1959 (5) TMI 12 - SC - Income Tax

whether there was any material to support the finding of the Tribunal that the sum of Rs. 1, 41, 000 represented the secreted profits of the appellant s business and as such liable to be taxed in the hands of the appellant under the Indian Income-tax Act and the Excess Profits Tax Act ? Held that - The Tribunal in arriving at the conclusion it did in the present case indulged in suspicions conjectures and surmises and acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found or the finding was in other words perverse and this court is entitled to interfere. We are therefore of opinion that the High Court was clearly in error in answering the referred question in the affirmative. The proper answer should have been in the negative having regard to all the circumstances of the case which we have adverted to above. The appeals will accordingly be allowed the judgment and order passed by the High Court will be set aside and the referred question will be answered in the negative. Appeal allowed.

Summary

Issues Involved:
1. Assessment of Income-Tax and Excess Profits Tax
2. Validity of High Denomination Notes as Part of Cash Balances
3. Rejection of Appellant's Explanation by Income-Tax Authorities
4. Tribunal's Partial Acceptance of Appellant's Explanation
5. High Court's Affirmation of Tribunal's Finding
6. Supreme Court's Jurisdiction to Interfere with Findings of Fact

Detailed Analysis:

1. Assessment of Income-Tax and Excess Profits Tax
The appellant, a Hindu undivided family engaged in the grain business, was assessed for income-tax for the year 1946-47 and excess profits tax for the period January 9, 1945, to February 2, 1946. The appellant declared a business loss of Rs. 46,415 for the assessment year. However, the Income-tax Officer noticed that the appellant had encashed high denomination notes worth Rs. 2,91,000 on January 19, 1946, and included this amount in the appellant's total income, treating it as secreted profits.

2. Validity of High Denomination Notes as Part of Cash Balances
The appellant claimed that the high denomination notes were part of its cash balances, including the Almirah account. The cash balances on January 12, 1946, were Rs. 29,284-3-9 in the Rokar and Rs. 2,81,397-10-0 in the Almirah account. The appellant attempted to prove this with entries in its accounts, but the Income-tax Officer found these entries to be interpolations.

3. Rejection of Appellant's Explanation by Income-Tax Authorities
The Income-tax Officer rejected the appellant's explanation, considering the interpolations in the account books and other circumstances, such as the appellant's history of speculation and the favorable period for food grain dealers. The officer concluded that the high denomination notes were secreted profits and assessed the appellant accordingly.

4. Tribunal's Partial Acceptance of Appellant's Explanation
The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld the Income-tax Officer's decision. However, the Tribunal partially accepted the appellant's explanation, acknowledging that the appellant might have possessed Rs. 1,50,000 in high denomination notes as part of its cash balance. The Tribunal reduced the addition from Rs. 2,91,000 to Rs. 1,41,000.

5. High Court's Affirmation of Tribunal's Finding
The appellant sought to refer the matter to the High Court, which directed the Tribunal to state a case. The High Court affirmed the Tribunal's finding, stating that the onus of proving the source of the amount was on the appellant, which it failed to discharge. The High Court held that there was evidence before the Tribunal to support its conclusion.

6. Supreme Court's Jurisdiction to Interfere with Findings of Fact
The Supreme Court examined whether there was any material to support the Tribunal's finding that Rs. 1,41,000 was secreted profit. The Court reiterated the limits of its jurisdiction to interfere with findings of fact, emphasizing that it could do so if the findings were based on conjectures, suspicions, or no evidence. The Court observed that the Tribunal's decision was influenced by irrelevant considerations and conjectures.

The Supreme Court noted that the appellant's books of account were generally accepted as genuine, and the cash balances on January 12, 1946, supported the appellant's explanation. The Court found that the Tribunal's partial acceptance of the appellant's explanation was inconsistent and based on conjectures.

The Supreme Court concluded that the Tribunal's finding was perverse and not supported by evidence. Therefore, the High Court erred in answering the referred question in the affirmative. The Supreme Court allowed the appeals, set aside the High Court's judgment, and answered the referred question in the negative. The appellant was entitled to costs.

Conclusion
The Supreme Court allowed the appeals, set aside the High Court's judgment, and ruled that the Tribunal's finding that Rs. 1,41,000 was secreted profit was not supported by material evidence. The appellant was awarded costs for the reference in the High Court and the appeals in the Supreme Court.