1969 (4) TMI 26 - HC - Income Tax

Transactions through high denomination notes - whether such transaction represented assessee s undisclosed income

Issues Involved:
1. Validity of the Income-tax Officer's rejection of the assessee's explanation regarding the source of high denomination notes.
2. Acceptance of the assessee's explanation for part of the high denomination notes.
3. Tribunal's reliance on evidence and materials for its findings.
4. Tribunal's rejection of the assessee's explanation for certain high denomination notes.
5. Legal principles regarding the assessment of income from undisclosed sources.

Issue-wise Detailed Analysis:

1. Validity of the Income-tax Officer's Rejection of the Assessee's Explanation:
The Income-tax Officer did not accept the assessee's explanation for Rs. 41,000 and Rs. 16,000, treating them as income from undisclosed sources. The assessee claimed Rs. 40,000 from sale proceeds and Rs. 20,000 from the currency office, but could not substantiate the latter. The Tribunal, considering the evidence, upheld the addition of Rs. 36,000 as income from undisclosed sources, rejecting the assessee's explanations.

2. Acceptance of the Assessee's Explanation for Part of the High Denomination Notes:
The Tribunal accepted the assessee's explanation regarding Rs. 21,000 received from the Bharati Central Bank Ltd. through the assessee's son. The official liquidator's letter provided details of the high denomination notes, which tallied with those encashed by the assessee. Consequently, the Tribunal reduced the addition from Rs. 57,000 to Rs. 36,000.

3. Tribunal's Reliance on Evidence and Materials for its Findings:
The Tribunal relied on the letter from the official liquidator and other evidence in the records. The Tribunal noted that the assessee failed to provide confirmation from the currency office for Rs. 20,000. The Tribunal's findings were based on the evidence available, such as the letter from the official liquidator and the inability of the assessee to substantiate his claims.

4. Tribunal's Rejection of the Assessee's Explanation for Certain High Denomination Notes:
The Tribunal rejected the assessee's explanation for Rs. 6,000 claimed as cash in hand and Rs. 10,000 exchanged for smaller denominations, finding these explanations unconvincing. The Tribunal observed that the assessee could not provide adequate evidence or recall the details of the transactions, leading to the rejection of these claims.

5. Legal Principles Regarding the Assessment of Income from Undisclosed Sources:
The High Court referred to several Supreme Court judgments, including Lalchand Bhagat Ambica Ram v. Commissioner of Income-tax and Sreelekha Banerjee v. Commissioner of Income-tax. The principles established include the necessity for the assessee to prove the source of high denomination notes and the department's right to reject unconvincing explanations. The Supreme Court emphasized that findings should not be based on suspicions, conjectures, or surmises, and the assessee should be given an opportunity to explain any circumstances requiring clarification.

Conclusion:
The High Court concluded that the Tribunal's finding of Rs. 26,000 as income from undisclosed sources was valid, but the addition of a further Rs. 10,000 was invalid due to improper rejection of the assessee's explanation. The assessee had sufficient opportunity to present evidence but failed to do so convincingly. Consequently, the assessee was ordered to pay the costs of the reference to the Commissioner of Income-tax.

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