.

5. It is on these facts that the aforesaid question of law has been referred for the opinion of this court.

6. Mr. Jain, appearing for the petitioner-assessee, has urged that admittedly the sum of Rs. 38,500 had been treated as the assessee's income from undisclosed sources. That being the admitted fact, the relevant accounting year for which the said income could be assessed would be the financial year ending on the 31st March, 1969, and not the year ending the 30th September, 1968. This amount could not, therefore, have been assessed along with the income assessed for the accounting year ending on the 30th September, 1968. In support of his argument, he has relied on a decision of the Supreme Court in the case of Baladin Ram v. CIT, [1969] 71 ITR 427. We will deal with this case at an appropriate place. He, therefore, submitted that the question must be answered in the negative and in favour of the assessee.

7. Mr. Rajgarhia, learned standing counsel for the department, submitted that admittedly the said sum of Rs. 38,500 had been earned by the assessee and, as was the Tribunal's finding, such amount had been received by him during “this year”. Therefore, unless these two facts are found to be wrong, the assessment of the said sum of Rs. 38,500 for the year in question must be held to be valid. The question, according to Mr. Rajgarhia, must, therefore, be answered in the affirmative and in favour of the department.

8. We think the contention made on behalf of the assessee is valid and must prevail.

9. The said sum of Rs. 38,500 has been assessed as income from undisclosed sources. Although the ITO has not treated the addition as one made under s. 68 of the Act, the AAC has held that the said additions had been made in terms of s. 68 of the Act.

10. We will first clarify a mistake which has been committed by the department while adding the income from undisclosed sources. An income from undisclosed sources, if credited in the books maintained by the assessee, is liable to be assessed under s. 68 of the Act, but if such income from undisclosed sources, though invested, has not been recorded in the assessee's books of accounts, such investment is liable to be assessed in terms of s. 69 of the Act. Now, in the instant case, the income from undisclosed sources, which is said to have been earned by the assessee, was admittedly not credited in the books of account maintained by him, but part of it had been invested in the firm in which he was a partner and it was not known where its other part was lying. Thus, if at all, so far as the invested part is concerned, it could have been assessed in terms of s. 69 of the Act, but in no case under s. 68 of the Act.

11. Be that as it may, the question which has to be considered here is, whether or not the inclusion of the said income from undisclosed sources in the assessment for the assessment year 1969-70 as having accrued during the accounting year ending 30th September, 1968, was valid. Under the old Act, namely, the Indian I.T Act, 1922, it was one of the accepted views (vide CIT v. P. Darolia & Sons, [1955] 27 ITR 515 (Pat) that in the absence of any system of accounting adopted by the assessee, the only course open to the income-tax authority was to take the financial year ending on the 31st March as the previous year for assessing income from undisclosed sources. Notwithstanding the change brought about by the I.T Act, 1961, the position has remained the same. The Supreme Court in the case of Baladin Ram v. CIT, [1969] 71 ITR 427 has observed that if the undisclosed income is found to be from some unknown sources or the amount represented some concealed income which is not credited in the assessee's books, the position would still remain that such amount can be assessed by adopting the financial year as the previous year for its assessment. Their Lordships said that the introduction of s. 68 of the Act of 1961 made only this difference that whereas the amounts credited in the books of account maintained by the assessee would be assessable for the previous year on which the accounts closed, but where income from undisclosed sources is invested elsewhere which are not found credited in the assessee's account, the previous year for assessing such undisclosed income will still be the financial year.

12. Mr. Rajgarhia referred to a decision of this court in the case of CIT v. Meghu Sao Jhandhu Sao, [1955] 27 ITR 371 for the proposition that income from disclosed sources could be assessed for the previous year relevant to the business accounting year. Possibly this decision would not have been cited by him if he had only noticed that the amount which was assessed in the previous year relevant for the business accounting year, was found to have been earned from the business in question itself. It was not a profit from undisclosed sources. It is this that makes all the difference in determining the previous year which would be relevant for its assessment for a particular assessment year.

13. Mr. Rajgarhia has laid stress in the course of his argument on the findings of the Tribunal that the said sum of Rs. 38,500 did accrue or arise to the assessee and that as per the Tribunal's findings it had been received during “this year”.

14. We think that in making this argument, learned counsel has probably lost sight of the fact that the argument merely begs the question which has been referred for our opinion, namely, which is the year for which the amount has to be assessed: will it mean that the accounting year ended on 30th September, 1968, as adopted by the assessee in respect of his income from partnership business, or will it mean, as is the rule in such cases, the financial year ending 31st March, 1969? Although the Tribunal might have said that the income was received during this year, yet that does not give a finding with regard to the relevant accounting year for which it could be assessed. Mr. Rajgarhia's argument, therefore, does not carry his point anywhere. Summing up, therefore, since the said sum of Rs. 38,500 has been taxed as unexplained investment, the relevant previous year for taxing such unexplained investment could not be the accounting year ending 30th September, 1968. It follows, therefore, that the said sum of Rs. 38,500 could not be assessed for the assessment year 1969-70, whose relevant accounting year ended on the 30th September, 1968.

15. In the result, the question is answered in the negative and in favour of the assessee. The assessee will be entitled to costs and hearing fee of Rs. 250.