COMMISSIONER OF INCOME TAX Vs. BABULAL NIM

JUDGEMENT

(1.) THIS reference by the Income -tax Appellate Tribunal has been made consequent to a direction made by this court on an application under section 66(2) of the Indian Income -tax Act, 1922, of the Commissioner of Income -tax Madhya Pradesh, Nagpur and Bhandara. The question propounded are :

(2.) THE assessee is a Hindus undivided family carrying on business as military contractors in show. In the income -tax return for the assessment year 1554 -55, a total income of Rs. 3,537 -12 -0 for the previous year ending on 31st March, 1954, was shown by the assessee, which did not maintain any accounts. When a notice under section 23(2) of the Act was issued to Babulal Nim, the karta of the Hindu undivided family, he produced the pass book of the account of the family with Ramchandra and Sons, show, a local banker. On a scrutiny of the pass book, it was revealed that on 24th March, 1954, a cash deposits of Rs. 50,000 was made in the accounts of the family and on 3rd April, 1954, there was a withdrawal of Rs. 50,000. The Income -tax Officer, therefore, called upon the assessee to explain the source of this deposit. In reply, the assessee field a statement saying that the amount of Rs. 50,000 consisted partly of past saving and partly of a legacy left by Puranlal, an ancestor of the family, and that the deposit was made in the bank for the purpose of obtaining a solvency certificate which was needed for the purpose of his registration as a contractor with the Western Railway and the Madhya Bharat Public Works Department. The statement was repeated in the examination of Babulal Aim by the Income -tax Officer. Babulal added that he and other members of the joint family did not believe in keeping large amounts in any bank. It was admitted that an amount of Rs. 50,000 was withdrawn on 3rd April, 1954. The Income -tax Officer was not satisfied with this explanation. On the material before him, he came to the conclusion that the assessee had not been able to rove that Puranlal left any legacy or that the assessees savings in the previous years were large enough for the accumulation of a substantial amount of Rs. 50,000. Accordingly, the Income -tax Officer included in the assessees profits the amount of Rs. 50,000 income from 'undisclosed sources'. The assessee then preferred an appeal before the Appellate Assistant Commissioner, who agreeing with the reasoning and conclusion of the Income -tax Office, dismissed the appeal.

(3.) NO record of the questions put by the Tribunal to the assessee, Babulal Nim, and the answers given by him was kept. It appears that before the Tribunal the assessee produced for the first time a copy of an entry in the bankers ledger -book indicating that Rs. 50,000 had been advanced by Ramchandra and Sons, bankers, to the assessee on 24th March, 1954 as a loan carrying interest at the rate of one per cent. Per month on the basis of a promissory note, and that the said amount was repaid by a cash deposit of Rs. 50,000 on 3rd April, 1954. This entry did not give any indication as to whether the interest charged on Rs. 50,000 was ever paid by the assessee and if so, when. The Tribunal found the assessees explanation satisfactory and accordingly selected the amount of Rs. 50,000 from the profits of the assessee. Thereafter, the Commissioner of Income -tax moved the Tribunal to state the case to this court and refer the following question :