- (1.) In this reference under , the only question involved is whether the sum of Rs. 1,31,957 which was found by the Appellate Tribunal to be an income of the firm could be computed as the business income for the purpose of the Excess Profits Tax Act. The question is as follows: "The finding of the Tribunal in the income-tax appeal clearly being that the sum of Rs. 1,31,957 was income from some undisclosed source, could such income be considered for taxation under the Excess Profits Tax Act and could the relief consequential to the finding in the income-tax appeal be refused - The assessee is an unregistered firm. The assessment year in question is 1945-46 and the corresponding accounting year is from April 1, 1944, to January 31, 1945. The account books of the assessee disclosed a credit entry in the month of September, 1944, in the name of one Iswari Prosad Gupta for the amount mentioned. Against this entry was recorded a purchase of timber of the same value and it was alleged by the assessee that it had purchased timber from the said Iswari Prosad Gupta and payment had been made to him by instalments during a period of about two years. The Income-tax Officer and the Appellate Assistant Commissioner held that the assessee had failed to prove the genuineness of this account and had also failed to prove that this amount came from the partners. According to the statement of the case 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.
(2.) Two appeals were preferred to the Appellate Tribunal, one in respect of income-tax and the other in respect of the excess profits tax. No separate argument was advanced in respect of the excess profits tax appeal and the assessee prayed for relief consequential to the result of the income-tax appeal.
(3.) The Appellate Tribunal went into the question as to how this amount of Rs. 1,31,957 should be treated. It observed that if the amount had come from the partners it was for them to explain the source of the same. It negatived the assessee's contention that the item could not be one of cash credit as no money came to the firm and as there was no attempt by the firm or its partners to explain the source from which the amount was received. The finding of the Appellate Tribunal on this portion of the case is as follows: "Initially the assessee posted the amount in a fictitious account and only when it was confronted with the actual circumstances of the case that it came out with this disclosure that there was no person in the name of Iswari Prosad Gupta who was a creditor to the firm but that the amount was introduced as capital. Having failed to prove the genuineness of the account, the assessee cannot now be allowed to raise a question that the amount came only from one of the partners. The amount was introduced several months after the commencement of the business and we can infer from the circumstances that this amount was produced by some undisclosed activities of the firm and as such it must be brought to tax as an undisclosed income of the firm... We find no reason to interfere with the decision of the department in bringing this amount to tax holding at the same time that the amount was an income from some undisclosed source.";