Law:

Section:

Section 3 of the Income-tax Act, 1961 [Corresponding to section 2(11) of the Indian Income-tax Act, 1922] - Previous year - Assessment year 1947-48 - Whether in respect of an amount of cash received during accounting year, burden of proof is upon assessee to show positively source and nature of receipt and in absence of an adequate explanation department is entitled to draw an inference that receipts are of an income nature and liable to be taxed - Held, yes - While completing assessment for relevant assessment year, ITO found that amount of cash credit found in books of assessee was income not from business carried on by assessee but from some other source for which no system of accounting was adopted - Whether in absence of any system of accounting being adopted by assessee and in absence of any option on his part, only course open to department was to take financial year ending on 31-3-1946 as previous year to tax aforesaid amount - Held, yes FACTS While completing the assessment for the relevant assessment year, the ITO noticed certain cash credits in the books of the assessee-HUF. The assessee gave an explanation with regard to the cash credits but his explanation was rejected by the ITO who treated that amount as secret profits of assessee from an undisclosed source. The AAC confirmed the order of the ITO. On second appeal, it was contended before the Tribunal that the amount in question could not be taxed in the assessment year 1947-48 as there could be no previous year for the undisclosed income except the financial year 1945-46. The argument was accepted by the Tribunal who expressed the view that the cash credits could not be included in the total income of the assessee for the assessment year 1947-48. On reference: HELD A well-established principle is that in respect of an amount of cash received during the accounting year the burden of proof is upon the assessee to show positively the source and nature of the receipt and in the absence of an adequate explanation the revenue authorities are entitled to draw the inference that the receipts are of an income nature and liable to be taxed. But there is no presumption in such a case that the cash receipt…

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