Additions were made to my book profits in earlier years. Can I use that money to explain a cash credit or an unexplained payment in a later year?
You can put the argument, and the Supreme Court says it is a real argument, but it does not win by itself. The Court held that when an intangible addition is made to book profits in an assessment, the amount added is the undisclosed income of the assessee, is as much a part of his real income as the profits shown in his books, has the same concrete existence, and could be available to him just as the book profits could. Secret profits of an earlier year may therefore constitute a fund, concealed but real, from which he may later draw to meet expenditure or to introduce amounts into his books. The Court then put the limit on it in the same paragraph: it is quite another thing to say that any part of that fund must necessarily be regarded as the source of a later unexplained expenditure or cash credit, and the mere availability of such a fund cannot in all cases imply that no further secret profits were earned in the later year. All the facts and circumstances have to be looked at.
Decided by the Supreme Court (Supreme Court of India - R.S. Pathak, N.L. Untwalia and E.S. Venkataramiah JJ) on 1980-04-15, reported as [1980] 123 ITR 457 (SC); AIR 1980 SC 1146. It bears on section 271(1)(c), section 68, section 69, section 260(1), section 102 (Act of 2025) of the Income Tax Act 1961, in Cash Credits & Unexplained Money, Penalty and Evidence & Burden of Proof matters.
Telescoping is the argument every practitioner reaches for when an addition is made in one year and the money can be traced to an addition already taxed in another, and this is the judgment that makes it respectable. Before it, the department's answer was that an intangible addition is a notional figure and cannot fund anything. The Court closed that off: the addition represents money the assessee actually earned, it has the same concrete existence as book profits, and it could be available to him. That is the whole basis on which a later credit is said to be already taxed. The same paragraph is also the department's best answer, and this is where the case becomes a trap for the side citing it. The Court would not say that the fund must be treated as the source of the later credit, and it would not accept that the existence of a fund implies that nothing further was concealed in the later year. A telescoping claim therefore has to be proved on facts - the amount, the year, what became of the money in between - and an assessee who simply points at an old addition is making the same mistake the Tribunal made here. Read it with Lakhmichand Baijnath, which supplies the step underneath: the reason an intangible addition can fund a later business credit at all is that it is a receipt of the business.
Binding on every court and authority in India.
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The assessee was an abkari contractor. For the assessment year 1959-60 it returned a turnover of Rs 10,92,132 and an income of Rs 7,704. On going through the books the Income-tax Officer found that on two dates, 12 December 1957 and 16 January 1958, the expenditure exceeded the cash disclosed as available - shortfalls of Rs 17,726 and Rs 65,066 - and he also found deposits totalling Rs 28,200 standing in the names of certain sendhi shopkeepers. The explanations offered, that the deposits were security taken from shopkeepers and that the cash shortfalls arose from the timing of entries, were rejected, the books were rejected, and the income was estimated at Rs 5,00,018. The Appellate Tribunal cut the addition down to Rs 1,30,000 over and above the book profits. Penalty proceedings followed and the Inspecting Assistant Commissioner imposed a penalty of Rs 75,000 under section 271(1)(c). The Tribunal cancelled the penalty, holding that there was no positive material to establish that the cash deposits represented concealed income and relying on an intangible addition made to the assessee's book profits two years earlier as a fund still available to it. On a reference, the question was whether the Tribunal was justified in holding that no penalty was leviable. The High Court answered that question in the negative, and in doing so recorded findings of its own on the facts. The assessee came to the Supreme Court in Civil Appeal No. 2592 of 1972.
The appeal was disposed of with no order as to costs. The Court endorsed the High Court's opinion that the question referred had to be answered in the negative, because the Tribunal's finding that no penalty was leviable rested on an erroneous legal basis: the Tribunal had confined itself to the fact that an intangible addition had been made to the book profits two years earlier and that part of that amount remained available, when what was required was a consideration of all the relevant facts and circumstances relied on by the Revenue. But the Court held that the High Court, on a reference, should not have gone into the facts and determined for itself that the assessee had earned income in the relevant previous year and had concealed it. It vacated the High Court's findings of fact without expressing any opinion on their correctness, and left it to the Appellate Tribunal, in exercise of its duty under section 260(1), to take up the appeal and redetermine it conformably to the judgment. On the substantive point, an intangible addition constitutes the undisclosed income of the assessee, is as much a part of his real income as what his books disclose, and could be available to him; secret profits of an earlier year may form a fund he draws on later, but it does not follow that any part of that fund must necessarily be regarded as the source of a later unexplained expenditure or cash credit.
The Court started from what an intangible addition actually is. When an officer adds to the book profits in an assessment, he is saying that the amount added was earned and not recorded. There is nothing notional about it. The money existed, it belonged to the assessee, and it was as available to him afterwards as the profits his books did show. Denying that would make the addition itself incoherent. From there the taxpayer's argument follows naturally but only so far. A concealed fund of that kind can be drawn on. It can meet expenditure and it can be put back into the books as a credit. What the Court refused to do was turn that possibility into a presumption. Whether the later credit in fact came out of the earlier fund is a question of fact, and the availability of the fund is one circumstance among the circumstances, not an answer to them. The Court was explicit that the mere availability of such a fund cannot in all cases imply that the assessee earned no further secret profits in the later year - which is exactly the inference the Tribunal had drawn. The penalty framing matters to how the case reads. This was an appeal about a penalty under section 271(1)(c), and the Court restated the settled position that penalty proceedings are quasi-criminal, that a finding in the assessment cannot automatically be adopted in them, and that the burden lies on the Revenue to establish that the disputed amount represents income and that the assessee consciously concealed particulars of it or deliberately furnished inaccurate particulars. The intangible-additions passage was written while the Court was working out whether the Revenue had discharged that burden. The last step is about the division of labour on a reference. The High Court had been right to say the Tribunal's legal basis was wrong, and should then have answered the question in the negative and stopped. Finding facts is the Tribunal's function; the High Court answers the question of law on the facts the Tribunal has found. So the Court endorsed the answer, vacated the High Court's factual findings and sent the appeal back to the Tribunal to be decided again.
The mere availability of such a fund cannot, in all cases, imply that the assessee has not earned further secret profits during the relevant assessment year.
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Handle my notice → Ask a CA on WhatsAppYou can put the argument, and the Supreme Court says it is a real argument, but it does not win by itself. The Court held that when an intangible addition is made to book profits in an assessment, the amount added is the undisclosed income of the assessee, is as much a part of his real income as the profits shown in his books, has the same concrete existence, and could be available to him just as the book profits could. Secret profits of an earlier year may therefore constitute a fund, concealed but real, from which he may later draw to meet expenditure or to introduce amounts into his books. The Court then put the limit on it in the same paragraph: it is quite another thing to say that any part of that fund must necessarily be regarded as the source of a later unexplained expenditure or cash credit, and the mere availability of such a fund cannot in all cases imply that no further secret profits were earned in the later year. All the facts and circumstances have to be looked at. This was decided by the Supreme Court (Supreme Court of India - R.S. Pathak, N.L. Untwalia and E.S. Venkataramiah JJ) and bears on section 271(1)(c), section 68, section 69, section 260(1), section 102 (Act of 2025) of the Income Tax Act 1961. It is reported as [1980] 123 ITR 457 (SC); AIR 1980 SC 1146. Telescoping is the argument every practitioner reaches for when an addition is made in one year and the money can be traced to an addition already taxed in another, and this is the judgment that makes it respectable. Before it, the department's answer was that an intangible addition is a notional figure and cannot fund anything. The Court closed that off: the addition represents money the assessee actually earned, it has the same concrete existence as book profits, and it could be available to him. That is the whole basis on which a later credit is said to be already taxed. The same paragraph is also the department's best answer, and this is where the case becomes a trap for the side citing it. The Court would not say that the fund must be treated as the source of the later credit, and it would not accept that the existence of a fund implies that nothing further was concealed in the later year. A telescoping claim therefore has to be proved on facts - the amount, the year, what became of the money in between - and an assessee who simply points at an old addition is making the same mistake the Tribunal made here. Read it with Lakhmichand Baijnath, which supplies the step underneath: the reason an intangible addition can fund a later business credit at all is that it is a receipt of the business. If it applies to you, the first step is this: Identify the earlier addition precisely - the year, the amount, the order that made it and whether it became final. A telescoping argument that cannot point to a specific intangible addition in a specific year is not the argument this case supports.
The assessee was an abkari contractor. For the assessment year 1959-60 it returned a turnover of Rs 10,92,132 and an income of Rs 7,704. On going through the books the Income-tax Officer found that on two dates, 12 December 1957 and 16 January 1958, the expenditure exceeded the cash disclosed as available - shortfalls of Rs 17,726 and Rs 65,066 - and he also found deposits totalling Rs 28,200 standing in the names of certain sendhi shopkeepers. The explanations offered, that the deposits were security taken from shopkeepers and that the cash shortfalls arose from the timing of entries, were rejected, the books were rejected, and the income was estimated at Rs 5,00,018. The Appellate Tribunal cut the addition down to Rs 1,30,000 over and above the book profits. Penalty proceedings followed and the Inspecting Assistant Commissioner imposed a penalty of Rs 75,000 under section 271(1)(c). The Tribunal cancelled the penalty, holding that there was no positive material to establish that the cash deposits represented concealed income and relying on an intangible addition made to the assessee's book profits two years earlier as a fund still available to it. On a reference, the question was whether the Tribunal was justified in holding that no penalty was leviable. The High Court answered that question in the negative, and in doing so recorded findings of its own on the facts. The assessee came to the Supreme Court in Civil Appeal No. 2592 of 1972. The matter was decided on 1980-04-15 by the Supreme Court (Supreme Court of India - R.S. Pathak, N.L. Untwalia and E.S. Venkataramiah JJ). On those facts the Supreme Court held as follows. The appeal was disposed of with no order as to costs. The Court endorsed the High Court's opinion that the question referred had to be answered in the negative, because the Tribunal's finding that no penalty was leviable rested on an erroneous legal basis: the Tribunal had confined itself to the fact that an intangible addition had been made to the book profits two years earlier and that part of that amount remained available, when what was required was a consideration of all the relevant facts and circumstances relied on by the Revenue. But the Court held that the High Court, on a reference, should not have gone into the facts and determined for itself that the assessee had earned income in the relevant previous year and had concealed it. It vacated the High Court's findings of fact without expressing any opinion on their correctness, and left it to the Appellate Tribunal, in exercise of its duty under section 260(1), to take up the appeal and redetermine it conformably to the judgment. On the substantive point, an intangible addition constitutes the undisclosed income of the assessee, is as much a part of his real income as what his books disclose, and could be available to him; secret profits of an earlier year may form a fund he draws on later, but it does not follow that any part of that fund must necessarily be regarded as the source of a later unexplained expenditure or cash credit.
The Court started from what an intangible addition actually is. When an officer adds to the book profits in an assessment, he is saying that the amount added was earned and not recorded. There is nothing notional about it. The money existed, it belonged to the assessee, and it was as available to him afterwards as the profits his books did show. Denying that would make the addition itself incoherent. From there the taxpayer's argument follows naturally but only so far. A concealed fund of that kind can be drawn on. It can meet expenditure and it can be put back into the books as a credit. What the Court refused to do was turn that possibility into a presumption. Whether the later credit in fact came out of the earlier fund is a question of fact, and the availability of the fund is one circumstance among the circumstances, not an answer to them. The Court was explicit that the mere availability of such a fund cannot in all cases imply that the assessee earned no further secret profits in the later year - which is exactly the inference the Tribunal had drawn. The penalty framing matters to how the case reads. This was an appeal about a penalty under section 271(1)(c), and the Court restated the settled position that penalty proceedings are quasi-criminal, that a finding in the assessment cannot automatically be adopted in them, and that the burden lies on the Revenue to establish that the disputed amount represents income and that the assessee consciously concealed particulars of it or deliberately furnished inaccurate particulars. The intangible-additions passage was written while the Court was working out whether the Revenue had discharged that burden. The last step is about the division of labour on a reference. The High Court had been right to say the Tribunal's legal basis was wrong, and should then have answered the question in the negative and stopped. Finding facts is the Tribunal's function; the High Court answers the question of law on the facts the Tribunal has found. So the Court endorsed the answer, vacated the High Court's factual findings and sent the appeal back to the Tribunal to be decided again. In the words reproduced by the source cited on this page: "The mere availability of such a fund cannot, in all cases, imply that the assessee has not earned further secret profits during the relevant assessment year."
It was decided by the Supreme Court on 1980-04-15 and is reported as [1980] 123 ITR 457 (SC); AIR 1980 SC 1146. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 271(1)(c), section 68, section 69, section 260(1), section 102 (Act of 2025), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The appeal was disposed of with no order as to costs. The Court endorsed the High Court's opinion that the question referred had to be answered in the negative, because the Tribunal's finding that no penalty was leviable rested on an erroneous legal basis: the Tribunal had confined itself to the fact that an intangible addition had been made to the book profits two years earlier and that part of that amount remained available, when what was required was a consideration of all the relevant facts and circumstances relied on by the Revenue. But the Court held that the High Court, on a reference, should not have gone into the facts and determined for itself that the assessee had earned income in the relevant previous year and had concealed it. It vacated the High Court's findings of fact without expressing any opinion on their correctness, and left it to the Appellate Tribunal, in exercise of its duty under section 260(1), to take up the appeal and redetermine it conformably to the judgment. On the substantive point, an intangible addition constitutes the undisclosed income of the assessee, is as much a part of his real income as what his books disclose, and could be available to him; secret profits of an earlier year may form a fund he draws on later, but it does not follow that any part of that fund must necessarily be regarded as the source of a later unexplained expenditure or cash credit. It arises in Cash Credits & Unexplained Money, Penalty and Evidence & Burden of Proof matters, on section 271(1)(c), section 68, section 69, section 260(1), section 102 (Act of 2025) of the Income Tax Act 1961, and was decided by Supreme Court of India - R.S. Pathak, N.L. Untwalia and E.S. Venkataramiah JJ. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show that the fund was still available. The Court accepted that a concealed fund exists; it refused to accept that availability alone answers the later year. Account for what happened to the money in between - other investments, other expenditure, other credits already explained out of it. Deal with the interval. A long gap between the year of the addition and the year of the credit is the point the department will press, and the judgment gives it that opening in terms. Keep assessment and penalty apart. The Court held that a finding in the assessment cannot simply be carried into the penalty proceeding, and that in penalty the burden lies on the Revenue to establish that the disputed amount represents income and that the assessee consciously concealed particulars or deliberately furnished inaccurate ones. Do not let the Tribunal decide the point on the earlier addition alone. That is the error the Court identified: the Tribunal had confined itself to the fact that an intangible addition had been made two years earlier and that part of it remained available. Remember who finds facts. The Court vacated the High Court's own findings of fact and sent the appeal back to the Tribunal, because the High Court on a reference decides the question of law on the facts the Tribunal has found.
Still good law. The case is applied regularly and has not been doubted. The Kerala High Court set out both of its central passages word for word in CIT v K. Sreedharan, decided 25 June 1992, and used them to hold that an intangible addition is real income available for investment from the year in which it was made. The Gauhati High Court described its facts and its holding in Sewbalakram & Co v CIT in 1983. The Allahabad High Court worked through it in Raj Kumar Chaurasia v CIT in 2006, reading it with Anwar Ali and Khoday Eswarsa & Sons on how far a finding in an assessment can travel into a penalty proceeding. Tribunal benches cite it constantly when a telescoping argument is run. What has changed around it is the penalty law rather than the intangible-additions reasoning. The passage on the Revenue's burden in a penalty proceeding was written against section 271(1)(c) as it then stood, and the Explanations added to that section from 1964 onwards, and the separate regime in section 270A from the assessment year 2017-18, alter where the burden sits in a concealment case today. The statements about what an intangible addition is, and about what a concealed fund can and cannot be presumed to explain, do not depend on the penalty provision and carry across to an addition under section 68 or section 69 as readily as to a penalty. A full citator check was not run; what was checked is that the two central passages and the operative order appear in the judgment's own text and, for the passages, in judgments of two other High Courts published independently. No decision was found that overrules or confines the case. The Income-tax Act, 1961 was repealed on 1 April 2026 by section 536(1) of the Income-tax Act, 2025, and section 536(2) continues it for proceedings about tax years before that date. Sections 68 to 69D became sections 102 to 106 of the 2025 Act as a family, and a telescoping argument under the new sections stands on this judgment as it did under the old. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This record was built from the judgment's own text, and then each of the three things that matter - the two central passages and the operative order - was checked against other courts. The judgment was read in its printed form. The passage about secret profits forming a fund, and the operative paragraphs endorsing the High Court's negative answer, vacating its findings of fact and remitting the appeal to the Appellate Tribunal under section 260(1), were taken from that text word for word. The Kerala High Court in CIT v K. Sreedharan, decided 25 June 1992, reproduces both central passages - the one about an intangible addition constituting the undisclosed income of the assessee and the one about the mere availability of a fund - in the same words. The Gauhati High Court in Sewbalakram & Co v CIT, decided 5 January 1983, sets out the facts of this case independently, and its account of the abkari contractor, the turnover of Rs 10,92,132, the excess of expenditure over disclosed cash on two dates and the deposits in the names of sendhi shopkeepers matches the judgment; it does not give the shortfall amounts or the total of the deposits, which rest on the Supreme Court's text alone. The Allahabad High Court in Raj Kumar Chaurasia v CIT, decided 30 October 2006, quotes the sentence about the quasi-criminal character of penalty proceedings and the Revenue's burden. Three unconnected High Courts reading the same sentences the same way is the standard this library applies to a judgment of this age. One caution for anyone citing it. This is a penalty appeal. The intangible-additions reasoning was written while the Court was deciding whether the Revenue had discharged a penalty burden, and the sentence about the Revenue's burden belongs to that context and to section 271(1)(c) as it stood before the Explanations were added. That does not weaken the reasoning about what an intangible addition is, which is not tied to any penalty provision, but a submission that runs the two together will be met. The second caution is about direction. The case is filed on the taxpayer's side of the ledger and it is genuinely useful there, but the assessee lost this appeal. The Court agreed that the Tribunal had been wrong to cancel the penalty on the strength of an old intangible addition and nothing else, and sent the matter back. Quote the passage that helps you, and be ready for the sentence that follows it. The judgment is short enough to read in full before it is cited, and it repays that. The assessment year is given as 1959-60 while the penalty was imposed under section 271(1)(c) of the Income-tax Act, 1961; the copy read does not explain that sequence, and the transitional provision that would account for it was not traced, so it is left as the judgment prints it. The cash shortfalls are dated 12 December 1957 and 16 January 1958, which sit uneasily with a previous year for the assessment year 1959-60, and the copy read does not give the previous year. The intangible addition relied on by the Tribunal is described only as having been made two years earlier; neither its amount nor the year is stated in the text read. The date of the High Court judgment under appeal and the reference number are not given in the copy read. The harvested text of the two central passages carries evident transcription slips - 'It could by available' where the Kerala High Court's reproduction reads 'It could be available', and 'cash credits regarded during a subsequent assessment year' where 'recorded' is plainly meant. The sentence about secret profits constituting a fund appears in the harvested text as 'may draw sufficient for meeting expenditure'; that wording could not be confirmed against any independently published reproduction, because the Kerala High Court reproduces the other two passages but not this one. Those passages are therefore described on this page rather than quoted, and the sentence that is quoted is one that the Supreme Court's text and the Kerala High Court's reproduction print identically. Check the wording against the report before you reproduce any of it verbatim. The judgment as published spells the appellant 'Veerasingaiah' throughout, in the body as well as the cause title, while the report at 123 ITR 457 and the Gauhati High Court spell it 'Veerasinghaiah'; the spelling used here follows the reports. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was disposed of with no order as to costs. The Court endorsed the High Court's opinion that the question referred had to be answered in the negative, because the Tribunal's finding that no penalty was leviable rested on an erroneous legal basis: the Tribunal had confined itself to the fact that an intangible addition had been made to the book profits two years earlier and that part of that amount remained available, when what was required was a consideration of all the relevant facts and circumstances relied on by the Revenue. But the Court held that the High Court, on a reference, should not have gone into the facts and determined for itself that the assessee had earned income in the relevant previous year and had concealed it. It vacated the High Court's findings of fact without expressing any opinion on their correctness, and left it to the Appellate Tribunal, in exercise of its duty under section 260(1), to take up the appeal and redetermine it conformably to the judgment. On the substantive point, an intangible addition constitutes the undisclosed income of the assessee, is as much a part of his real income as what his books disclose, and could be available to him; secret profits of an earlier year may form a fund he draws on later, but it does not follow that any part of that fund must necessarily be regarded as the source of a later unexplained expenditure or cash credit.
TaxSphere, “Anantharam Veerasinghaiah & Co v CIT”, https://taxnotice.vittsphere.com/caselaw/case/anantharam-veerasinghaiah-v-cit-intangible-additions-as-a-fund/ (validity last checked 2026-09-23)
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The officer says my explanation for an investment is unsatisfactory, so the money must be my income. Is he obliged to make the addition once he disbelieves me?
The credit the officer has added sits in my own business books. Does the entry being in the business books, by itself, let him tax it as business profit?
My cash sales are already in my books and already in my turnover. The officer has added the same money again under section 68 and taxed it at 60%. Can he?
I made unexplained investments after the close of my accounting year. Which year can the officer tax them in, and can he reopen an earlier year to do it?
