1. The question that stands referred to us under section 66(2) of the Act is:
'Whether the Tribunal was justified in sustaining the addition of Rs. 54,527, Rs. 42,000 and Rs. 23,723, respectively in the assessment years 1951-52, 1952-53 and 1953-54?'
The assessee was a dealer in oilcake and cattlefood in Ceylon. His assessments for the three years in question were completed on 30-1-1954, 31-3-1954 and 31-5-1954. The accounts of the assesee were found to be defective, and applying the proviso to Section 13 of the Act, the Income tax Officer made additions of Rs. 50,000, Rs. 22,000 and Rs. 7,000 to the returned incomes. These additions were made by estimating the gross profit. The assessments were taken up in appeal. The assessments were taken up in appeal. The Appellate Assistant Commissioner did not accept the view that the proviso to Section 13 was attracted and remanded the case to the Income-tax Officer. Thereafter, the Income-tax Officer examined the books in greater detail. At this stage he found that there were numerous suspicious credits of the personal accounts over a period of years and several credits in the suspense account, with considerable amounts outstanding at the end of each year,. It was found that on certain dates these credits ranged between Rs. 70,000 and Rs. 1,00,000. The assessee explained these credits, stating that they represented moneys received in advance for the supply of goods. But this explanation failed to convince, for these amounts had been outstanding without adjustment for two and three years in most cases. The Income-tax Officer also pointed out that even the provisional assessments made by the Ceylon authorities were very much in excess of the returned income of the assessee. When the matter came before the Appellate Assistant Commissioner he declined to accept the plea of the assessee that the appeals should be kept pending till the Ceylon authorities finalised their assessments. At this stage, the Appellate Assistant Commissioner accepted the Income-tax Officer's view, that certain additions had to be made to the returned incomes, and ordered accordingly.
(2) In the further appeal to the Tribunal it was urged that there was no material which would support the theory that the credits found in the Papapulli accounts represented suppressed profits. It was also urged that the Ceylon assessments had been finalised and the figures adopted in these assessments could also be accepted for the Indian assessments. At this stage, once again, there was a remand to the Income-tax officer, directing that officer to examine the nature of the advances found in the Papapalli account & how those amounts were dealt with. The result of this further investigation was that there was no evidence that the advances entered in this account represented genuine trading transactions. The Tribunal accordingly held that the credits in this account were spurious and did not connote any genuine liability. The Tribunal made certain modifications in the additions ordered by the Appellate Assistant Commissioner and dismissed the appeals. It is in these circumstances that the question comes before us.
(3) Mr. Srinivasan, learned counsel for the assessee, urges that to accept the assessments made by the Ceylon authorities would be a reasonable policy to pursue when assessments are made by the Indian authorities on the same income. It was argued that the Ceylon authorities had examined the matter at first hand as it were, and being more closely aware of the incidents of the business as carried on by the assessee within their jurisdiction, they, in fact, reduced the income adopted in the provisional assessments when it came to the stage of finalisation of these assessments. Thought the Income-tax authorities in India are not bound to accept and act upon the assessments made by the Ceylon authorities, it would still be unreasonable to ignore them altogether. Nextly, it was argued that if these cash credits appearing in the first of the years are added as the income of the assessee, then, to the extent to which similar credits appear in the next year, it could be presumed that these amounts came out of the amounts so added in the first year and only such amounts as were in excess of the addition made in the first year could be regarded as fresh additions in the second year. Equally, it is argued that one item of credit found in one year is shown as having been closed that year, on the basis that this amount represented funds of the assessee, any fresh credit in the succeeding year could also be regarded as having come out of this closed entry. It is one these lines that the matter has been argued before us, and the question is whether this method of appreciation of the circumstances of the cases is available at this stage of reference.
(4) We are by no means satisfied that there is any inflexible principle that where the assessee's source of income is located in a foreign territory, the assessments made by the appropriate authorities of that territory should always be accepted as the basis for the Indian assessments. It would depend on the facts and circumstances of each case. If the foreign assessments are shown to have proceeded after scrutiny of the accounts of the assessee in the manner usually adopted by the Indian authorities, then the Indian authorities would not be unjustified in accepting those assessments as the basis for the Indian assessments. In the present case, it is not in dispute that what was more or less a formal addition of Rs. 5000 per year was made by the Ceylon authorities without very much in the way of scrutiny of accounts, and if the Income-tax Officer refused to be guided by that addition for the purpose of his own assessment, we are unable to say that he erred in doing so. This argument has accordingly to be rejected.
(5) The entries in the Palapulli accounts have been the subject matter of close scrutiny. At this stage, Mr. Srinivasan does not purport to support the genuineness of the alleged transactions covered by these entries. He does not plead, as he seems to have pleaded before the authorities below, that this amount represented advanced by prospective purchasers for the supply of oilcake and the like by the assessee. Large sums running into thousands appear as such advances and the stock explanation that they were given to the assessee for supply of oil cake for cattle belonging to the purchasers is certainly very feeble when it is seen that no supplies were made for years on end, and these amounts continued to be borne on the accounts of the assessee. At the final stage, the assessee produced certain letters from persons bearing the same names as those found in the entries, wherein those persons claimed that they had given these amounts as advances to the assessee for the purpose of supplying the goods. The letters themselves were produced before us and we are fully satisfied with the criticism of the Appellate Tribunal that these letters are stereotyped in character and hardly contain any material which is capable of verification. We are unable, therefore, to disagree with the ultimate finding of the Tribunal that these sums must be taken as representing moneys belonging to the assessee for the origin of which no acceptable explanation is forthcoming.
(6) These are questions of fact with regard to which the decision of the authorities below must be accepted as final and binding upon us in a reference of this kind.
(7) The only question that we need now examine is whether the fact that these credits have been added as the income of the assessee in the first year should be taken into account in making a similar addition in a second year. The argument of Mr. Srinivasan is that if, say a sum of Rs. 50,000 is included in the taxable income on the basis of unexplained credits, that sum of Rs. 50,000 should be deemed to be available to the assessee for the second year, and any further credits that appear in the second year should be taken to have come out of the sum of Rs. 50000 included in the first year. It true that in Kuppuswami Mudaliar v. Commissioner of Income-tax, : 51ITR757(Mad) this court observed that when once an addition had been made to the assessable income of the assessee, even though on an estimated basis, the amount so added must be treated as the real income of the assessee. In that case, a total addition of Rs. 52000 and odd was made for the years 1947-48 and 1948-49. Subsequently, it was found that the assessee had advanced a loan of Rs. 40000 in August 1948, and his wife and daughter had contributed a total sum of Rs. 25000 as capital to a firm in February 1950. The Income-tax Officer added these amounts as undisclosed income for the subsequent assessment years 1949-50 and 1950-51, and in doing so, he rejected the contention of the assessee that these amounts were drawn out of the sum of Rs. 52000 and odd, which the Officer had previously added to the income of the earlier assessment year. This court held that to the extent of Rs. 52000 added in the previous year, the assessee had a reasonable explanation for his transaction of the subsequent year. In another decision of this court Abdul Quadir v. Commissioner of Income-tax, : 52ITR364(Mad) , the contention of the Department that, in such circumstance, any amount, which is treated as undisclosed income of a subsequent year, could be added and brought to tax, disregarding any additions made in the earlier year, was not accepted, and it was observed:
'If a certain sum was dealt with as the income of one year of assessment and brought to tax as the undisclosed income of that year, if the assessee in the next year of account brought that amount into the accounts of the business, it would still continue to retain the character of the income of the previous year and would not become income of the subsequent year'.
In both of these cases, however, the surrounding circumstances of those cases were considered as establishing that the so-called undisclosed income of the subsequent year could reasonably be held to relate to such income of the earlier year which had been brought to tax. We are unable to say that these cases disclose any statement of principle totally divorced from the facts and circumstances of each immediate case.
(8) In the present case, the names of numerous third parties unconnected with the assessee occur in the accounts. The names either continue from year to year or change frequently, and the most important circumstance is that the assessee's own version that those are attempted trading transactions which remained unfulfilled has been rejected after scrutiny. The facts of this case at any rate differ from those of the two decisions we have referred to and these facts are such that the transactions of each year could be regarded as totally distinct and separate from the transactions of the earlier year. On the material, therefore, that was available to the Tribunal and the results of the extensive examination of the assessee's accounts and such further evidence as was placed before the authorities below, we are unable to hold that the Tribunal was not justified in ordering the additions.
(9) It follows that the question has to be answered in the affirmative and against the assessee. The department will be entitled to its costs. Counsel's fee Rs. 250.
(10). Reference answered in the affirmative.