1995 (11) TMI 92 - HC - Income Tax

Addition To Income, High Denomination Notes, Income From Undisclosed Sources, Legal Representative, Question Of Law, Reference Application

Summary

Issues: Application under section 256(2) of the Income-tax Act for reference of questions regarding correctness of assessment and jurisdiction of Commissioner under section 263.

The judgment delivered by the High Court of Madhya Pradesh involved an application under section 256(2) of the Income-tax Act for reference of questions regarding the correctness of the assessment made by the Income-tax Officer for the assessment year 1978-79 and the jurisdiction of the Commissioner of Income-tax under section 263 of the Act. The applicant sought directions to the Tribunal to refer the proposed questions of law. The Tribunal had previously allowed the appeals filed by the assessee for the assessment year 1978-79 on the basis of a preliminary objection regarding the jurisdiction of the Commissioner under section 263.

The facts of the case revolved around the encashment of high denomination notes by the assessee in 1978, which the Income-tax Officer proposed to add to the assessment as the source of the amount was not explained. However, the Inspecting Assistant Commissioner directed the Income-tax Officer to delete this addition under section 144B of the Income-tax Act. Subsequently, the Commissioner of Income-tax found the assessment to be erroneous and prejudicial to the Revenue's interests, setting it aside for a fresh assessment. The Tribunal, in the appeal filed by the assessee, decided the case solely on the preliminary objection regarding the Commissioner's jurisdiction under section 263.

The Tribunal, citing precedents, held that the cash balances of the assessee were sufficient to cover the value of the high denomination notes, and it was not necessary for the assessee to prove the source of those notes. The High Court referred to a Supreme Court decision emphasizing the need to explain or establish the source of income or money received, rather than the source of receipt of high denomination notes. The Court found that the Tribunal's factual finding was not perverse and did not give rise to any question of law, leading to the rejection of the application for reference.

Ultimately, the High Court rejected the reference application on two grounds: firstly, it was filed against a deceased person without seeking substitution of legal representatives, and secondly, the case did not involve any question of law. The application was dismissed without any order as to costs.