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Reference Application No. 1 of 1966; decided on 19th Decem ber 1967.

S. 34‑Income escaping assess ment‑Whether certain sum "income of assessee from a source unknown and unconnected with any of known sources of profit earning activity followed by assessee"‑Question of fact, to be decided on basis of fact and circumstances‑Addition of sum without arriving at definite finding that such sum was income of assessee from a source unknown and unconnected with known source of his income‑Held, not justified.

Auto Stores v. Commissioner, Income‑tax, East Pakistan P L D 1964 Dacca 433 fol.

Kale Khan Mohammad Hanif v. Commissioner of Income‑tax, Madhya Pradesh and Bhopal (1963) 50 I T R 1 (S C) distinguished and ref.

Afzalul Haque for Petitioner.

Nemo for Respondent.

Dates of hearing : 15th and 18th December 1967.

:‑‑This Rule is unopposed. The Rule has been issued upon the Income‑tax Appellate Tribunal, Dacca Bench, Dacca to show cause why the Tribunal should not be directed to refer to this Court the question of law as framed in paragraph 8 of the petition.

The said question is as follows:‑

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that it was wrong to treat the amount of Rs. 15,000 as assessee's income from undisclosed sources in the assessment year 1960‑61 when an estimate of Gross Profit on the turn‑over had already been made and the sum of Rs. 26,045 added as suppressed income of the assessee from business disclosed."

It appears that the, assessee, namely, Messrs Eastern Aluminium Agency, Dacca (respondent) was assessed to pay certain Income‑tax for the year 1960‑61. Respondent was a registered firm and dealt with aluminium and enamel wares and crockeries. It had originally submitted a return of its income from the aforesaid business, but the return was not accepted and the Income‑tax Officer added to the income disclosed in the return a further sum of Rs. 26,045 as suppressed income of the assessee from the business disclosed. The total sales of the respondent as shown by the books of account stood at Rs. 5,42,204 and gross profit was shown as Rs. 37,955, that is, about 7 percent. The Income‑tax Officer having considered that the rate of gross profits as shown was low and for certain defect, noticed by the Officer, he rejected the accounts submitted by the respondent‑assessee and estimated the total sale at Rs. 5,80,000 and thus added back a sum of Rs. 26,045 to the gross profit disclosed by the assessee. The Income‑tax Officer further added to the total income of the assessee a sum of Rs. 15,003 having treated the said sum of Rs. 15,000 as income of the firm from undisclosed sources. On appeal by the assessee to the Appellate Assistant Commissioner the latter ordered that the addition of the said sum of Rs. 15,000 made to the total income of the assessee as income from undisclosed sources be deleted. An addition of Rs. 26,045 made to the disclosed gross profit under the trading accounts of the assessee was, however, upheld. The petitioner thereupon 'preferred' an appeal to the Income‑tax Appellate Tribunal and the latter upheld the said order of the Appellate Assistant Commissioner deleting the addition of the said sum of Rs. 15,000 on the ground inter alia, that there was no finding that the said sum of Rs. 15,000 was the income of the assessee‑firm from unknown sources. In course of its order the Tribunal held that in such cases the onus rested upon the Income‑tax Officer to establish that the assessee had a source of income other than the known sources of his income. The Tribunal also observed that before an amount could be taxed, it had to be established firstly that this was an income of the assessee, and secondly that the income was made during the year under assessment. The Tribunal, therefore, affirmed the order of the Appellate Assistant Commissioner on the simple ground that the Income‑tax Officer had failed to establish that Rs. 15,000 was the income of the firm. Having been aggrieved by this order of the Tribunal the Commissioner of Income‑tax, Dacca Zone, Dacca (petitioner) approached this Court and obtained the present Rule nisi.

Mr. Afzalul Haque, learned Advocate appearing on behalf of the petitioner has contended that the assessee having failed to satisfactorily explain the presence of the sum of Rs. 15,000 in the books of account of the firm, it was open to the Income‑tax Officer to regard the said sum as income from undisclosed sources and consequently to add the sum in addition to the said sum of Rs. 26,045 added as suppressed income of the assessee from business disclosed. This contention apparently fails to take notice of a decision of this Court in the case of Auto Stores v. Commissioner of Income‑tax, East Pakistan (P L D 1964 Dacca 433) which has been referred to by the Income‑tax Tribunal in the impugned order. In the case under Report a similar question arose for consideration and the Division Bench in course of its judgment made the following observations:‑

"The words income from undisclosed source' may mean income from undisclosed item of a known line of activities or it may mean income from source which was unconnected with any of the known sources or lines of profit earning activity followed by the assessee altogether unknown. In the case of the first category, it would be a case of undisclosed profit of the known business and in the case of second category it will be an income from a business altogether different from the business under consideration, absolutely unconnected:

"It is impossible to agree, with the 'view of the Appellate Tribunal, that when the assessee failed to explain or his explanation has not been accepted it necessarily follows that the cash credit' is on account of income from undisclosed source meaning thereby income from a source unconnected with the known source of his income. It is no doubt true, the Income‑tax Officer may presume an, unexplained amount to be an income of the assessee, but there cannot be further presumption that it is an income from a different source, an undisclosed source, a source unconnected with the known source, in the absence of materials on the record or circumstances justifying inference of separate source.

"It is difficult to understand under what principle of law or equity the failure to explain a particular outside source, alleged will lead to some other undisclosed source, and how such conclusion is binding on the assessee to say they can hardly complain that their contention that the amount came from outside is accepted'. Is it on the principle of estoppel The principle is: If you like to accept the explanation submitted, accept whole of it or reject in toto; you cannot split it up and accept a portion of it and reject the rest.

"In the absence of evidence or in case of rejection of account the Income‑tax Officer is to make assessment to the best of his judgment and discretion, but that does not mean an arbitrary and capricious judgment based on suspicions, conjectures or surmises or on no evidence at all. There must be some basis for holding that the cash credit amount is on account of the income derived from business unconnected with the business of the assessee, an undisclosed source, to be added to the income estimated by himself as he could not accept the book account of the assessee.

Therefore, according to our view the Income‑tax Officer first of all must see whether cash credit can be accommodated in, or attributed to, the Income of the known source of business of the petitioner. If it is so attributable partly or wholly to the income of that business the gross profit of which has already been estimated by the Income‑tax Officer, then, it maybe an income of that business to that extent. If he without doing that added this cash credit amount to that estimated, amount of income, there is every chance of double taxation of the self‑same amount being twice added over. If the Income‑tax Officer cannot accept the cash credit shown in the account book of the assessee' as amanat jama of his father, on that alone he cannot add it to the estimated amount because it may be that the income of the business has, been escreted out and brought in back in disguise in the form of deposit by his father. If it is found that the cash credit cannot be attributed to, or accommodated in the estimated amount of the income in part or in whole, then and then only the Income‑tax Officer may perhaps consider' it to be an income from other sources, unconnected with ‑the known source of income of the assessee, because in that case the very fact that it cannot be attributed to or accommodated, in part or in whole, even in the estimated income of the known source of income of the asssessee, will by itself, be a circumstance for holding that the cash credit in part or whole, as the case may be, is on account of business unconnected with the known source of the assessee:

There is no doubt that the burden lies on the assessee; if he failed to prove satisfactorily that it is not his money but the money of somebody else, the Income‑tax Officer is entitled to presume that it is his income. To that extent there is no dispute. The dispute is, whether the Income‑tax Authority can presume further that it is his income from an undisclosed source, a source unconnected with the known source of income. There is no law or authority for such double presumption. The Income‑tax Officer or the Authority cannot make any such presumption nor can they draw any such inference simply from the failure of the assessee to explain it in the absence of circumstances or materials on record justifying it."

In the present case it is apparent that the Income‑tax Officer never considered the question whether the aforesaid sum of Rs. 15,000 was income of the assessee from a source which was altogether unknown and unconnected with any of the known sources of profit earning activity followed by the assessee. There is absolutely no material or basis upon which it could be held that the aforesaid Rs. 15,000 was income of the assessee from source of this description. This is a question of fact and can only be decided on the basis of facts and circumstances. The

Income‑tax Officer was, therefore, not justified in making the further addition of the aforesaid sum of Rs. 15,000 without having first, arrived at a definite finding based on facts and circumstances that the said sum of Rs. 15,000 was income of the assessee from a source unknown and ‑unconnected with the known source of income of the assessee.

From the foregoing it is patent that the question a reference of which has been sought for by the petitioner has already been considered and decided by a Division Bench of this Court with which we are in respectful agreement.

Mr. Afzalul Haque has cited before us a decision of the Supreme Court of India, Kale Khan Mohammad Hanif v. Commissioner of Income‑tax, 'Madhya Pradesh and Bhopal ((1963) 50 I T R 1 (S C)) in support of his contention that the income‑tax Officer was legally authorised to make the further addition of the aforesaid sum of Rs. 15,000. The facts of the case under report were different. There the credit entries in question had, escaped the attention of the Income‑tax Officer, and there was re‑assessment proceedings under section 34 of the Indian Income‑tax Act in course of which the assessees explanation that the said credit entries did not represent the income of the assessee was rejected and it was apparently held that the amount of the cash credit could be assessed to tax as income from undisclosed sources in addition to the business income computed by estimate. This decision, however, while recognising the distinction between "undisclosed income of a disclosed source" and an "undisclosed income" from an altogether unknown source has held that in the case of the former, the question of double taxation may legitimately be raised. It has been observed : "We concede that the question as to the source from which a particular income is derived is one which has to be decided on all the face, of the case. Hence the question whether income represented by an entry in the books of a business is income of that business or of another business would have to be decided on the facts which showed the business to which it belonged." This Indian decision although not placed before the Bench that decided the case in P L D 1964 'Dacca 433 supports the latter that the question in issue is a question of fact which requires determination on the facts of a particular case.

There is, therefore, no substance in the contention of Mr. Afzalul Huq.

The material question of law that appears to have been raised in the question under reference having already been considered and decided in an earlier decision of this Court, it is entirely unnecessary to ask the Tribunal to make a reference of the same question over again.

The Rule is accordingly discharged without any order as to costs.

.‑I agree.

S. Q. Rule discharged.

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