I.T.AS. NOS. 100 AND 101/KB OF 1984-85, DECIDED ON 30TH MARCH, 1988. Versus I.T.AS. NOS. 100 AND 101/KB OF 1984-85, DECIDED ON 30TH MARCH, 1988.

ORDER

FARHAT ALI KHAN (CHAIRMAN).- -These departmental appeals are directed against the order of learned C.I.T. (Appeals) recorded by him on 15th April, 1984, relating to assessment years 1975-76 and 1976-77

2. The brief facts giving rise to these appeals are that the respondent, a registered firm, deriving its income from wholesale cloth business declared its sales during the relevant assessment years at Rs.51,30,918 and Rs.15.39,963 In assessment year 197546 it declared GP rate of 26 but in assessment year 1976-7? it declared loss of Rs.17,052. The I.T.O. however, found both the sales and purchases unverifiable with variation in rates. He, therefore, rejecting the trading results estimated sales at Rs.52,00,000 and Rs.16,00,000 and applied GP rate of 3.5% in each assessment year respectively. The I.T.0 further found from the books of accounts of the respondent that cash credits amounting to Rs.1,82,600 and Rs.1,59,944 were shown in various names in each assessment year. He, therefore, called upon the respondent to explain and, after considering the explanation as well as the evidence of the respondent, added Rs.1,008,600 and Rs.67,000 as unexplained cash credits under section 4 (2-A) of the repealed Income-tax .Act, to the total income of each assessment year. Having been aggrieved and dissatisfied the respondent went up in appeal, but the learned CIT (Appeals) not only confirmed the rejection of the trading results but also estimated sales arid applied G.P. rate. He, however, did not support the I.T.O. regarding addition made under section 4 (2-A) of the repealed Income-Tax Act in each assessment year. Disposing of the arguments advanced before him the learned CIT (Appeals) decided the issue in the following words:

"However, the contention of the learned counsel for the appellant that addition under section 4 (2-A) covers the addition made in the trading account has some force and the Income-Tax Officer is accordingly directed to restrict the addition in the trading account to the addition on account of low gross profit/ loss or cash credit whichever is more."

This time, the Department feels aggrieved and has come up in second appeal.

3. Mr. Mohammad Farid, the learned D.R. relying upon a decision of the Supreme Court of India, reported as (1969) 72-ITR-194, C.I.T. U.P. v. Devi Prasad Vishwanath Prasad vehemently argued that the learned CIT (Appeals) seriously erred in coming to the conclusion that the addition of unexplained cash credits was covered by the addition made in the trading account. Elaborating his arguments further the learned D.R. forcefully submitted that it could not be said-that before ITO made any addition of unexplained cash credit, he show... always establish the source of income from which it might have come to an assessee as an income. None for the respondent turned up. From perusal of the record it transpired that the hearing notice was served on the respondent on 10th March, 1988. Since the service was found satisfactory, we decided to proceed ex parte.

4. We have heard Mr. Mohammad Farid, the learned D.R. at length and have also carefully gone through the case of DEVI PRASAD (supra). From perusal of this decision it appears that the books of accounts of the assessee of that case were rejected and the business profits derived from the business of handloom cloth and silk fabrics were estimated by applying a flat rate of 12 % to the turn-over of the business. It further appears that during the assessment proceedings the I.T.O. had discovered a deposit of Rs.20,000 shown in the name of M/s. Banshidhar Rawatmal and he after considering the explanation of the assessee added it to the total income treating it as income from undisclosed sources and his order was subsequently confirmed not only by the AAC but also by the Tribunal. From perusal of this decision it further appears that an application. filed by the assessee under section 66 (1) of the Income-tax Act was rejected by the Tribunal but the High Court of Allahabad directed the. Tribunal to refer the matter to their Lordships on the question as to whether there was any material to hold that the sum of Rs.20,000 was income of the assessee from some other source, and was not income included in the assessed income on the rejection of the books of accounts though it was never argued before the Tribunal that if the case of the assessee was that the amount of Rs.20.000 deposited by Messrs Banshidhar Rawatmal remained unproved it should be treated as income which was part of the business of the assessee and the Tribunal while referring the matter to the High Court of Allahabad did mention this fact. However their Lordships of the Allahabad High Court considered the matter in great detail and answered the question in favour of the assessee in a decision, which is reported as (1963) 50-ITR-641, Devi Prasad Vishwanath Prasad v. Commissioner of Income-tax. The Commissioner of income-Tax however, took the matter to the Supreme Court. Their Lordships of Indian Supreme Court relying upon their own decision reported as (1963) 50-ITR-1, Kalay Khan Mohammad Hanif v. Commissioner of Income-tax have observed as follows:

"There is nothing in law which prevents the Income-Tax Officer in an appropriate case in taxing both the cash credits, the source and nature of which is not satisfactorily explained, and the business income estimated by him under section 13 of the Income-Tax Act, after rejecting the books of accounts of the assessee as unreliable."

It is this observation of their Lordships of the Indian, Supreme Court, which has been pressed into service by Mr. Mohammad Farid, the learned D.R. as anchor--sheet of his argument. However, with due respect to the learned D.R we en-of shut our eyes to the following observation:

"Whether in a given case the Income-Tax Officer may tax the cash credit entered in the books of accounts of the business, and at the same time estimate the profit must, however, depend upon the facts of each case." (emphasis added).

Thus, though their Lordships have stated d principle of law in this case but have also issued a caution. It is, therefore, clear that though an Income-Tax Officer has powers to make both additions, viz., addition in trading account and addition under section 4 (2A) of the repealed Income-Tax Act, at one and the same time, yet every case would revolve round its own facts and circumstances. Let us also point out here that their Lordships also disposed of the issue of burden of proof also which arises in such cases in the following) words:

"Where there is an explained cash credit, it is open to the, Income-tax Officer to hold that it is income of the assessee and no further burden lies on the Income-tax Officer to show that that income is from any particular source. It is for the assessee to prove that even if the cash credit represents income it is income from a source which has already been taxed."

We would, however, like to add that the question as to whether an assessee has succeeded in proving that the cash credit represented income from a source, which already stood taxed would depend again on the material brought before the Income-Tax Officer. Before turning to the facts of these appeals as they emerge out from the record let us point out that their Lordships of the Indian Supreme Court reversed the decision of the Allahabad High Court for the simple reason than their Lordships recorded their finding on a question which never' arose out of the order of the Tribunal.

5. With this observation in mind let us now turn to the facts of these appeals. From perusal of the assessment orders it appears that the I.T.O. discovered Rs.1,82,600 and Rs.1,59,944 standing in the names of various persons mentioned by him in each assessment order

He, however., added Rs.1,08,600 and Rs.67,000 in each assessment year respectively. It is thus clear that he accepted the explanation of the respondent regarding Rs.74,000 and Rs.92,944 in each assessment year. From perusal of the assessment orders it is also very obvious that the names of the parties against whom cash credits were found were mentioned in regularly maintained accounts books of the wholesale business of cloth of the respondent. Now if these facts are considered in the light of the explanation offered by the respondent, which was to the effect that the amounts represented various transactions and dealings with the parties and which had been partly accepted by the I. T. O., it inevitably appears to us that the addition of unexplained cash credits is emerging out of the business accounts of the respondent. In our judgment, the I.T.O., made the addition because the respondent failed to explain satisfactorily that all the cash credits were genuine but the fact that they pertained to the business of the respondent stands very much proved by the fact that some of them have been accepted by I. T .O., We are of the view that in such case it was the duty of the I.T.O., to record specific finding that the additions which he was making were regarding these unexplained cash credits which were not covered by the business income of the respondent. While making this observation, we have in our mind the principle of law stated by their Lordships regarding burden of proof. With due respect to their Lordships it is a genera statement of law and, if we may say so, states the law very correctly: However, in the instant case since the I.T.O. was accepting the part of the explanation and since he intended to add the un-explained cash credits on top of additions to be made by him in trading accounts f of the respondent, it was his duty to show that the cash credits were not covered by the additions to the trading accounts. Since he has failed to do so, we are left with no alternative but to agree with the learned CIT (Appeals) that the addition of unexplained cash credits stands covered by the addition made to the trading accounts of the respondent.

6.In view of discussion made above, both the departmental appeals stand rejected accordingly.

M. B. A./508/ T Appeals rejected.