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Issues Involved:
1. Whether the commission of Rs. 15,432 received in the subsequent accounting year could be brought to tax as accrued income in the assessment year 1947-48. 2. Whether the sum of Rs. 25,000 being the value of high denomination notes exchanged in pursuance of the demonetization ordinance was an income of the assessee company from some undisclosed sources. Detailed Analysis: Issue 1: Taxation of Commission Income The first issue revolves around whether the commission of Rs. 15,432, which was received in the subsequent accounting year, could be taxed as accrued income in the assessment year 1947-48. The assessee, Kanpur Steel Co. Ltd., followed the mercantile method of accounting and received the commission on 17th March 1947. Despite this, the Income-tax Officer included this amount in the income for the assessment year 1947-48, arguing that the income had accrued during that year. The Tribunal upheld this decision, stating that the mercantile system requires income to be taxed when it accrues, not when it is received. The assessee's argument that the commission was uncertain due to a refusal by the Aira Sugar Factory to pay was dismissed. The Tribunal noted that disputes over amounts do not defer the adjustment of income until payment is received. However, during the proceedings, the assessee's counsel conceded this point, noting that the amount was not included in the income for the subsequent assessment year 1948-49. Therefore, the Tribunal was entitled to proceed on the basis that this point is decided against the assessee. Issue 2: High Denomination Notes and Undisclosed Income The second issue concerns the sum of Rs. 25,000, represented by high denomination notes exchanged during the demonetization ordinance of 1946. The assessee claimed these notes were part of its cash balance, which stood at Rs. 34,313 on 12th January 1946. The Income-tax Officer rejected this explanation, treating the amount as undisclosed income. The Tribunal partially accepted the assessee's explanation, recognizing Rs. 7,000 as part of the cash balance but upheld the addition of Rs. 25,000 to the income. The High Court found that the Tribunal overlooked the burden of proof, which lies on the Department to show that the amount represented suppressed income. The Court noted that until the demonetization ordinance, high denomination notes were used freely, and the assessee had no reason to keep records explaining their possession. The Tribunal's reliance on sales statements from a few days before the ordinance was deemed irrelevant, as these did not reflect cash receipts accurately. The Court emphasized that the increasing cash balance justified the possession of high denomination notes for convenience. The Tribunal's rejection of the assessee's explanation was based on surmises without material evidence. Consequently, the Court held that there was no material to support the view that the sum of Rs. 25,000 was undisclosed income. The Court referenced the Supreme Court decision in Mehta Parika & Co. v. Commissioner of Income-tax, Bombay, which supported the view that reasonable explanations by the assessee should be accepted unless contradicted by material evidence. Conclusion: The High Court concluded that: 1. The commission income issue was conceded by the assessee and decided against them. 2. There was no material evidence to classify the Rs. 25,000 as income from undisclosed sources, and the assessee's explanation was reasonable. The assessee company was entitled to costs from the Department, assessed at Rs. 250.
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