TMI Blog1957 (2) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... letter is made a part of this case and is annexure 'A'. In the assessment year 1946-47, relevant for the accounting year ending on 7th November, 1945, the assessee company received a sum of Rs. 20,270-5-3 as commission which amount was earned by it on sales of sugar from 1st October, 1944, to 30th September, 1945. This amount was sent by cheque by the said Aira Sugar Factory as evidenced by the said factory's letter dated 10th October, 1945. The assessee company however did not receive any commission in the assessment year 1947-48 although according to the terms of the agreement the sum of Rs. 15,432 accrued to the assessee company. Since the company did not receive any commission in the year relevant for the assessment year it did not incorporate the income in its trading and profit and loss account for the year ending 27th October, 1946, relevant for the assessment year and having received the said sum of Rs. 15,431-9-0 it incorporated the amount in the trading and profit and loss account for the year ended 13th November, 1947, relevant for the subsequent assessment year 1948-49. This amount was received on 17th March, 1947, but the commission accrued upon the sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance remained at Rs. 13,537-8-9 and steadily increased to Rs. 34,313-1-9. The assessee company's counsel argued before the Tribunal that these high denomination notes were kept in the cash balance for the purpose of facilitating counting of money. The Tribunal held as follows : We cannot entertain this argument because cash is maintained by a businessman for the purpose of his business and not because it facilitates his counting. We however consider that there will be some force in an argument that in such a large cash balance collected during the course of business there will be some currency of high denomination. The Tribunal however for reasons given in its order estimated that there might be the possibility of 7 high denomination notes amounting to Rs. 7,000 remaining in the company's cash balance and therefore it directed the exclusion of this amount from the total computation of the income. The balance was held by the Tribunal to be income from some undisclosed source. 5. From the above facts and circumstances the following questions of law arise : (1) The assessee company having followed the mercantile method of accounting w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 high denomination currency notes of Rs. 1,000 each by the assessee company on 12th January, 1946, when the High Denomination Bank Notes (Demonetisation) Ordinance, 1946, came into force. The Income-tax Officer called upon the assessee to explain how those 32 currency notes of Rs. 1,000 each came into possession of the assessee. The assessee claimed that the currency notes represented part of his cash balance which, on 12th January, 1946, stood at the figure of Rs. 34,313-1-9. The Income-tax Officer rejected this explanation and, consequently, held that the amount of Rs. 32,000 represented by those currency notes of Rs. 1,000 each to be suppressed income of the assessee from some undisclosed source. The assessee appealed unsuccessfully before the Appellate Assistant Commissioner of Income-tax. When the appeal came up before the Income-tax Appellate Tribunal, the assessee again failed on both the points but the Tribunal held that there was a possibility that seven high denomination currency notes of the value of Rs. 7,000 could represent part of the cash balance and, consequently, reduced the amount, which had been added back to the income of the assessee, to that extent. The Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any to explain its possession of those currency notes. The assessee company had naturally not kept any statement indicating when it received each one of those currency notes, because, at the time when it received them, it had no idea that it would be required to give such an explanation and, therefore, it was not in a position to prove how and when it came into possession of those currency notes. The assessee company, however, gave an explanation which, it appears to us, was fairly satisfactory and which the Tribunal has not found to be false. On 12th January, 1946, the assessee company had a cash balance of Rs. 34,000 and odd and, consequently, there is the possibility that the assessee company had 32 currency notes of Rs. 1,000 each in its possession as part of that balance. This explanation was not accepted by the Income-tax Appellate Tribunal but we have not been able to find any satisfactory reasons for this view taken by the Tribunal. The Tribunal has taken into account a statement of sales relating to a few days just preceding the date on which the High Denomination Bank Notes (Demonetisation) Ordinance, 1946, came into force. The statement of sales for those dates, which be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the course of its business transactions and could not have formed part of its cash balance. The Tribunal has also referred to another statement of the cash balance of the assessee on each day beginning with 20th December, 1945, and ending on 12th January, 1946. The Tribunal noted from this statement that the cash balance of the assessee company was steadily increasing. If the cash balance of the assessee company was steadily increasing it would not be at all unreasonable to accept the explanation given by the assessee company that, for the sake of convenience, the cash balance was being kept in high denomination currency notes. High denomination currency notes could be stored more easily and, at the time of accounting, they would have facilitated counting. Since the balance was increasing steadily, the assessee might not have felt it necessary to keep the balance in currency notes of low denomination in excess of Rs. 2,000 or so. It would thus appear that the Tribunal rejected the explanation of the assessee company on surmises and their opinion, which is not based on any material at all but on reasoning which is not necessarily correct, can hardly be acceptable. In this case, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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