T.P. Mukerjee, J. - (1.) MY learned brothers Jagdish Sahai and Beg JJ. have, after a good deal of controversy, agreed upon the following question to be referred to a third judge for opinion in this case: "Whether, on the facts and circumstances of the case, the cash deposit of Rs. 6,531 can be said to come out and covered by the addition of Rs. 18,000 to the business profits of the assessee ?"
(2.) THE facts giving rise to this reference have been fully stated in the dissenting orders of my learned brothers, but I would recount the same very briefly here. THE assessee in this case is a dealer in medicines and in its return for the assessment year 1960-61 it declared a total sale of Rs. 3,86,329 with a gross profit thereon of Rs. 21,149. THE Income-tax Officer did not accept the gross profit as disclosed by the assessee and made an addition thereto amounting to Rs. 22,634. THEre was, in the business books of the assessee, a cash deposit of Rs. 6,531 in the name of his son, Krishna Mohan. THE Income-tax Officer rejected the explanation of the assessee that the amount represented the aggregate of gifts received by his son, Krishna Mohan, at the time of his tilak ceremony and he added the sum of Rs. 6,531 to the total income of the assessee as his "income from an undisclosed source". It may be stated here that there was another item of deposit amounting to Rs. 7,329 which also was treated by the Income-tax Officer as the assessee's income from an undisclosed source. I am not required to give any opinion in point as both Sahai and Deg. JJ. have agreed that the amount should be excluded from the assessment. The addition of Rs. 6,531 made by the Income-tax Officer wus maintained by the Appellate Assistant Commissioner along with the addition of Rs. 22,634 in the trading account. The assessee then came to the Appellate Tribunal in second appeal contending, inter alia, that the additions made by the Income-tax Officer, and confirmed by the Appellate Assistant Commissioner, as aforesaid, were unwarranted arid should be deleted. The Tribunal, after a consideration of the various aspects of the case, reduced the addition in the trading account from Rs. 22,634 to Rs. 18,000. As regards the cash deposit of Rs. 6,531 credited in the name of Krishna Mohan, the Tribunal agreed with the Income-tax Officer that the explanation of the assessee that the amount represented money received by the latter at his tilak ceremony had not been substantiated. The Tribunal, however, accepted the submissions of the assessee's counsel that inasmuch as the profit disclosed in the books of the assessee had been rejected and it was assessed by estimate, no separate addition should be made in respect of this cash credit of Rs. 6,531. The Tribunal held that the cash credit of Rs, 6,531 which the assessee had failed to explain, was covered by the addition of Rs. 18,000 maintained in the trading account. The Tribunal, accordingly, excluded the sum of Rs 6,531 from the assessee's total income for the year. The order of the Tribunal in point which has been differently interpreted by my two brother judges is as follows : "In respect of the cash credit of Rs. 6,531, the assessee has not been able to show that his son was given a sum of Rs. 6,531 at his tilak ceremony. Whatever amount had been given, we have no reasons to take that it remained unexpended. The Income-tax Officer has discussed the reasons and we entirely agree with him. However, the submissions of the learned advocate are that since we are estimating the profits after rejecting the books of the assessee, no addition should be made in respect of this cash credit of Rs. 6,531. We think there is sufficient force in this (underlined by me). As remarked by their Lordships of the Andhra Pradesh High Court, entries with regard to cash credits are made with a view to balance accounts and when they are rejected, it does not justify the department treating them as the income of the assessee from other sources. We have sustained an addition of Rs. 18,000, and the unexplained amount thus stands covered by it. Such being the case, we do not think any separate addition is called for."
(3.) SAHAI J. took the view that, although the Tribunal found that the assessee's version with regard to this amount of Rs. 6,531 was not correct, the Tribunal was constrained to exclude the amount in view of the decision of the Andhra Pradesh High Court in the case of Maddi Sudarsanam Oil Mills Co. v. Commissioner of Income-tax, [1959] 37 I.T.R. 369, 371 (A.P.). The relevant observations in that case which were quoted by SAHAI J. are as follows: "The assessee had recourse to the several entries of cash credits only for the purposes of balancing the accounts with a view to reducing the rate of gross profits. If once the income-tax authorities have rejected the books, they cannot have it both ways, namely, adopting a fiat rate to compute gross profit as well as rely on the books for the purposes of adding unexplained cash credits which were part of the scheme of balancing the accounts." Sahai J. then observed : "From the statement of the case, therefore, it is clear that the deduction of Rs. 6,531 from the assessable income of the assessee was made on the basis of the Andhra Pradesh High Court decision and not on a finding of fact that the amount represented the business profits of the assessee." ;