Law:

Section:

Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of the Indian Income tax Act, 1922] - Method of accounting - System of accounting - Assessment year 1946-47 - Whether where there is an unexplained cash credit it is open to ITO to hold that it is income of assessee and no further burden lies on ITO to show that income is from any particular source - Held, yes FACTS The assessee-firm was dealing in handloom cloth and silk fabrics and had its head office at Banaras and a branch office at Madura. In proceedings for assessment for the assessment year 1946-47 the ITO declined to rely upon the books of account of the assessee, and estimated the business profits of the assessee by applying a flat rate of 12½ per cent to the turnover of the business. The ITO also found in the books of account an entry dated 15-1-1945, of a deposit of Rs. 20,000 in the name firm 'B'. The ITO called upon the assessee to prove the nature and source of this deposit and, after considering the evidence produced by the assessee rejected the plea of the assessee that the amount was deposited by firm 'B'. In the view of the ITO the amount of Rs. 20,000 represented the assessee's income from some undisclosed source. The order relating to the addition of Rs. 20,000, in addition to the estimated income, was challenged before the AAC and before the Tribunal, but without success. The Tribunal was of the view that the evidence of 'B' of the firm that he had Rs. 20,000 which he received from his jajman was unreliable, and that the ITO was right in estimating the turnover from sales and in applying a rate for determination of the profit. HELD There is nothing in law which prevents the ITO in an appropriate case in taxing both the cash credit, the source and nature of which is not satisfactorily explained, and the business income estimated by him under section 13 after rejecting the books of account of the assessee as unreliable. This was so decided in Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC). Whether in a given case the ITO may tax the cash credit entered in the books of account of the business, and at the same time estimate the profit must however, depend upon the facts…

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