Deposit of high denomination notes can’t be unexplained when Cash Balance is Available

By | November 19, 2016

Facts of the case

On 19-1-1978, the assessee tendered and deposited with the State Bank of India, Calcutta, 81 high denomination notes of Rs. 1,000 each. The assessee also furnished a declaration as required at the time of tender of high denomination notes. Columns 15 and 16 of the aforesaid declaration furnished are as under :

“15. Reasons for keeping the amount in cash in notes of such high denomination.

Issue

The Assessing Officer considered the explanation of the assessee-company furnished during the course of assessment proceedings as an ‘afterthought’. He accordingly treated the high denomination notes as unexplained and added the value thereof in the income of the assessee. The action of the Assessing Officer was confirmed in appeal by the Commissioner (Appeals).

Held

The assessee had sufficient cash in hand. In the books of account of the assessee, cash balance was usually more than Rs. 81,000. There is no reason to treat this amount as income from undisclosed sources. It is not a fit case for treating the amount of Rs. 81,000 as concealed income of the assessee and consequently imposition of penalty was also not justified in this case.

HIGH COURT OF CALCUTTA

Commissioner of Income-tax

v.

Associated Transport (P.) Ltd.

SUHAS CHANDRA SEN AND ARUN KUMAR DUTTA, JJ

IT REFERENCE NO. 49 OF 1992 [MATTER NOS. 1863 AND 1865 OF 1991]

JANUARY 4, 1994

S.N. Sharoff and Sunil Mukherjee for the Applicant. N.K. Poddar and Debasish Mitra for the Respondent.

JUDGMENT

Sen, J. – The Tribunal has forwarded the following questions of law to this Court under section 256(2) of the Income-tax Act, 1961 (‘the Act’):

  1. Question in Matter No. 1865 of 1991 :

“1. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the assessee as on the date of tender of the high denomination notes worth Rs. 81,000 had always a cash balance far in excess of Rs. 81,000 is perverse being contrary to the evidence on record?

  1. 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition of Rs. 81,000 made under section 69A of the Income-tax Act, 1961?”
  2. Question in Matter No. 1863 of 1991:

“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in cancelling the penalty under section 271(1)(c) of the Income-tax Act, 1961?”

  1. The assessment year involved is 1979-80, for which the relevant period of accounting is the period ending on 30-6-1978.
  2. The facts found by the Tribunal as stated in the statement of case are as under :

The assessee is a private limited company. The relevant facts in brief are that the assessee-company in the period relevant to the assessment year under reference carried on transport business by rail and road. On 19-1-1978, the assessee tendered and deposited with the State Bank of India, Calcutta, 81 high denomination notes of Rs. 1,000 each. The assessee also furnished a declaration as required at the time of tender of high denomination notes. Columns 15 and 16 of the aforesaid declaration furnished are as under :

“15. Reasons for keeping the amount in cash in notes of such high denomination.

Cash payment against railway freight and octroi payment at Shalimar Pani Tabla, Ragra Check Post.

  1. When and from what source did the bank notes come into possession?

From time to time from Mercantile Bank Ltd., N.S. Road Branch, Calcutta, against the cheques withdrawn from current account.”

  1. The Assessing Officer also recorded the statement of the director of the assessee-company, Shri Atma Ram Arya, under section 131 of the Act on 1-2-1978, regarding the source of possession of the high denomination notes and Shri Atma Ram Arya in the said statement deposed that the high denomination notes were received from the Mercantile Bank Ltd. on encashment of cheques on different dates. The Assessing Officer during the course of assessment proceedings for the year under reference wanted to verify the correctness of the declaration made by the assessee. He sent his inspector to the Mercantile Bank to examine the encashed cheques. The inspector reported that as per notice on the back cheques encashed (sic) no high denomination notes was given to the assessee. When this was put to the assessee, the assessee explained that high denomination notes were obtained from the Mercantile Bank in exchange for smaller denomination notes at the counter. The assessee also pleaded that in the case of Rs. 60,000 received from its Bombay Branch, there were 20 high denomination notes. A bank certificate to this effect was furnished. The assessee also furnished a certificate dated 15-5-1978, from the bank certifying that the high denomination notes were delivered/received freely from the customers and, in addition, they were exchanging small denomination notes for high denomination notes and vice versa. The Assessing Officer considered the explanation of the assessee-company furnished during the course of assessment proceedings as an ‘afterthought’. He accordingly treated the high denomination notes as unexplained and added the value thereof in the income of the assessee. The action of the Assessing Officer was confirmed in appeal by the Commissioner (Appeals).
  2. On second appeal, the Tribunal, after examining the decision of the Supreme Court in Lalchand Bhagat Ambica Ram v. CIT[1959] 37 ITR 288 and that of the Patna High Court in the case of Lakshmi Rice Mills v. CIT [1974] 97 ITR 258, deleted the addition of Rs. 81,000.
  3. The Tribunal was of the view that the assessee had sufficient cash in hand. In the books of account of the assessee, cash balance was usually more than Rs. 81,000. There is no reason to treat this amount as income from undisclosed sources. It is not a fit case for treating the amount of Rs. 81,000 as concealed income of the assessee and consequently imposition of penalty was also not justified in this case.
  4. Basically, the Tribunal has come to the decision after a review of the entire facts. The Tribunal does not appear to have failed to consider any relevant material and whether the Tribunal has appreciated the facts correctly or not cannot be gone into in the reference jurisdiction. It is the appraisal of facts by the Tribunal which is the final fact finding body. No question of perversity has been raised.
  5. Therefore, question Nos. 1 and 2 in Matter No. 1865 of 1991 are answered in the affirmative and in favour of the assessee.
  6. The question in Matter No. 1863 of 1991 is also answered in the affirmative and in favour of the assessee.
  7. There will be no order as to costs.

Other Information

  • In favour of assessee

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  1. Pingback: No penalty on possession of high denomination notes if period to encash expired | Tax Heal

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