Facts
The assessee is a trader carrying on two businesses, namely, manihari (general merchandise) and bidis. He had also certain income from property which is was not relevant in these appeals. For each of the assessment years concerned, the assessee had submitted a return but as his accounts were not found complete and reliable, the Income-tax Officer had assessed the gross profits of the businesses on the basis of certain percentages of the total sales which had also to be fixed by estimates. No question arose in these appeals as to the correctness of these assessments.
Subsequently, while dealing with the assessment for the year 1948-49, the Income- tax Officer noticed various credit entries in the assessee’s books of account which had all escaped his attention at the time of the assessment for the years 1945-46 and 1947-48 earlier mentioned. The ITO thereupon, with the sanction of the Commissioner re-opened the assessments for these years.
Issue
Whether the burden of proving the source of the cash credits was on the assessee? And the fact that the ITO assessed the income on a percentage basis, was he justified in treating the said sums as profits from an undisclosed source?
View
It appears from the judgment of the High Court that the reason given in support of the suggestion was that if that income was held to be income of an undisclosed source, the result would be double taxation of the same income which the Income-tax Act does not contemplate. The contention was that there would be double taxation because it was assumed that the same income had once been earlier taxed on the basis of an estimate. This reason is obviously fallacious, for if the income is treated as one from an undisclosed source which the question postulates, it is not treated as income of the disclosed source which had previously been assessed to tax and, therefore, there is in such a case no double taxation. It is not a case where the income sought to be taxed was held
to be undisclosed income of a disclosed source, the income of which source had previously been taxed on the basis of an estimate. If it were so, the question of double taxation might have been legitimately raised. That, however, is clearly not the case here as the question as framed itself shows.
Held
It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him.If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Income-tax Officer is entitled to treat it as taxable income. Further, taxing authorities were not precluded from treating the amounts of the credit entries as income from undisclosed sources simply because the entries appear in the books of a business whose income, they had previously computed on a percentage basis. (AY. 1945-46, 1947-48) (CA No. 151 & 152 of 1961
- 8-2-1963.)
Editorial: In Janki Ram Bahadur Ram v. CIT (1965) 57 ITR 21 (SC), the Court held that it is for the revenue to establish that the profit earned in transaction is taxable as income.
In CIT v. Bikaner Trading Co. Ltd. (1970) 78 ITR 12 (SC), the onus is on the department to prove that the amount is taxable as income in the relevant accounting period.
In Kalwa Devadattam v. UOI (1963) 49 ITR 165 (SC), liability to tax arises on accrual of income and not on the basis of computation by the tax authorities.
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