1962 (1) TMI 94 - HC - Income Tax

Summary

Issues:
Interpretation of income from undisclosed sources based on high denomination notes exchange.

Analysis:
The case involved a dispute regarding the nature and source of income represented by 21 high denomination notes exchanged by the assessee. The Income-tax Officer and the Appellate Assistant Commissioner had rejected the explanation provided by the assessee, including the entire amount of the notes in the total income as undisclosed income. However, the Income-tax Appellate Tribunal took a different approach. The Tribunal acknowledged that some notes could have been received in the course of the assessee's cloth business but rejected the explanation for the remaining 13 notes, deeming them as income from undisclosed sources.

In the judgment, it was highlighted that the burden of proof lies with the income-tax department to establish that high denomination notes represent concealed income from undisclosed sources. The Division Bench case of Kanpur Steel Co. Ltd. v. Commissioner of Income-tax was referenced to emphasize that prior to the Ordinance, it was not the duty of the assessee to keep records of high denomination notes. The Tribunal's estimation based on the proportion of high denomination notes in the cash balance was deemed erroneous. The court emphasized that the department needed concrete material to prove that the remaining 13 notes were income from undisclosed sources, which was not adequately demonstrated in this case.

The court concluded that the Tribunal erred in not accepting the assessee's explanation for all 21 high denomination notes. The Tribunal's reliance on the sales transactions of over Rs. 1,000 to receive high denomination notes was deemed flawed, as such notes could also be received in transactions below Rs. 1,000. Additionally, the Tribunal's assumption of a proportion of high denomination notes in the cash balance was unfounded, as it was possible for any cash balance to contain no high denomination notes at all. Therefore, the court found that the department failed to discharge its burden of proof, leading to a negative answer to the question referred for opinion.

In conclusion, the court allowed the reference application in favor of the assessee, highlighting the lack of substantial evidence to support the claim that the remaining 13 high denomination notes represented undisclosed income. The judgment emphasized the importance of concrete proof and proper assessment in determining income from undisclosed sources based on high denomination notes exchange.