TMI Blog1954 (3) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... he share capital of the company is Rs. 5,00,000 divided into 50,000 shares of Rs. 10 each. These shares were held equally by the members of the two Hindu undivided families of Ticamchand Chaudhry and Baijnath Gopalka. The management of the affairs of the company was in the hands of Baijnath Gopalka. The previous year for the assessment year 1946-47 was the Bengali Samvat year 1352 (14th April, 1945, to 13th April, 1946). The assessment for 1946-47 was completed in the first instance under section 23(3) of the Income-tax Act on a total income of Rs. 49,779 which was reduced on appeal to the Appellate Assistant Commissioner to Rs. 29,350. After the completion of the assessment, the Income-tax Officer received information in January, 1947, to the effect that on 24th January, 1946, the assessee had encashed 3 high denomination notes of Rs. 10,000 each and 38 high denomination notes of the value of Rs. 1,000 each, on the promulgation of the High Denomination Notes Demonetization Ordinance. This information coupled with the facts on the record led the Income-tax Officer to believe that income had escaped assessment. He, therefore, initiated proceedings under section 34 of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lances are generally above 2 lacs and therefore whenever any large payments even up to Rs. 1,000 are made, he makes payments by cheques and not in cash. (iii) The business of the assessee is in coal mining where the cash required in the till are only to make petty payments to labourers and others. These payments hardly exceed Rs. 100 to one man on any day and therefore for these expenses cash balances kept by the assessee could not have been in notes of Rs. 10,000 denomination and Rs. 1,000 denomination because that would have been of no avail to him to meet the current expenses of the business. If the assessee had received any such high denomination notes from his constituents, it is impossible to believe that he had kept these notes to form the part of his cash balance and would not have sent the same to the bank particularly when his practice is to keep money in bank and he has got current accounts with almost all the banks at Jharia. It is, therefore, impossible to reconcile oneself to believe that the assessee's cash balances in the business books contained high denomination notes, which he exchanged. (iv) Scrutiny of the cash balances shown by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was Rs. 41,997 and the aggregate of the bank balances was Rs. 2,95,927. The assessee is a private limited company of two families and its business has been coal mining. No dividend has ever been declared though large sums have been taken out in the names of the shareholders as loans. Profits are allowed to accumulate and the accumulations are reflected by increasing bank balances. The cash balance in hand reflects the amount of ready funds necessary for conducting the day to day affairs of the mining business. Necessarily therefore the cash balances are comparatively much smaller than the bank balances. Cash balances represent moneys in actual use such as for making payments of wages and other mining expenses. Such wages and expenses cannot be paid out in high denomination notes of Rs. 10,000 or even Rs. 1,000. It would therefore be wholly unreasonable to accept the version that the larger part of the cash balance on 12th January, 1946 (the date of promulgation of the Demonetization Ordinance) or on 19th January, 1946, consisted of high denomination notes of Rs. 10,000 and Rs. 1,000. High denomination notes when received would find their way in the bank balance of the assessee ; t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pril, 1945, to 13th of April, 1946. For this year the petitioner showed a sum of Rs. 27,917 in his return. But this return was not accepted by the Income-tax Officer who increased the assessable income of the petitioner to a sum of Rs. 49,779. On appeal the amount was reduced by the Appellate Commissioner to a sum of Rs. 29,360. The matter was taken in further appeal to the Income-tax Appellate Tribunal who reduced the assessable income to the figure of Rs. 25,360 ; in other words, the incometax Appellate Tribunal practically accepted the figures given by the petitioner in his return except for minor details. In January, 1947, the Income-tax Officer received information that the assessee had exchanged high denomination notes after the passing of the Demonetization Ordinance on the 12th of January, 1946. A proceeding under section 34 was started against the petitioner and as a result of this proceeding the Income-tax Officer held that an additional sum of Rs. 68,000 should be added to the income of the petitioner. An appeal was preferred by the assessee against this assessment before the Appellate Assistant Commissioner but the appeal was dismissed. A further appeal was taken before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the 22nd of December, 1945. On this account the Income-tax Officer thought that the cash book produced by the petitioner was not regularly maintained and no reliance could be placed upon it. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer mainly upon the ground that the petitioner did not require to keep high denomination notes for the purpose of meeting daily expenditure of the coal business. The Appellate Assistant Commissioner also referred to the circumstance that there is no instrinsic evidence in the cash book to show that these high denomination notes were obtained by the petitioner in the course of the business. Upon these reasons the Appellate Assistant Commissioner dismissed the appeal holding that the amount of Rs. 68,000 was properly added to the return of the assessee. When the appeal was heard before the Appellate Tribunal, two grounds were taken on behalf of the Income-tax Department. It was urged in the first place that the account books should be rejected as unreliable on the ground that a sum of Rs. 20,000 which was withdrawn from bank on 22nd of December, 1945, was actually entered on 21st December, 1945, a day before the act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to us in this case. It was pointed out by Mr. Bahadur who argued on behalf of the Department that there was material on the record of the case to support the finding that the whole sum of Rs. 68,000 which was the value of the high denomination notes should be treated as secreted profit of the assessee. Counsel referred in this connection to the order of the Appellate Assistant Commissioner. Two reasons have been given by the Appellate Assistant Commissioner for the finding that the amount of Rs. 68,000 did not form a portion of the cash balance on the 12th of January, 1946, on which date the Demonetization Ordinance was promulgated. It was stated by the Appellate Assistant Commissioner in the first place that the book of account did not expressly mention that the high denomination notes were received by the assessee in the course of business dealings. But this is hardly a circumstance which can reasonably be taken into account in deciding whether the cash balance consisted in part of high denomination notes. The possession of high denomination notes did not attract suspicion before the authorities promulgated the Demonetization Ordinance. The mere fact that before the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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