“Whether there was any material for the finding given by the Tribunal that out of 21 high denomination notes, which were exchanged by the assessee, 13 represented income of the assessee from some undisclosed source.”
Held
The burden is upon the department to prove that high denomination notes represent the concealed income of an assessee from some undisclosed source.
[1963] 47 ITR 634 (ALL.)
HIGH COURT OF ALLAHABAD
Gur Prasad Hari Das
v.
Commissioner of Income-tax
M.C. DESAI, CJ. AND BRIJLAL GUPTA, J.
IT REFERENCE NO. 158 OF 1959
JANUARY 29, 1962
R.S. Pathak and V.P. Tiwari for the Applicant.
Gopal Behari for the Respondent.
JUDGMENT
Brijlal Gupta, J.—This is an income-tax reference which comes to us in consequence of an order of this court, dated December 16, 1957, on an application by the assessee under section 66(2) of the Income-tax Act. The question which has been referred to us for opinion is:
“Whether there was any material for the finding given by the Tribunal that out of 21 high denomination notes, which were exchanged by the assessee, 13 represented income of the assessee from some undisclosed source.”
The facts giving rise to the reference are that the assessee carries on business in cloth, parchoon, kerosene and salt and has also income from zamindari. Upon the coming into force of the High Denomination Notes (Demonetisation) Ordinance in January, 1946, the assessee encashed 21 high denomination notes. Having been called upon to explain the nature and the source of the amount represented by these 21 notes the assessee explained that they were received by him in the usual course of business and formed part of his cash balance. In support of his case the assessee produced a chart. This showed that on December 27, 1945, his cash balance was Rs. 20,441-7-6. Obviously this could not include 21 high denomination notes but it could include 20 high denomination notes. The cash balance after December 27, 1945, was Rs. 26,846-5-6 on the immediately succeeding date, namely, October 28, 1945, and on every other date thereafter the balance was more than Rs. 26,000. On January 11, 1946, the date immediately preceding the promulgation of the Ordinance the cash balance was Rs. 37,179-0-6. From this it is quite clear that the cash balance subsequent to December 27, 1945, was such that it could contain 21 high denomination notes. These notes were finally encashed by the applicant on January 25,1946. The Income-tax Officer and the Appellate Assistant Commissioner in appeal rejected the explanation of the assessee in regard to the source of the 21 high denomination notes and included the entire amount represented by these notes in the total income of the assessee as his income from some undisclosed source. When the matter reached the Income-tax Appellate Tribunal, the Income-tax Appellate Tribunal did not reject the explanation of the assessee outright. They took the view that it was not possible for the assessee to get these notes in his business from parchoon, kerosene and salt. They also took the view that it was not possible for the assessee to come into possession of any of these notes out of zamindari. They, however, accepted the position that it might have been possible for the assessee to come into possession of some of these notes in the course of his business in cloth. The assessee appears to have produced a chart of his sales and by reference to that chart the Tribunal took the view that there were three transactions of over Rs. 1,000 on December 27, 1945, and these transactions might very well have included one note of Rs. 1,000 each. This accounted for three notes. They also noticed that there was another transaction of Rs. 1,000 after December 27, 1945. Accordingly they took the view that from this transaction also the assessee might have received one high denomination note. Thus the total number of high denomination notes accounted for by the business operations of the assessee was four from December 27, 1945, onwards. Then the Tribunal proceeded to make an estimate. They took the view that it is possible that a certain proportion out of the cash balance of the assessee might very well represent some high denomination notes. The computation they made on the basis of the so-called proportion of high denomination notes in the cash balance was that in a cash balance of Rs. 29,441-7-6 the assessee might have had eight high denomination notes. They had already accounted for four notes as stated earlier. They allowed the possibility of the assessee having another four notes. Thus out of 21 high denomination notes they accepted the possibility of the assessee having had eight high denomination notes out of his business in cloth but rejected the explanation with regard to the remaining 13 high denomination notes. In regard to these 13 high denomination notes, they affirmed the view of the income-tax authorities that these 13 notes represented the income of the assessee from some undisclosed source.
It has been laid down in a Division Bench case of this court in Kanpur Steel Co. Ltd. v. Commissioner of Income-tax [1957] 32 ITR 56 that in a matter like this the burden is upon the department to prove that high denomination notes represent the concealed income of an assessee from some undisclosed source. Prior to January 12, 1946, high denomination notes were legal tender. Accordingly the Division Bench observed that prior to that date it was no part of the duty of an assessee to keep particulars of any high denomination notes that he might have received. It was only as a result of the Ordinance that the assessee was required by the income-tax authorities to furnish an explanation as to the nature and source of receipt of high denomination notes. In those circumstances prima facie the value represented by the high denomination notes which might be in the possession of an assessee was presumed to be a part of his cash balance. If the department wanted to treat the value of high denomination notes as the concealed income of the assessee from some undisclosed source then it was for the income-tax department to establish that fact. It is obvious that the fact could be established only on the basis of material which might be in the possession of the department. It may be that, in certain circumstances, if the explanation of the assessee was found to be false, that fact along with other circumstances might furnish