Law: Income Tax Act, 1922

Section: 10(1)

Section 28(1) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business income - Chargeable as - Assessment year 1945-46 - Whether where a credit entry was found in business accounts of assessee, and explanation as to how that amount came to be received was rejected by income-tax authorities as well as Tribunal, finding that amount in question was business income from some undisclosed activities was not warranted - Held, yes FACTS The assessee was an unregistered firm. The account books of the assessee for the accounting year from 1-4-1994 to 31-1-1945 disclosed a credit entry in the month of September, 1944, in the name of one G for Rs. 1.32 lakhs. Against this entry was recorded a purchase of timber of the same value and it was alleged that it had purchased timber from the said G and payment had been made to him by instalments during a period of about two years. The ITO had recoded that G was a fictitious person and the transactions shown with him as recorded in the account books of the assessee were spurious. Accordingly, the assessee firm's purchase of timber represented by this entry was an undisclosed profit. He also recoded that the cash credits represented the assessee's undisclosed business income which had to be introduced into business at the time of necessity and was withdrawn subsequently when no more required. On appeal, the AAC endorsed the view of the ITO that the assessee had failed to prove the genuineness of this account and had also failed to prove that the amount came from its partners. The amount was introduced several months after the commencement of the business and in the circumstances the Tribunal inferred that this amount was produced by some undisclosed activities of the firm. The addition was, therefore, confirmed by the Tribunal. On reference : HELD Following the decision of the Supreme Court in the case of Lakhmi Chand Baijnath v. CIT [1959] 35 ITR 416 and in absence of any reason as to why the dictum in the said decision could not be accepted, it was to be held in the instant case that the finding that the amount of Rs. 1.32 lakhs was business income from some undisclosed…

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