B.P. Beri, J.
1 These two applications under Section 256(2) of the Income Tax Act, 1901 at the instance of the Additional Commissioner of Income-Tax, Rajasthan, Jaipur relate to the same assessee and raise an identical question and can be disposed of by one order.
D.B. Civil Income-Tax Case No. 83 of 1971:
2. M/s Usmanbhai Islambhai, Tonk, is a registered partnership firm which derives income from the manufacture and sale of 'Beedies'. For the assessment year 1965-66 the assessee returned an income of Rs. 12,345/-, At the time of the scrutiny of the accounts the Income Tax Officer noticed cash credit entries in the name of five persons totalling Rs. 21,300/-. Further, another cash credit entry in the sum of Rs. 4,000/- in the name of Abdul Karim was also noticed although the account had stood squared up. The assessee was asked to explain these entries and it produced confirmatory letters purporting to be signed by the five creditors in the sum of Rs. 21,300/-. The Income Tax Officer ordered the production of the five persons for verification but the assessee neglected to do so. The plea of the asseseee that the aforesaid amount of Rs. 21,300/- represented the additional made to the assessee's income in the earlier years was rejected by the Income Tax Officer He rejected the plea on the ground that the assessee was unable to show whether the amount was lying in liquid cash or invested by the assessee somewhore and in view of the meagre withdrawals by the partners from the funds of the firm the amount of the secreted profits was probably spent by the partners and he accordingly added Rs. 25,300/- as income from an undisclosed source On appeal, the Appellate Commissioner after examining the accounts of the assessee of earlier years came to the conclusion that this amount represented the additional made to the income in the earlier years by the Department as secret profits. The Income Tax Officer went up in appeal to the Tribunal but without success. An application was moved before the Tribunal for making a reference to this Court under Section 256(1) of the Income Tax Act, 1961 to state and refer the question of Jaw. The Tribunal declined on the ground that no question of law arose. The Department now asks us to direct the Tribunal to refer the following question:
Whether on the facts and in the circumstances of the case the Tribunal was right in holding that income from the undisclosed sources for the assessment year in question could be adjusted against undisclosed income from a disclosed source of earlier years?
D.B. Civil Income Tax Reference No.86 of 1972:
3. For the assessment year 1966 67 the aforesaid assessee returned as income of Rs. 17,387/-. While examining the account the Income Tax Officer noticed certain cash credit entries in the name of four persons totalling Rs. 10,200/-. When the assessee was asked to explain, the assessee neither filed any letters by way of confirmation signed by the four creditors in whose favour the entries stood nor did he produce the persons despite several opportunities afforded for the purpose. The assessee, however, later admitted that the sum of RS. 10,200/- represented its own secreted business income. The Income Tax Officer, however, added this amount as the assessee's income from an undisclosed source rejecting the assessee's theory that this sum represented the additions made by the Income Tax Officer in regard to its income in the earlier years on the ground that the assessee produced no evidence to show whether the amount was lying with it in a liquid cash or invested by it and if so, where. Moreover, the withdrawals by the partners during the earlier years, added the the Income Tax Officer, ware so meagre that they suggested that the secret profits of the earlier years were expended by the partners. On appeal by the assessee the Appellate Assistant Commissioner, B-Range, Jaipur by his order dated 22nd February 1969 deleted the addition of Rs. 10,200/- on the ground that the sum represented the secreted profits already taxed in the earlier years. An appeal was taken by the Income Tax Officer to the Trubunal. The Jaipur Bench of the Tribunal affirmed order of the Appellate Assistant Commissioner & dismissed the Department's appeal by its order dated 24th August, 1971 holding that the fictitious cash credits represented the secret profits of earlier years and the explanation offered by the assessee was satisfactory in the light of the detailed analysis of the accounts made by the Additional Assistant Commissioner by examining relevant entries. The Additional Commissioner of Income Tax, Rajanthan made an application before the Tribunal under Section 256(1) of the Income Tax Act, 1951, requiring it to draw up a statement of the case and refer the question of law mentioned in D.B. Civil Income Tax Reference No. 86 of 1972 to this Court. The Trubunal dismissed the application on the aground that no question of law arose. The Department has now come to this Court and prays for directing the Tribunal to refer the question indicated in Reference No. 86 of 1972.
4. Mr. S.C. Bhandari, learned Counsel for the Revenue, urged that a reading of the order of the Income Tax Tribunal, Bench Jaipur, goes to show that it never reached a firm finding that the explanation offered by the assessee was acceptable and the question still survives whether in the circumstances of the case the Tribunal was right in holding that the income from undisclosed sources for the assessment years in question could be adjusted against undisclosed income from the earlier disclosed source.
5. Mr. Kasliwal, learned Counsel for the assessee, contended whether the amounts of money in the two accounting years represented profits from the business secreted by the assessee in the earlier years as found by the Assistant Appellate Commissioner and affirmed by the Tribunal or they were received from some undisclosed source is essentially a question of fact and not of law. He further submitted that the Department had already penalised the assessee for admitted concealment by him and he has filed a certified copy of the Tribunal in this behalf.
6. It is not disputed by both the learned Counsel that the relevant provision which would govern this case is Section 68 of the Income-tax Act, 1961. It reads:
68. Cash credits: Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory the sum so credited may be charged to Income-tax as the in come or the assessee of that previous year.
7. The Indian Income-tax Act, 1922 contained no corresponding provision. In fact, it seems to be the recognition of a principle which was enunciated in some decided cases. Reference in this connection might be made to Commissioner of Income-tax, U.P. v. Bharat Engineering and Construction Co. : 83ITR187(SC) , where the Supreme Court held that the assessee an Engineering Construction company, commenced its business in May, 1943 and in its accounts there were several cash credit entries in the first year of its business totalling Rs. 2, 50,000/-. The explanation offered was found to be false but the Appellate Tribunal found that these cash credit entries could not represent the income of the assessee as they were made so soon after the company commenced its activities and in the course of the judgment it was observed:
It is true that in the absence of satisfactory explanation from the assessee the Income-tax Officer may assume that cash credit entries in it books represent income from undisclosed sources. But what inference should be drawn from the facts proved is a question of fact and the Tribunals finding on that question is final.
The principle in the first sentence quoted above seems to now find a statutory recognition and the second sentence seals the fate of these references because if the explanation offered under Section 68 is accepted then the sum credited in the books of an assessee maintained in the previous year cannot be charged to income-tax as the income of the asseseee of that previous year and the Tribunal's finding is final.
8. In Commissioner of Income-tax, Madras v. Nelliappan : 66ITR722(SC) the Supreme Court while dealing with the case, which was governed by the Indian Income-tax Act, 1922 held that the inference of the Tribunal that there was a connection between the profits withheld by the assessee from his account books and the cash credit entries found therein and the conclusion that since additions were made to the book profits in excess of the amount of the cash credits the addition of the cash credits becomes redundant are findings of facts and no question of law can arise there from. In the D.B. Civil Income-tax case No. 86 of 1972, the Tribunal's observations with which fault is being found by the learned Counsel for the Revenue read as follows
After a consideration of all these factors he has come to the finding that there would still be enough funds remaining out of the intangible additions to adequately cover the cash credits which have appeared in the books of account of the assessee. We have carefully gone through the figures worked out by the Appellate Assistant Commissioner and we agree with him that the assessee has put forward a case which could not be rejected as incredible or unlikely. (Emphasis is ours.)
Exactly same is the language employed in D, B. Civil Income-tax case No. 83 of 1971. Mr. Bhandari argued that this is not a firm finding of fact. We are unable to agree. Under Section 68 the explanation offered by the assessee has been accepted by the Appellate Assistant Commissioner of Income-tax and the Tribunal has accepted it to be credible and to this no exception could be taken. In other words, the Tribunal has also affirmed the acceptance of the explanation offered by the assessee. The learned Counsel relied on Commissioner of Income-tax, U.P. v. Devi Prasad Vishwanath Prasad : 72ITR194(SC) to show that where there is an un-explained credit it is open to the Income-tax-Officer to hold that it is the income of the assessee and no further burden lies on the Income-tax Officer to show that that income is from any particular source. It is for the assessee to prove that even if the cash credit represents income it is income from a source which has already been taxed. We are bound by these observations of the Supreme Court case that the burden lies on the assessee to show that the cash credit entries found in the books of his account, then it is for the assessee to offer an explanation but it is equally clear that it is for the Income Tax Officer and later for the Appellate Assistant Commissioner and the Tribunal to accept or reject the explanation. The Appellate Assistant Commistiones in the cases before us accepted the explanation and the Tribunal found no fault with it.
9. As we have observed earlier whether the explanation was satisfactory or not is a question of fact. The books of account of the assessee in the case before us were analysed closely by the Appellate Assistant Commissioner and he reached a conclusion indicated above. It cannot be slid to be a case of no evidence and the explanation had been accepted as satisfactory. In the cases before us conclusions were drawn on an analysis of the accounts and such a finding is a question of fact and not of law. In our opinion, therefore, no question of law arises in the circumstances of the cases and the applications under Section 256(2) of the Income-tax Act, 1961 are rejected. There will be no order as to costs.