RAI KUMAR SRIMAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In this reference under Section 256(1) of the Income-tax Act, 1961, we are concerned with the jurisdiction and exercise of the discretion by the Appellate Assistant Commissioner. In order to appreciate the questions referred to, this court it is necessary to refer to certain facts. The assessment relates to the assessment year 1961-62, the previous year being the financial year ending on March 31, 1961. For the said year the assesses had disclosed an income of Rs. 6,000 in his return, stating that such income was derived by him as a broker. But since no books of account had been maintained, the Income-tax Officer estimated the brokerage income at Rs. 8,000 on the basis of past records. The assessee, however, had opened an account with the Chartered Bank as far back as 1948 but from the bank's statements the Income-tax Officer could see that the account was not operated from the 1st November, 1956, to 31st May, 1960, and the balance in the account thereafter was about Rs. 500. On 30th May, 1960, the assessee had made a deposit of Rs. 30,000 in the said bank account and on the same date he drew a cheque of an equivalent amount for the alleged purpose of investing the sum of Rs. 30,000 with one Brijmohan Bangur. The Income-tax Officer called for an explanation regarding the source of the deposit. The assessee replied that since he had made a disclosure of his past earnings relating to the assessment years 1944-45 to 1951-52 to the extent of Rs. 32,400 and he had an initial capital to the tune of Rs. 9,600 he could save the sum of Rs. 30,000 out of such income. It appears that the assessee's disclosure regarding the past income had been accepted by the Income-tax Officer with the approval of the Inspecting Assistant Commissioner. But since the Income-tax Officer had found that after the disclosure in 1952, the assessee had purchased shares worth Rs. 19,920, the Income-tax Officer refused to believe that the assessee could have any large cash savings over and above such investment except the sum of Rs. 10,000 which was stated to be the circulating capital of his brokerage business. The Income-tax Officer, therefore, was not satisfied regarding the assessee's explanation as to the immediate source of the sum of Rs. 30,000 deposited with the Chartered Bank on 30th May, 1960. The assessment was completed after the Income-tax Officer had examined the records of the assessee. The assessee had stated in reply to the Income-tax Officer's question as to how he had kept his alleged savings. The assessee categorically replied that except for occasionally using the money in the course of his dalali business, he had never invested the money in any form but had kept his entire savings in his business chests till 30th May 1960, when it was deposited with the bank. The assessee had also stated that in 1962, his monthly expenses ranged between Rs. 250 to Rs. 300 per month over and above the sum of Rs. 1,484 which he had paid as annual insurance premium and, therefore, did not have any regular savings after 1951-52. According to the Income-tax Officer, there was absolutely no reason for keeping such huge money idle. He, therefore, came to the conclusion that the transaction of having deposited with the bank account a cheque drawn on the same date was a colourable transaction and in reality the assessee did not advance any such money out of his own savings. He, therefore, treated the same as the assessee's income from undisclosed sources.

(2.) Being aggrieved by the said order of the Income-tax Officer, the assessee came up in appeal before the Appellate Assistant Commissioner and contended that he did have substantial savings earned during the previous years to the assessment years 1944-45 to 1951-52 but considering the income which had been subjected to tax for these years, the Appellate Assistant Commissioner was of one with the opinion with the Income-tax Officer that the assessee could not have any sizeable savings in cash. But at the same time the Appellate Assistant Commissioner accepted an altogether fresh stand as taken before him by the assessee that the shares which the assessee had purchased some time after the disclosure was made in 1952, had been sold to M/s. Mugniram Bangur & Co., a well-known firm of share dealers in Calcutta, in 1959, and against the sale of such shares of M/s. Tata Iron and Steel Company, the assessee had received cash advance of Rs. 20,000 on 6th November, 1959. A copy of the account in the name of the assessee as found in the books of account of M/s. Mugniram Bangur & Co., which was certified by the latter was produced in support of such contention. The Appellate Assistant Commissioner admitted such fresh evidence and accepted the assessee's explanation that the said sum of Rs. 20,000 could have been available with the assessee for being deposited with the bank account on 30th May, 1960. He, therefore, reduced the income from other sources by Rs. 20,000 but directed the Income-tax Officer

(3.) Against the said order of the Appellate Assistant Commissioner the revenue preferred an appeal before the Tribunal and contended that the Appellate Assistant Commissioner had erred in accepting an entirely new explanation regarding the sources of the sum of Rs. 20,000. Such explanation had not been offered to the Income-tax Officer. It was further stressed on behalf of the revenue that since the assessee in this case had been maintaining a bank account, he would not have kept any large sum of money at home and the fact of having sold shares for Rs. 20,000 was never disclosed to the department in connection with the assessment proceedings for 1960-61 and the alleged sale having taken place during the previous year to the assessment year. The Tribunal accepted the department's contention and held that the Appellate Assistant Commissioner had fallen into an error in accepting the story regarding the sale of shares which was made out before him for the first time because the assessee had all through maintained before the Income-tax Officer that he had enough cash savings, meaning thereby that he had surplus over and above the money that bad already been invested in the shares. The assessee duly made a categorical statement regarding cash being kept in his chests as per his statement before the Income-tax Officer. The Tribunal held that the Appellate Assistant Commissioner had overlooked this aspect of the matter and simply accepted a new fact which, though apparently giving an explanation of the immediate source, still kept the money factor unexplained. The Tribunal, therefore, reversed the judgment of the Appellate Assistant Commissioner and restored the order of the Income-tax Officer. The Tribunal, inter alia, held as follows :