1963 (3) TMI 47 - SC - Income Tax

Whether the amount of Rs. 51,000 being the value of high denomination notes encashed by the assessee, has been validly taxed as profits from some undisclosed business? Held that - Appeal dismissed. High Court held on the above facts and circumstances that there were materials to show that Rs. 51,000 did not form part of the cash balance, and the source of money not having been satisfactorily proved, the Department was justified in holding it to be assessable income of the assessee from some undisclosed source.

Issues Involved:
1. Validity of taxing Rs. 51,000 as profits from an undisclosed business.
2. Burden of proof regarding the source of high denomination notes.
3. Application of Section 34 of the Indian Income-Tax Act.

Issue-wise Detailed Analysis:

1. Validity of taxing Rs. 51,000 as profits from an undisclosed business:
The primary issue in this case was whether the amount of Rs. 51,000, represented by high denomination notes encashed by the assessee, could be validly taxed as profits from some undisclosed business. The Income Tax Officer found discrepancies in the assessee's statements and records, leading to the conclusion that the high denomination notes were profits from an undisclosed source. This conclusion was upheld by the Appellate Assistant Commissioner and the Tribunal, and subsequently by the High Court. The Supreme Court agreed with these findings, noting that the assessee failed to prove that the amount was part of the cash balance on hand.

2. Burden of proof regarding the source of high denomination notes:
The appellants contended that the burden of proof lay on the Department to establish that the amount in question was income that had escaped assessment. They argued that the assessee had sufficiently proved the source of the high denomination notes by showing large amounts on hand for business purposes. However, the Supreme Court clarified that the initial burden of proof lies on the assessee to show that the receipt does not bear the character of income. The Department can then examine the evidence and explanation provided by the assessee. If the explanation is unconvincing, the Department can reject it and infer that the amount represents income from an undisclosed source. The Court emphasized that the Department is not required to prove anything initially; the disclosure must come from the assessee.

3. Application of Section 34 of the Indian Income-Tax Act:
The appellants argued that since this was a case under Section 34 of the Indian Income-Tax Act, it cast a special burden on the Department to show that the income had escaped earlier assessment. The Supreme Court dismissed this argument, stating that once proceedings under Section 34 are validly commenced, the same rules regarding the burden of proof apply as in ordinary assessments. The Court concluded that the High Court was justified in holding that the amount of Rs. 51,000 was assessable income from an undisclosed source, as the source of the money was not satisfactorily proved by the assessee.

Conclusion:
The Supreme Court dismissed the appeal, affirming the decisions of the lower authorities and the High Court. The Court held that the amount of Rs. 51,000 was validly taxed as income from an undisclosed source, and the burden of proof was on the assessee to explain the source of the high denomination notes. The proceedings under Section 34 were validly commenced, and the same rules regarding the burden of proof applied as in ordinary assessments. The appeal was dismissed with costs.

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