RAM TANDON Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE questions referred for the opinion of this court are :

(2.) THE assessee is a Hindu undivided family doing financing work and was the Government Treasurer at Shahjehanpur. THE original assessment for the year 1947-48 was made on an income of Rs. 12,588. THEreafter the Income-tax Officer started proceedings under section 34 of the Income-tax Act as he got information that the assessee had encashed high denomination notes for Rs. 45,000, on January 18, 1946, which date fell within the relevant previous year of the assessee. On being required to explain how he came by these notes, the assessee said that he had to maintain a large cash balance which was necessary because of the nature of his business and these included high denomination notes invariably. On January 11, 1946, when the Demonetisation Ordinance was promulgated, the assessees cash balance was Rs. 58,046. THE cash balance varied from day to day and on January 18, 1946, when the notes were encashed the cash balance was Rs. 65,619. THE cash balance was never below Rs. 50,000. THE Income-tax Officer, however, did not accept the assessees explanation that the notes formed part of his cash balance and added the sum of Rs. 45,000 to his total income and made an assessment. On appeal, the Appellate Assistant Commissioner maintained the assessment. On further appeal, the Appellate Tribunal reduced the addition by Rs. 35,000 but upheld the addition of Rs. 10,000 to the assessees total income. THE assessee then applied for a reference to this court and the questions mentioned above have been referred to us.

(3.) IN Sri Sri Nilkantha Narayan Singh v. Commissioner of INcome-tax, AIR 1951 Pat 165 the assessee had encashed high denomination notes worth Rs. 95,000. The INcome-tax Officer rejected the assessees explanation about them and added the entire amount as income from an undisclosed source. The Appellate Tribunal felt satisfied that Rs. 11,000 (one note of Rs. 10,000 and another of Rs. 1,000) had been received from the Bengal Discount Co. Ltd. as the number of the notes were mentioned in a document but affirmed the addition of Rs. 84,000. The Patna High Court after examining the reason on which the Tribunal had based its decision held that there was no material for the inference that Rs. 84,000 represented the assessees income. The Tribunal had observed that (1) the assessee did not produce any home chest account though his explanation was that the notes were savings from his personal allowance, (2) that he could not save any money as there was a recital in a lease that he needed money to pay income-tax and road cess, and lastly (3) that the assessee was not in a position to say wherefrom the notes of Rs. 10,000 each were obtained and his failure to do so led to the conclusion that he was unwilling to disclose the source. The court held that there was no material to suggest that a home chest account was maintained and no adverse inference could be drawn because such account was not produced. The court noticed that the assessee had produced accounts for seven years before the Tribunal showing that the Raja had a balance of Rs. 18,400 and recital in the document, therefore, was not proved to be correct. The court further held that no onus could be thrown upon the Raja to indicate the source from each note to the value of Rs. 10,000 was received and no adverse inference ought to have been drawn by the Tribunal against the assessee.