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Kalooram Tirasilal Versus Income-Tax Officer C-Ward Jabalpur

[1966] 59 ITR 308 - Miscellaneous Petition No. 62 of 1963 - Dated:- 9-8-1963 - P. V. Dixit (CJ) And K. L. Pandey, JJ. For the Petitioner : A. P. Sen For the Respondent : M. Adhikari (Advocate-General) and R. J. Bhave (Government Advocate) JUDGMENT P. V. Dixit, CJ. By this application under articles 226 and 227 of the Constitution, the petitioners seek a writ of certiorari for quashing an order made by the Income-tax Officer, C-Ward, Jabalpur, on 28th March, 1962, under section 35 of the Indian I .....

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e Income-tax Officer was not satisfied with this explanation. He took the view that having regard to the financial condition of the assessee, the accumulation or possession of so much gold as to yield ₹ 44,659 as sale proceeds was not possible. Having regard to the circumstances of the assessee, he came to the conclusion that the assessee had derived ₹ 40,000 as income from undisclosed sources. To this income, the Income-tax Officer added the income of the assessee from a registered .....

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as "income from undisclosed sources", reduced that income to ₹ 30,000. An appeal preferred by the petitioner against the decision of the Appellate Assistant Commissioner is still pending before the Income-tax Appellate Tribunal, Bombay. On 19th March, 1962, a notice under section 35 of the Act was issued to the petitioner saying that in the assessment for the year 1956-57 made on 20th February, 1961, there was a mistake apparent from the record in that the business loss of the ye .....

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in regard to the error of setting off the business loss of the year 1955-56 against income from the registered firm and house property. He, however, urged that the income of ₹ 30,000 from undisclosed sources was really business income and that he was entitled to have the loss of the previous year, namely, 1955-56, set off against this income. This contention was negatived by the Income-tax Officer who held that in the assessment proceedings for the year 1956-57 his predecessor-in-office tr .....

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istake and modified the assessment. Shri Sen, learned counsel appearing for the petitioner-assessee, argued that previously the Income-tax Officer had in fact treated the income of ₹ 40,000, reduced to ₹ 30,000, as income from business and had rightly set off under section 24(2) the business loss of the previous year against this income; that there was no error apparent from the record justifying rectification of the assessment under section 35; that the successor Income-tax Officer .....

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1959] 35 I.T.R. 416; [1959] Supp. 1. S.C.R. 415. It was said that the mistake which the Income-tax Officer rectified was not any mistake apparent from the record but was one which could at the most be discovered by investigation or a process of elucidation or argument, and that such a mistake could not be rectified under section 35 of the Act. Learned counsel referred us to Sidhramappa Andannappa Manvi v. Commissioner of Income-tax [1952] 21 I.T.R. 333 and K. Parameswaran Pillai v. Additional In .....

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x Officer, Porbandar [1959] 36 I.T.R. 350; [1959] Supp. 2 S.C.R. 547 and Income-tax Officer, Alwaye v. Asok Textiles Ltd. [1961] 41 I.T.R. 732; [1961] 3 S.C.R. 236, that the Income-tax Officer can under section 35 of the Act examine the record and if he discovers that he has made a mistake he can rectify the error and the error which can be corrected may be an error of fact or of law, and that the mistake contemplated by this section is not one which is to be discovered as a result of an argumen .....

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. As will be shown presently, the mistake which the Income-tax Officer rectified here did not constitute any change of opinion with regard to the source of the income of ₹ 30,000. The mistake lay in the omission to apply the clear and mandatory provisions of section 24(2) of the Act. The mistake was apparent from the record and did not require any debate or argument for being brought to the surface. Now, under section 24(2) of the Act the right to carry forward a loss is subject to certain .....

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or gains, if any, of any business, profession or vocation carried on by him in that year, provided that the business, profession or vocation in which the loss was originally sustained is continued to be carried on by the assessee in the year in which the carried forward loss is intended to be set off. It is, therefore, clear that the business loss of the year 1955-56 could be set off in the assessment for the year 1956-57 only against the profits and gains of any business if the business in whic .....

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plain from the assessment order itself which was passed on 20th February, 1962. In that order, he observed: "Taking into consideration all these facts, I give an allowance of ₹ 4,458 and make an addition of ₹ 40,000 as income from undisclosed sources." (Underlining Here printed in italics ours) Again, while giving the details of the income, the Income-tax Officer described ₹ 40,000 as income from undisclosed sources. No doubt, after adding ₹ 40,000 to the busin .....

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closed sources but from business. We do not agree. There is no inflexible rule that when an amount is credited in business account it must be taken as a receipt from business. The answer to the question whether the amount represented by the cash entry in the account books is income from an undisclosed source, that is to say, some profit arising out of some unknown activity of the assessee, or is an undisclosed profit of the business activity of the assessee depends on the evidence tendered befor .....

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ner of Income-tax [1958] 34 I.T.R. 669 the Income- tax Officer brought to tax the amount represented by certain cash credit entries in the account books of the assessee treating it as income from undisclosed sources in circumstances somewhat similar to those in the present case. It was held by a Division Bench of this court in that case that the Income-tax Officer could only act upon the evidence tendered before him and where the evidence tendered was worthless or no evidence was tendered, all t .....

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Commissioner of Income-tax [1959] 35 I.T.R. 416; [1959] Supp. 1. S.C.R. 415, relied on by the petitioner, does not lay down that when a credit entry is found in the business accounts of the assessee, then the amount represented by the entry must always be taken as a receipt from business. What has been held in that case is that if the credits are found in the business accounts of the assessee and the explanation as to how the amounts came to be received is rejected by the income-tax authorities .....

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n the business accounts of an assessee, then it must in all cases be treated as business income of the assessee. In that case, a credit entry was found in the business accounts of an assessee and the explanation offered by him as to how he came to receive the amount was rejected by the income-tax authorities. It was held that the income can be treated as business income if the assessee has no other source of income and taken into account as business income for the purposes of the excess profits .....

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come. That case is, therefore, distinguishable on facts. In our opinion, it is clear from the record that the income of ₹ 30,000 was never held by the income-tax authorities in the present case as undisclosed profits of any business of the petitioner. It was treated as income from an undisclosed source. That being so, in the face of the clear provisions of section 24(2)(ii) of the Act, the business loss of the previous year, namely, the year 1955-56, could not clearly be set off against th .....

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