TMI Blog1974 (7) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the relevant previous year ends on March 31, 1956. The assessee is a private limited company incorporated in Miraj State in 1944 with a capital of Rs. 11 lakhs. It carried on business in the manufacture and sale of textile goods. There was no income-tax in Miraj at that time. The company obtained concessions by way of exemptions from income-tax and other taxes under a notification dated October 28, 1945. The company maintained accounts, but there were deposits and investments which did not appear in the said books. The deposits outside the books made in the year 1946 were as follows: --------------------------------------------------------------------------------------------------------------------------------------------------- Sl. No. Date of Name of bank Amounts deposit Rs. --------------------------------------------------------------------------------------------------------------------------------------------------- 1 26- 3-1946 New Citizens Bank of India Ltd. (Sangli 2,00,000 branch) 2 12- 7-1946 " " 1,00,000 3 7-11-1946 " " 3,00,000 4 28-11-1946 Bank f India Ltd. (in the account of 3,00,000 Sangli Bank Ltd.) --------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in the books of account aggregated to Rs. 9 lakhs. These proceedings initiated in March 1955, were completed on February 24, 1956. The Income-tax Officer took the view that the company made huge profits but kept them outside the books. The amounts taxed in the said assessments were Rs. 12,23,988 and Rs. 13,40,500, respectively. The sum of Rs. 13,40,500 included a sum of Rs. 2 lakhs which was part of the deposit under item at serial No. 3 in the table above referred to. This sum of Rs. 2 lakhs was credited to the reserve fund account of the assessee-company on March 29, 1956, after a resolution to the same effect was passed by the board of directors of the assessee-company. The assessment orders passed under section 34 in reassessment proceedings initiated in March, 1955, were set aside in appeals by the Appellate Assistant Commissioner by his order dated February 13, 1961, as he was of the view that the said orders were made without jurisdiction. As the sum of Rs. 2 lakhs above referred to was credited in the books of account to the reserve fund account on March 29, 1956, for the assessment year 1956-57, the Income-tax Officer took the view that this sum represented th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deposits under serial Nos. 1, 2 and 4 in the table above referred to, there were no other amounts lying as deposit in respect of which no entries were made in the books of account of the company. The Appellate Assistant Commissioner also declined to accept the explanation urged on behalf of the assessee-company that the sum of Rs. 2 lakhs formed part of the deposit of Rs. 3 lakhs under item No. 3 in the table above referred to. He took the view that it was inconceivable that the assessee-company would keep such a large amount without being invested for a period of over eight years because the deposit receipt was encashed on maturity on March 22, 1948. As these explanations were not accepted, he took the view that the proceeds of the deposit of Rs. 3 lakhs under item No. 3 were either spent or absorbed by the company and they were not in existence after June, 1952, when all suppressed profits were brought into the books. He, accordingly, took the view that this item of Rs. 2 lakhs which was credited in the books on March 29, 1956, represented the income from undisclosed sources during the accounting year. The Appellate Assistant Commissioner found the explanation offered on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances in a particular case to act upon the supposition that it exists. Upon the broad probabilities of the case the Tribunal accepted the explanation urged on behalf of the assessee that the sum of Rs. 2 lakhs which was brought into the account under date March 29, 1956, formed part of the deposit of Rs. 3 lakhs under date November 7, 1946, referred to at serial No. 3 in the above table. This finding is based on factual appreciation of circumstances and it is, therefore, not possible to take the view that there is no evidence to support it or it is inconsistent with the facts on record. As the Tribunal in its order has, inter alia, observed that during the relevant year there was no rule of presumption, Mr. Hajarnavis has invited our attention to three decisions of the Supreme Court in which a view has been taken that if an explanation offered by the assessee has been found to be unsatisfactory and not acceptable to the taxing authorities, then the inference could be drawn that the amount represents income from undisclosed sources. The first decision to which our attention was invited is that in the case of A. Govindarajulu Mudaliar v. Commissioner of Income-tax . In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board of directors on March 29, 1956. That explanation has been considered by the Tribunal as probable looking to the facts and circumstances of the case. Looking to the probability it also took into account the fact that the earlier deposit of Rs. 6 lakhs was encashed in the year 1948, but was brought into account only in the year 1952. So also it considered the explanation in respect of Rs. 2 lakhs as probable looking to the circumstances of the case. It is undoubtedly true that the Tribunal in its order, inter alia, observed as under: The conditions of the year 1956 have not been shown to be such as to lead us to infer the possibility of such a large amount being earned outside the normal course of business." Question No. 2 above referred to is pertaining to these observations and it is founded on the fact that this was an independent finding on the basis of which the explanation was accepted and for which purpose the burden was erroneously thrown on the revenue. In our opinion, if the order of the Tribunal is read as a whole, the observations are merely passing observations as referring to one of the surrounding circumstances and not for the purpose of throwing the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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