C. S. P. Singh, J. - The Income-tax Appellate Tribunal, Allahabad Bench, Allahabad has in compliance with the order dated 13-9-1972 passed by this Court, referred the following question for our opinion :-
'Whether on the facts and circumstances of the case, the Tribunal is right in holding that the initial capital as on 1-1-1966 should be Rs. 66,858/- and not Rs. 46,645/-after adjusting the amount of Rs. 14,227/- being the liability of the appellant for the payment of coal ?'
2. The assessment year in question is 1966-67, for which the accounting period ended on 13-3-1966. The assessee who is assessed in the status of Hindu Undivided Family runs a brick kiln. It appears that regular books of account were not maintained till 31-12-1965. On 1-1-1966, the account book showed a capital of Rs. 60,858/63. The Income-tax Officer after a consideration of the returned income of the assessee for the period 1957-58 to 1965-66 and the income assessed, came to the conclusion that out of the amount of Rs. 51,945/- worked out by him as the capital investment in the business as on 1-1-1966, an amount of Rs. 15,000/- remained unexplained. He, accordingly took the amount of Rs. 15,000/- as income from other sources, and estimating the income from brick kiln at Rs. 17,000/-on an estimated sale of Rs. 85,000/- as against the returned sale of Rs. 79,856/- and assessed the income on a total figure of Rs. 33,200/-. Penalty notices under sections 274/271(1)(a) of the Income-tax Act, 1961 were also issued against the assessee for imposition of penalty. On appeal, the Appellate Assistant Commissioner confirmed the addition of Rs. 15,000/- income from undisclosed sources, but reduced the estimate of sales from Rs. 83,000/- to Rs. 85,000/- and instead of applying the rate of 20% on the net profit, as had been done by the Income-tax Officer, applied a rate of 18%.
3. The assessee thereupon preferred an appeal before the Tribunal. In appeal, it was contended that the assessed income of the assessee previous to the assessment in question amounted to Rs. 71,000/- spread over a period of nine years. During this period, the assessee had disclosed an income of Rs. 33,200/- as also an amount of Rs. 8,000/-for a period of nine months ending on 31-12-1965, and thus on 1st April 1966, the assessee had an available capital of Rs. 79,000/- i.e. estimated income for a period of nine year preceding the assessment year, plus an amount of Rs. 8,000/- being the income declared by the assessee. It was that the sum of Rs. 51,945/- as available capital worked out by the income-tax Officer could easily come from the aforesaid amount and as such the Income-tax Officer fell into an error in holding that the amount of Rs. 15,000/-remained unexplained and represented concealed income from undisclosed sources. It was further pointed out that the actual capital employed in the business of the assessee according to books of account was Rs. 60,868/63 minus a sum of Rs. 14,427/21 which appeared on the debit side of the capital account. It was as such contended that the capital calculations made by the Income-tax Officer were unsupportable, even if the figures in the assessees account books were taken as correct. The Tribunal held that inasmuch as the assessee had not been maintaining proper accounts the amount of cash available with the assessee for the purpose of investment as on 1-1-1966 had got to be calculated with reference to assessed income and not returned income. It this view of the matter, the Tribunal did not accept the assessees contention that the capital as shown in the account books i.e. Rs. 60,868/63 should be reduced by an amount of Rs. 14,427/21 shown as liability on the debit side. The Tribunal took the amount of Rs. 60,868/63 as shown in the account books of the assessee as capital available on 1-1-1966. Thereafter, the Tribunal went into the question as to whether this amount of Rs. 60,868/63 could have been accumulated by the assessee out of the savings in the past years. Counsel for the assessee made a statement that the assessees expenses during the past years amounted to about Rs. 20,000/- i.e. Rs. 3,000/- every year. After deducting this amount from the estimated income of the assessee during the past assessment years, the Tribunal came to the conclusion that the assessee could not have saved more than 45,000/- from his earnings. In view of this findings the addition of Rs. 15,000/- made by the Income tax Officer as income from undisclosed source was upheld.
4. Counsel contended that the Tribunal was in error in taking the capital of the firm at Rs. 60,858/- as shown in the books of the assessee. Inasmuch, as according to counsel, as amount of Rs. 14,227/- had to be deducted from the aforesaid capital account, as it represented liability for price of coal due and payable. Our attention has been drawn to the capital account of the firm annexure B which forms part of the record. The amount of Rs. 60,863/-shown as capital is made up of the following items :-
Due from creditors.
On the debit side, the following are shown :-
As due on 1-1-1966 Lahna and Coal.
5. Inasmuch as the capital account does not consist of cash alone, but is made up by adding the value of coal and brick, the balance liability of price for coal was an item which should have been taken into account, before the final picture as to the capital invested in the firm could be found out. The Tribunal has not relied upon principle of accountancy or any provision of law, neither has our attention been drawn by the counsel for revenue to any such principle as would bar as assessee from deducting liabilities due on stocks, which are treated as capital. Inasmuch as the capital account, as has been noticed earlier, is based on the valuation of the coal stocks, no valuation would be correct without taking into account the amount payable for those stocks.
6. We, accordingly, answer the question in the negative, against the Department and in favour of the assessee. The assessee is entitled to its costs which we assess at Rs. 200/-. Counsels is assessed at the same figure.