1974 (4) TMI 8 - HC - Income Tax

Assessee s accounts are accepted as genuine and there is enough cash balance to cover high denomination notes held by the assessee - burden of proof in respect of the high denomination notes - Whether, in view of the fact that notes of Rs. 1,000 were legal tender on the date of promulgation of the Ordinance (January 12, 1946), the Tribunal had erred in coming to the conclusion that the cash balance of Rs. 1,70,038 did not include 140 high denomination notes when they were presented on January 22, 1946, to the bank for encashment ?

Issues Involved:

1. Whether the Tribunal erred in concluding that the cash balance of Rs. 1,70,038 did not include 140 high denomination notes when presented for encashment on January 22, 1946.

Issue-wise Analysis:

1. Tribunal's Conclusion on Cash Balance and High Denomination Notes:

The primary issue revolves around the Tribunal's conclusion that the cash balance of Rs. 1,70,038 did not include 140 high denomination notes. The assessee, a registered firm, had a cash balance of Rs. 1,70,038 on January 12, 1946, as per its books of account. On January 22, 1946, the assessee deposited 157 notes of Rs. 1,000 each, totaling Rs. 1,57,000, in the Imperial Bank of India. The Income-tax Officer and the Appellate Assistant Commissioner held that Rs. 1,40,000 of this amount was unexplained, as the assessee failed to prove the source of these high denomination notes. The Tribunal upheld this view, emphasizing the onus on the assessee to prove the origin of these notes.

2. Legal Tender Status and Onus of Proof:

The Tribunal's decision was based on several findings, including the lack of custom for merchants to record high denomination notes and the presumption against the assessee for not keeping records of the flow of notes. The Tribunal held that the onus was on the assessee to prove the origin of the high denomination notes and that this onus was not discharged by merely showing sufficient cash balance on earlier dates. It further noted that the assessee withdrew Rs. 2,70,000 from the bank after October 24, 1945, and received Rs. 27,000 from other parties, but failed to prove that these amounts included high denomination notes.

3. Assessment of Books of Account and Genuineness:

The Tribunal accepted the genuineness of the assessee's books of account, which showed a cash balance of Rs. 1,70,038 on January 12, 1946. However, it concluded that the assessee had not provided definite evidence that Rs. 27,000 was received in high denomination notes and that the balance of Rs. 1,40,000 was received from the bank in such notes. The Tribunal's decision was based on the principle that the assessee must prove the source of high denomination notes, which it failed to do.

4. Legal Precedents and Principles:

The judgment references several legal precedents, including the case of Sri Nilkantha Naravan Singh v. Commissioner of Income-tax, where it was held that if account books are accepted as genuine and the cash balance covers the high denomination notes, it is not necessary for the assessee to explain the source of such notes. The Supreme Court's decision in Lalchand Bhagat Ambica Ram v. Commissioner of Income-tax also supports this view, stating that the source of income or receipt of money must be disclosed, not the source of high denomination notes.

5. Department's Burden of Proof:

The judgment emphasizes that the burden of proof lies on the department to show that the sum represents suppressed income from undisclosed sources. It cites the Allahabad High Court's decision in Kanpur Steel Co. Ltd. v. Commissioner of Income-tax and the Supreme Court's ruling in Bai Velbai v. Commissioner of Income-tax, which reiterate that the department must prove the sum is from undisclosed sources, not the assessee.

6. Tribunal's Misapplication of Law:

The judgment concludes that the Tribunal erred in placing the burden of proof on the assessee to explain the source of high denomination notes. It states that the Tribunal's findings were based on wrong legal principles and that no tangible material was brought on record to reject the assessee's explanation. The judgment answers the referred question in the affirmative, in favor of the assessee, and against the revenue.

Conclusion:

The Tribunal erred in concluding that the cash balance of Rs. 1,70,038 did not include 140 high denomination notes when presented for encashment. The judgment is in favor of the assessee, holding that the onus was wrongly placed on the assessee and that the department failed to provide sufficient evidence to reject the assessee's explanation. The assessee is entitled to costs of Rs. 150.

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