Commissioner of Income Tax vs K. Arunachala Mudaliar

Sethuraman, J.—This reference has been made at the instance of the Commissioner of Income Tax on the following facts. The assessee

owns a rice mill. He purchases paddy, hulls them and sells the rice. He hulls paddy for hire also. In the relevant previous year which ended on 13th

April, 1960, he showed in his books Rs. 1,25,736 as sales. The Income Tax Officer had information from the commercial tax authorities that

certain transactions in rice with N. V. Vadivel Mudaliar & Co., Kancheepuram, had been totally left out of the assessee''s books. The total of the

transactions with the said firm amounted to Rs. 1,38,811. In the corresponding sales tax assessment, the sales tax authorities enhanced the

turnover to this extent and the addition was confirmed by the Sales Tax Appellate Tribunal. The transactions as reflected in the books of N. V.

Vadivel Mudaliar thus represent sales of goods to them. The Income Tax Officer in making the assessment now under consideration added 10%

as the profit which arises on the transactions with the said N. V. Vadivel Mudaliar & Co. In making the assessment, he observed as follows :

I am to hold that the assessee must have either suppressed the milling receipts or the undisclosed sale of rice must have been effected only after

conversion in his mill from out of the unaccounted purchase of paddy. In the circumstances, a further addition of Rs. 13,881 will be made to the

admitted income.

In addition to the above, the Income Tax Officer asked the assessee to ledgerise the transactions with N. V. Vadivel Mudaliar & Co. and he

found that there was a deficit balance in the said account. The peak of the deficit was Rs. 17,840 on 27th May, 1959. The assessee had no

explanation to offer with reference to this position and he, therefore, added the sum of Rs. 17,840 as income from undisclosed sources.

The assessee appealed to the Appellate Assistant Commissioner who deleted the addition relying on the decision of this court in S.

Kuppuswami Mudaliar Vs. Commissioner of Income Tax, Madras, The department appealed to the Tribunal which also, following the decision in

Kuppuswami Mudaliar v. Commissioner of Income Tax, confirmed the order of the Appellate Assistant Commissioner.

On the above facts the following question has been referred :

Whether the Appellate Tribunal''s decision that the cash credit of Rs. 17,840 appearing in the assessee''s accounts on May 27, 1959, had come

out of the intangible additions made in the assessee''s own assessments of the preceding years is legally sustainable, being founded on a reasonable

view of the facts and circumstances of the case ?

The question as framed above proceeds on an assumption that there are cash credits to the tune of Rs. 17,840 in the assessee''s account on

27th May, 1959. In fact, from the narration of facts given above, it would be seen that there are no cash credits in the assessee''s books and that

the sum of Rs. 17,840 is only an unexplained transaction in the entries as made in the books of N. V. Vadivel Mudaliar & Co. It is necessary to

bear this aspect in mind in disposing of the question referred to us.

Learned counsel for the revenue submitted before us that the Appellate Assistant Commissioner and the Tribunal have erroneously applied the

principle of the decision in Kuppuswami Mudaliar v. Commissioner of Income Tax. He pointed out that there are no cash credits here to warrant

the application of the said decision. We have considered the findings given by the Income Tax authorities and the Tribunal regarding the sura, of

Rs. 17,840. From the extract given earlier from the assessment order itself, it would be clear that the sum of Rs. 1,38,811 represents sales

transactions between the assessee and N. V. Vadivel Mudaliar & Co. The sum of Rs. 17,840 forms part of the said sum of Rs. 1,38,811.

As far as the profit on the sum of Rs. 1,38,811 is concerned it has already been taxed. There is no further sum of Rs. 17,840 available for

taxation as it is clearly part of sale proceeds receivable from N. V. Vadivel Mudaliar & Co. As the profit on the transaction with N. V. Vadivel

Mudaliar & Co. had been taxed and as Rs. 17,840 is not cash credit by itself, we consider that there is no addition of Rs. 17,840 possible at all.

The question as to whether this addition, if it could be made, can be defended by the assessee by relying on the decision in Kuppuswami Mudaliar

v. Commissioner of Income Tax does not arise for consideration as the addition could not at all have been made in the case. We, therefore,

answer the question in favour of the assessee and against the revenue. The assessee will have his costs. Counsel''s fee Rs. 250.