The officer rejected my books, estimated my profits at a flat rate, and then also added an unexplained cash credit. Can he do both, and must he say what source the credit came from?
Yes to both, subject to the facts. The Supreme Court held there is nothing in law preventing the Income-tax Officer, in an appropriate case, from taxing both a cash credit whose source and nature are not satisfactorily explained and the business income he estimates after rejecting the books, following Kale Khan Mohammad Hanif. Whether he may do so in a given case depends on its own facts. Where a cash credit is unexplained the officer may hold it to be the assessee's income and need not show what source it came from; it is for the assessee to prove that it is income from a source already taxed.
Decided by the Supreme Court (Supreme Court of India - J.C. Shah and A.N. Grover, JJ (judgment delivered by Shah, J)) on 1968-08-01, reported as (1969) 72 ITR 194 (SC). It bears on section 13 of the Indian Income-tax Act, 1922, section 66(2) of the Indian Income-tax Act, 1922, section 68, section 145 of the Income Tax Act 1961, in Cash Credits & Unexplained Money and Appeals matters.
Two points, one substantive and one procedural, and practitioners use both. On the substance, this is the answer to the argument that an unexplained credit must have come out of the same business whose profits have already been estimated, so that adding it is double taxation. The Court leaves that open as a question of fact but denies it as a proposition of law, and puts the burden squarely on the assessee to show the credit is income from an already taxed source. On procedure, the appeal was actually allowed because the High Court had directed a reference on a question never raised before or decided by the Tribunal - a reminder that the reference and appeal machinery carries forward only the questions you argued below.
Binding on every court and authority in India.
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The respondent was a firm dealing in handloom cloth and silk fabrics, with its head office at Banaras and a branch at Madura. For assessment year 1946-47 the Income-tax Officer declined to rely on its books and estimated business profits by applying a flat rate of twelve and a half per cent to the turnover. He also found an entry dated 15 January 1945 recording a deposit of Rs 20,000 in the name of Messrs Banshidhar Rawatmal of Ratangarh. He called on the firm to prove the nature and source of the deposit, considered the evidence, rejected the case that Banshidhar Rawatmal had made the deposit, and treated the Rs 20,000 as income from an undisclosed source. The Appellate Assistant Commissioner and the Tribunal upheld the addition. The Tribunal found Banshidhar's evidence, that he had Rs 20,000 received from his jajman, unreliable, and held the estimate of turnover and application of a rate to be right. Two contentions only were argued before it: that the explanation about the entry should have been accepted, and that the books ought not to have been discarded. The firm's application under section 66(1) was rejected; on an application under section 66(2) the Allahabad High Court directed the Tribunal to state a case on whether there was material to hold the Rs 20,000 to be income from some other source and not income already included in the assessed income on rejection of the books. The Tribunal, stating the case, recorded that the assessee had at no stage urged that the sum merged in the estimated profit. The High Court answered for the assessee.
The appeal was allowed, the High Court's order discharged, and the question left unanswered as not arising out of the Tribunal's order, with costs to the Commissioner in both courts. There is nothing in law which prevents the Income-tax Officer, in an appropriate case, from taxing both a cash credit whose source and nature are not satisfactorily explained and the business income estimated after rejecting the books as unreliable; that was decided in Kale Khan Mohammad Hanif. Whether he should do so in a given case depends on the facts of that case, and the Court found it unnecessary to elaborate. The decisive point was that the question on which the High Court had directed a case to be stated had never been raised before or decided by the Tribunal, only two contentions having been argued in the appeal, and it was not open to the High Court to direct a reference on such a question. The question also assumed that the officer must indicate the source of the income before it can be taxed, which the Court held not to be the correct legal position.
The reasoning has two strands. On jurisdiction, a reference lies only on a question arising out of the Tribunal's order, and what arises out of that order is measured by what was argued and decided in the appeal. The Tribunal's own statement recorded that the merger argument had never been put to it, and the three questions the assessee had formulated in its own application under section 66(2) did not include it either. The High Court's view that the entry in the books was itself material for holding the amount to be business income therefore rested on a question it could not properly have referred. On the substance, the Court identified the premise buried in the question - that the officer must identify a source before an amount can be taxed - and rejected it. Where a cash credit is unexplained the officer may hold it to be the assessee's income, and no further burden lies on him to attribute it to a particular source; the burden that remains is the assessee's, to prove that even if the credit is income it is income from a source which has already been taxed. That reasoning also explains why the combination of an estimate and an addition is not barred as a matter of law, though the Court left its propriety in any particular case to the facts.
it is open to the Income-tax Officer to hold that it is income of the assessee and no further burden lies on the Income-tax Officer to show that that income is from any particular source
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Handle my notice → Ask a CA on WhatsAppYes to both, subject to the facts. The Supreme Court held there is nothing in law preventing the Income-tax Officer, in an appropriate case, from taxing both a cash credit whose source and nature are not satisfactorily explained and the business income he estimates after rejecting the books, following Kale Khan Mohammad Hanif. Whether he may do so in a given case depends on its own facts. Where a cash credit is unexplained the officer may hold it to be the assessee's income and need not show what source it came from; it is for the assessee to prove that it is income from a source already taxed. This was decided by the Supreme Court (Supreme Court of India - J.C. Shah and A.N. Grover, JJ (judgment delivered by Shah, J)) and bears on section 13 of the Indian Income-tax Act, 1922, section 66(2) of the Indian Income-tax Act, 1922, section 68, section 145 of the Income Tax Act 1961. It is reported as (1969) 72 ITR 194 (SC). Two points, one substantive and one procedural, and practitioners use both. On the substance, this is the answer to the argument that an unexplained credit must have come out of the same business whose profits have already been estimated, so that adding it is double taxation. The Court leaves that open as a question of fact but denies it as a proposition of law, and puts the burden squarely on the assessee to show the credit is income from an already taxed source. On procedure, the appeal was actually allowed because the High Court had directed a reference on a question never raised before or decided by the Tribunal - a reminder that the reference and appeal machinery carries forward only the questions you argued below. If it applies to you, the first step is this: If you intend to argue that a credit is covered by the estimated profits, argue it before the Tribunal and get it into the order; the assessee here lost that point because it was never taken.
The respondent was a firm dealing in handloom cloth and silk fabrics, with its head office at Banaras and a branch at Madura. For assessment year 1946-47 the Income-tax Officer declined to rely on its books and estimated business profits by applying a flat rate of twelve and a half per cent to the turnover. He also found an entry dated 15 January 1945 recording a deposit of Rs 20,000 in the name of Messrs Banshidhar Rawatmal of Ratangarh. He called on the firm to prove the nature and source of the deposit, considered the evidence, rejected the case that Banshidhar Rawatmal had made the deposit, and treated the Rs 20,000 as income from an undisclosed source. The Appellate Assistant Commissioner and the Tribunal upheld the addition. The Tribunal found Banshidhar's evidence, that he had Rs 20,000 received from his jajman, unreliable, and held the estimate of turnover and application of a rate to be right. Two contentions only were argued before it: that the explanation about the entry should have been accepted, and that the books ought not to have been discarded. The firm's application under section 66(1) was rejected; on an application under section 66(2) the Allahabad High Court directed the Tribunal to state a case on whether there was material to hold the Rs 20,000 to be income from some other source and not income already included in the assessed income on rejection of the books. The Tribunal, stating the case, recorded that the assessee had at no stage urged that the sum merged in the estimated profit. The High Court answered for the assessee. The matter was decided on 1968-08-01 by the Supreme Court (Supreme Court of India - J.C. Shah and A.N. Grover, JJ (judgment delivered by Shah, J)). On those facts the Supreme Court held as follows. The appeal was allowed, the High Court's order discharged, and the question left unanswered as not arising out of the Tribunal's order, with costs to the Commissioner in both courts. There is nothing in law which prevents the Income-tax Officer, in an appropriate case, from taxing both a cash credit whose source and nature are not satisfactorily explained and the business income estimated after rejecting the books as unreliable; that was decided in Kale Khan Mohammad Hanif. Whether he should do so in a given case depends on the facts of that case, and the Court found it unnecessary to elaborate. The decisive point was that the question on which the High Court had directed a case to be stated had never been raised before or decided by the Tribunal, only two contentions having been argued in the appeal, and it was not open to the High Court to direct a reference on such a question. The question also assumed that the officer must indicate the source of the income before it can be taxed, which the Court held not to be the correct legal position.
The reasoning has two strands. On jurisdiction, a reference lies only on a question arising out of the Tribunal's order, and what arises out of that order is measured by what was argued and decided in the appeal. The Tribunal's own statement recorded that the merger argument had never been put to it, and the three questions the assessee had formulated in its own application under section 66(2) did not include it either. The High Court's view that the entry in the books was itself material for holding the amount to be business income therefore rested on a question it could not properly have referred. On the substance, the Court identified the premise buried in the question - that the officer must identify a source before an amount can be taxed - and rejected it. Where a cash credit is unexplained the officer may hold it to be the assessee's income, and no further burden lies on him to attribute it to a particular source; the burden that remains is the assessee's, to prove that even if the credit is income it is income from a source which has already been taxed. That reasoning also explains why the combination of an estimate and an addition is not barred as a matter of law, though the Court left its propriety in any particular case to the facts. In the words reproduced by the source cited on this page: "it is open to the Income-tax Officer to hold that it is 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 was decided by the Supreme Court on 1968-08-01 and is reported as (1969) 72 ITR 194 (SC). 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 13 of the Indian Income-tax Act, 1922, section 66(2) of the Indian Income-tax Act, 1922, section 68, section 145, 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 helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was allowed, the High Court's order discharged, and the question left unanswered as not arising out of the Tribunal's order, with costs to the Commissioner in both courts. There is nothing in law which prevents the Income-tax Officer, in an appropriate case, from taxing both a cash credit whose source and nature are not satisfactorily explained and the business income estimated after rejecting the books as unreliable; that was decided in Kale Khan Mohammad Hanif. Whether he should do so in a given case depends on the facts of that case, and the Court found it unnecessary to elaborate. The decisive point was that the question on which the High Court had directed a case to be stated had never been raised before or decided by the Tribunal, only two contentions having been argued in the appeal, and it was not open to the High Court to direct a reference on such a question. The question also assumed that the officer must indicate the source of the income before it can be taxed, which the Court held not to be the correct legal position. It arises in Cash Credits & Unexplained Money and Appeals matters, on section 13 of the Indian Income-tax Act, 1922, section 66(2) of the Indian Income-tax Act, 1922, section 68, section 145 of the Income Tax Act 1961, and was decided by Supreme Court of India - J.C. Shah and A.N. Grover, JJ (judgment delivered by Shah, J). 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. Prove the depositor's capacity, not merely his existence - the Tribunal disbelieved the depositor's account of where his Rs 20,000 came from, and that was the end of the explanation. Do not ask the officer to name the source; the law does not require him to, and the argument invites the answer given here. Where both an estimate and an addition are made, attack the combination on the facts of your case - the Court kept that question open - rather than as a matter of law.
Still good law. Constantly applied on unexplained credits alongside an estimate; the harvested page records it as cited in nearly two hundred later decisions. No later decision doubting it was read as part of this exercise. Note that the 1922 Act had no deeming provision equivalent to section 68 of the 1961 Act, so the burden here was the ordinary one, and section 68 now also carries its own conditions for credits of specified kinds. 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.
Decided under the Indian Income-tax Act, 1922: the estimate was made under section 13, the appeal to the Tribunal lay under section 33 and the reference under sections 66(1) and 66(2). The batch line's sections 68 and 28 of the 1961 Act correspond to the subject matter but were not construed. The harvested text reads 'Where there is an explained cash credit', which cannot be right in context and is plainly a slip for 'unexplained'; the key quote has been taken from the following words, which are unaffected. The Court expressly declined to elaborate on when an officer may make both an estimate and an addition, so nothing here decides that question on any given set of facts. Because the reference was held incompetent, no answer was given on the merits of whether this Rs 20,000 was business income or income from another source. The assessee's application to the Tribunal under section 66(1) was not before the Court. 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 allowed, the High Court's order discharged, and the question left unanswered as not arising out of the Tribunal's order, with costs to the Commissioner in both courts. There is nothing in law which prevents the Income-tax Officer, in an appropriate case, from taxing both a cash credit whose source and nature are not satisfactorily explained and the business income estimated after rejecting the books as unreliable; that was decided in Kale Khan Mohammad Hanif. Whether he should do so in a given case depends on the facts of that case, and the Court found it unnecessary to elaborate. The decisive point was that the question on which the High Court had directed a case to be stated had never been raised before or decided by the Tribunal, only two contentions having been argued in the appeal, and it was not open to the High Court to direct a reference on such a question. The question also assumed that the officer must indicate the source of the income before it can be taxed, which the Court held not to be the correct legal position.
TaxSphere, “CIT v Devi Prasad Vishwanath Prasad”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-devi-prasad-vishwanath-prasad/ (validity last checked 2026-08-29)
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