TMI Blog1960 (11) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... Denomination Notes (Demonetisation) Ordinance, 1946, the assessee stated the source of these high denomination notes to be on account of banking business and convenience. A copy of the declaration form is made part of the case and is annexure A . The Income-tax Officer thereupon served on the assessee on August 20, 1949, a notice under section 22(2) read with section 34 of the Income-tax Act calling upon the assessee to file his return of the income that had escaped assessment. In response to this notice, the assessee again declared an income of ₹ 11,780 and in response to notices under sections 22(4) and 23(2), he produced his accounts. The assessee tendered a written explanation on October 6, 1949, explaining the nature and source of the high denomination notes. The assessee stated that the high denomination notes came out of the cash balance on January 12, 1945. Along with his written explanation the assessee submitted a statement showing the cash balance on the various dates before and after the High Denomination Notes (Demonetisation) Ordinance. A copy of the statement of the assessee along with its accompaniments is made part of the case and is annexure B . On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation notes had been tendered by the assessee on that day. The Appellate Assistant Commissioner saw the other initials of the Income-tax Officer in the cash book and came to the conclusion that as none of the initials bore any date, it was difficult to say when exactly the particular initials were made in the cash book. The Appellate Assistant Commissioner also examined the register in which the receipt of the Declaration Form was entered and he felt satisfied that that form was received by the Income-tax Officer after the original assessment was made. A copy of the relevant entries from the Declaration Form Register is made part of the case and is annexure D . The Appellate Assistant Commissioner also took into consideration the fact that in the original assessment there was no reference to any enquiry regarding the encashment of the 45 high denomination notes. On these facts, he concluded that as the Income-tax Officer had obtained the information about the encashment of the high denomination notes subsequent to the making of the original assessment, the initiation of the proceedings under section 34 was proper and justified. On facts, he agreed with the Income-tax Officer that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n January 18, 1946, represented the income of the assessee liable to tax under the Indian Income-tax Act ? 6. The draft statement of the case was placed before the parties and the case was fixed for finalisation on September 12, 1956. On that date the assessee did not remain present. The Commissioner of Income- tax has no suggestion to make. The statement is, therefore, finalised. K. N. Sethi, for the assessee. Gopal Behari, for the Commissioner. JUDGMENT The judgment to the court was delivered by UPADHYA, J.--The questions referred for the opinion of this court are: 1. Whether the proceedings under section 34 of the Income- tax Act are legal and valid? 2. Whether there was material for the finding that rupees ten thousand out of forty-five thousands realised by the assessee by encashment of 45 high denomination notes on January 18, 1946, represented the income of the assessee liable to tax under the Indian Income-tax Act? The assessee is a Hindu undivided family doing financing work and was the Government Treasurer at Shahjehanpur. The original assessment for the year 1947-48 was made on an income of ₹ 12,588. Thereafter the Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment Treasury and having further accepted that in the course of business activities the assessee had to handle various denominations of currency notes and that the cash balance in hand was ₹ 58,000 and odd, it appears extremely difficult to appreciate how the Tribunal thought it necessary or proper to make an estimate of 35 notes at ₹ 1,000 each to have been contained in the cash balance. The Tribunal has given no reason whatever for its finding that the assessee possessed 35 notes of ₹ 1,000 each on the day the Ordinance was promulgated. This evidently is an arbitrary expression of its own guess, which cannot be accorded the status of a finding. Equally arbitrary is the other finding that the balance of 10 notes was from an undisclosed source. The persistent claim by assessees prior to 1939 that an independent body should be empowered to decide finally the appeals relating to taxation was responsible for the creation of the Income-tax Appellate Tribunal. This Tribunal is expected to function in a judicial manner. The Supreme Court and some other courts have had occasion to express the view that the Tribunal should act in a judicial manner, and it is only when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e chest account though his explanation was that the notes were savings from his personal allowance, (2) that he could not save any money as there was a recital in a lease that he needed money to pay income-tax and road cess, and lastly (3) that the assessee was not in a position to say wherefrom the notes of ₹ 10,000 each were obtained and his failure to do so led to the conclusion that he was unwilling to disclose the source. The court held that there was no material to suggest that a home chest account was maintained and no adverse inference could be drawn because such account was not produced. The court noticed that the assessee had produced accounts for seven years before the Tribunal showing that the Raja had a balance of ₹ 18,400 and recital in the document, therefore, was not proved to be correct. The court further held that no onus could be thrown upon the Raja to indicate the source from each note to the value of ₹ 10,000 was received and no adverse inference ought to have been drawn by the Tribunal against the assessee. In Ganguly v. Commissioner of Income-tax [1953] 24 I.T.R. 16. the same Bench upheld the addition of ₹ 4,000 on the ground tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal carefully and in a judicial manner. In the present case it is a matter of regret that the Tribunal has not indicated upon what material they have reached the conclusion that the amount of ₹ 33,000 out of the amount of ₹ 68,000 should be treated as secreted profit of the assessee. We consider that the order of the Appellate Tribunal is bad on account of this defect. In Mehta Parikh Co. v. Commissioner of Income-tax* the Supreme Court had occasion to consider a case where the assessee's explanation that high denomination notes worth ₹ 61,000 formed part of the cash balance had not been accepted in full. The cash balance of the assessee on January 12, 1946, was ₹ 69,891and was said to contain 61 notes of ₹ 1,000 each. The income-tax authorities did not consider the expalanation satisfactory. The Appellate Tribunal took the view that 31 notes could have formed part of the cash balance, but upheld the addition ₹ 30,000 as justified. The High Court of Bombay treated this finding of the Tribunal as a pure finding of fact. The Supreme Court reversed the decision and after referring to the law as pronounced by the House of Lords ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found, or the findings was, in other words, perverse and the Supreme Court was entitled to interfere. In the instant case the Income-tax Officer, in his order, has given two reasons for discarding the assessee's explanation. The first is that the details of the daily cash balance were not noted in any account. Ordinarily details of cash balance are not noted and when high denomination notes were legal tender and ordinarily acceptable in the market, it is unreasonable to expect an assessee to give details of the notes and coins which his cash balance contained day after day. The other reason given by the Income-tax Officer is that the actual source of the notes must have been within the special knowledge of the assessee and he has not given any evidence to show from whom he received these notes. When a person is handling large amounts of money and notes of various denominations are received and disbursed every day, it is obviously unreasonable to expect that an assessee should remember from whom he received any particular note, ev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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