Charge of income-tax – Cash credits – Assessee must prove the source of receipt – In the absence of such proof the Assessing Officer is entitled to treat it as taxable income: The Supreme Court

The Supreme Court in the case of Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR 1 (SC), held that as per S.4 of the Income Tax Act: Charge of income-tax – Cash credits – Assessee must prove the source of receipt – In the absence of such proof the Assessing Officer is entitled to treat it as taxable income – Cash credits could be assessed as undisclosed income


The responder is a businessman who runs two distinct enterprises, manihari (general goods) and bidis. Also, he earned a certain income from property, but this was immaterial to the appeals. The assessee submitted a return for each of the relevant assessment years, but the Income-tax Officer had to assess the gross profits of the businesses based on certain percentages of the total sales, which also had to be estimated because the assessee’s accounting records were not deemed complete and reliable.

The assessee was fined for failing to file a return for each of the applicable assessment years. Throughout these appeals, the veracity of these appraisals was never questioned. Following that, while the Incometax Officer was conducting the assessment for 1948-1949, he discovered several credit entries in the assessee’s books of account that had evaded his notice during the earlier-mentioned assessments for the years 1945-1946 and 1947-1948. This was accomplished while dealing with the 1948-1949 evaluation. After this, the ITO reopened the assessments for the aforementioned years, with the Commissioner’s approval.


Who was responsible for providing proof of the origin of the cash credits? Given that the ITO calculated the income on a percentage basis, is it acceptable for him to interpret the aforementioned figures to profit from a source that was kept secret?


The High Court’s ruling makes it very plain that the argument stated in favor of the proposition was that if the money was seen to be from an unreported source, the effect would be double taxation of the same income, which the Income-tax Act does not permit. This is made evident by the fact that the argument in favor of the proposal was that if this revenue was deemed to be from an unreported source, the outcome would be that It seems that this was the justification presented the suggestion.

On the premise that it was estimated that the same income had already been taxed in the past, it was stated that the same income may be taxed twice, which would result in the same income being taxed twice. So if the money is seen as coming from a concealed source, as the question assumes, it is not recognized as income from the disclosed source that has been previously taxed, this argument is manifestly incorrect. There is no prospect of double taxation when the money is considered to have originated from an unrevealed source and the taxpayer is questioned about this assumption.

It is not the case that the money sought to be taxed was regarded as unreported income from a source that had been revealed and whose income had previously been taxed based on an estimate. If this were the case, there is a possibility that the topic of double taxation was brought up during the talk. Yet, it is abundantly evident that this is not the case, since the nature of the investigation demonstrates that this is not the case.


There is a consensus among most people that it is the responsibility of the assessee to provide evidence on the origin of a sum of money that was determined to have been obtained by him. If he challenges the tax obligation, he is required to provide evidence either that the receipt was not income or, if it was income, that it was exempt from taxes following the provisions of the Act.

If such proof is lacking, the Income Tax Officer can consider it to be income that is subject to taxation. In addition, taxation authorities were not prevented from considering the amounts of the credit entries as income from unknown sources simply because the entries appeared in the accounts of a company whose revenue, they had previously calculated on a percentage basis. This was the case even though the entries appeared in the books of the company whose revenue they had previously calculated. (F.Y. 1945-1946, 1947-1948) (CA Nos. 151 & 152 of 1961, dtd. 8-2-1963.) (CA Nos. 151 & 152 of 1961, dtd. 8-2-1963.)


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