1998 (6) TMI 76 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was right in treating part of the high denomination notes as income of the assessee?

Summary:

Issue: Whether the Tribunal was right in treating part of the high denomination notes as income of the assessee?

The case pertains to the assessment year 1979-80, where the assessee, a Hindu undivided family engaged in the business of selling coal and coke as commission agents, tendered Rs. 2 lakhs in high denomination notes for encashment following the Demonetisation Ordinance, 1978. The Income-tax Officer (ITO) accepted the explanation for Rs. 36,000 covered by 36 notes of Rs. 1,000 denomination but treated Rs. 1,64,000 as unexplained income from undisclosed sources u/s 68 of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals) reduced this addition to Rs. 1,04,000. The Tribunal upheld this decision, leading to the present reference.

The assessee argued that there was no dispute about the availability of sufficient cash balance and that it was not required to maintain records of currency notes of different denominations. The Revenue contended that the addition was based on information from banks about the receipt of high denomination notes by the assessee.

The High Court found that there was no dispute about the availability of cash balance of Rs. 3,28,394 with the assessee on the date of deposit. The Tribunal's approach was deemed erroneous as the assessee had proved the source of money, and once this was established, no further proof of acquisition of specific denomination notes was required. The Court emphasized that the Department cannot reject a good explanation unreasonably and convert good proof into no proof.

The Court referred to the Supreme Court decisions in Sreelekha Banerjee v. CIT [1963] 49 ITR 112 (SC) and Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288, which supported the assessee's position. The Court concluded that the addition of Rs. 1,04,000 to the income of the assessee for failure to furnish detailed particulars of the receipt of high denomination notes was not in accordance with law.

Conclusion:
The High Court answered the question in the negative, in favor of the assessee and against the Revenue, thus disposing of the reference with no order as to costs.