1966 (10) TMI 23 - HC - Income Tax

Assessee encashed 28 high denomination notes of Rs. 1, 000 each - Whether there was material before the Tribunal to hold that whereas 22 high denomination notes out of a total of 28 high denomination notes could form part of the assessee s cash balance the remaining 6 high denomination notes could not form part of such balance - Held no

Summary

Issues:
1. Interpretation of the Indian Income-tax Act, 1922 regarding the treatment of high denomination notes in the cash balance of an assessee.
2. Determining the source of high denomination notes encashed by an assessee.
3. Assessing whether income from undisclosed sources can be attributed to high denomination notes.

Detailed Analysis:
The judgment delivered by the High Court of Allahabad pertains to a case under section 66(2) of the Indian Income-tax Act, 1922. The primary issue revolves around determining whether certain high denomination notes forming part of the assessee's cash balance were sourced legitimately. The relevant facts indicate that the assessee, a Hindu undivided family engaged in business activities, encashed 28 high denomination notes of Rs. 1,000 each during the assessment year 1947-48. The Income-tax Officer questioned the source of these notes, leading to a dispute regarding the inclusion of the entire amount in the assessee's income from undisclosed sources.

The Appellate Assistant Commissioner upheld the Income-tax Officer's decision, prompting the assessee to appeal to the Tribunal. The Tribunal acknowledged the substantial cash balance maintained by the assessee but questioned the source of six high denomination notes out of the total 28. This assessment involved an element of speculation due to the lack of concrete evidence. The Tribunal partially allowed the appeal, sustaining an addition of Rs. 6,000 as income from an undisclosed source, based on the perceived discrepancy in the origin of these notes.

The judgment references previous cases, including Mehta Parikh & Company v. Commissioner of Income-tax and Kanpur Steel Company v. Commissioner of Income-tax, to establish the legal principles guiding such matters. These cases emphasized the importance of not drawing conclusions based on conjecture and highlighted that possession of high denomination notes did not inherently indicate undisclosed income. The court reiterated that the burden of proof lies with the tax authorities to establish any discrepancies conclusively.

Ultimately, the High Court ruled in favor of the assessee, rejecting the notion that the entirety of the encashed high denomination notes constituted undisclosed income. The judgment emphasized the need for a reasonable and evidence-based approach in assessing such cases. The court directed the department to bear the costs of the reference and the counsel's fee, concluding the matter in favor of the assessee.