TMI Blog1962 (8) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of Rajasthan and had its registered office at a place in the said State, it was always held to be a resident and ordinarily resident in the then British India, for the purpose of its assessment, in all years including the three assessment years with which we are concerned. In the course of the assessment proceedings of the assessee for the assessment year 1944-45, the Income Tax Officer found that a sum of ₹ 2,50,000 was credited in the books of the assessee company to the account standing in the name of one Rampratap Agarwal. The credit entry of ₹ 2,50,000 appearing in this account was of the date 10th October, 1942, a date which fell in the previous year ended with 31st July, 1943, for the assessment year 1944-45. This account of Rampratap Agarwal was continued in the assessee's account books and was finally closed on the 1st of August, 1950, by transferring the amount of the outstanding credit balance to the account of M/s. Surajmal Nagarmal. Since certain entries in this account are the subject-matter of the question referred to in the present reference, it may be necessary to state briefly the position of this account in several years. In the year en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that account to the extent of ₹ 2,50,000. The assessee's explanation was that Rampratap Agarwal was a benami for Messrs. Surajmal Nagarmal and the amount belonged to Messrs. Surajmal Nagarmal. The assessee stated that in the inquiry by the Investigation Commission under the Taxation on Income (Investigation Commission) Act, 1947, of the case of Messrs. Surajmal Nagarmal, this amount of ₹ 2,50,000 was accounted for an dealt with in the settlement reached by Messrs. Surajmal Nagarmal with the Central Government. The explanation was not accepted by the Income Tax Officer, and he treated the credit entry of ₹ 2,50,000 in the account of Rampratap Agarwal in the assessee's account books as the assessee's income from an undisclosed source. In the view that he took of the said cash credit entry, he also disallowed the item of interest of ₹ 2,020 credited in the account as not deductible under section 10(2) (iii) of the Income Tax Act. The assessee took the order of the Income Tax Officer in appeal before the Appellate Assistant Commissioner, who agreed with the view which the Income Tax Officer had taken, and dismissed the assessee's appeal. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e previous year for the assessment year 1945-46, an amount of ₹ 2,520-3-3 was credited in the account of Rampratap Agarwal by way of interest. In the assessment for the assessment year 1945-46, this item was disallowed by the Income Tax Officer because, according to the view which he had taken, the account of Rampratap Agarwal was an account of the assessee to conceal his undisclosed income. The view taken by the Income Tax Officer was confirmed both by the Appellate Assistant Commissioner and the Tribunal. The questions framed with regard to the order of the Tribunal relating to the assessment year 1945-46 are : 1. Whether, on the facts and in the circumstances of the case there was any material before the Tribunal to hold that the sum of ₹ 2,520. (Rupees two thousand five hundred and twenty) standing in the books of the assessee to the credit of Rampratap Agarwal as interest in the previous year relevant to the assessment year 1945-46 belonged to the assessee and should be assessed to Income Tax as income of the assessee from undisclosed sources ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether in his own name or in the name of third parties, the Income Tax Officer is entitled to satisfy himself as to the true nature and source of the amounts entered therein, and if after investigation or inquiry he is satisfied that there is no satisfactory explanation as to the said entries, he would be entitled to regard them as representing the undisclosed income of the assessee. When these credit entries stand in the name of the assessee himself, the burden is undoubtedly on him to prove satisfactorily the nature and source of these entries and to show that they do not constitute a part of his business income liable to tax. When, however, entries stand not in the assessee's own name, but in the name of third parties, there has been some divergence of opinion expressed as to the question of the burden of proof. In Radhakrishna Behari Lal v. Commissioner of Income Tax, the Patna High Court held that though when the cash credits stood in the assessee's name the burden of proof was upon him to show that the receipts were not of an income nature, the position was different in regard to sums which were shown in the assessee's books in the names of third parties. In the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n independent party, the burden will still lie upon him to establish the identity of the said party, and to satisfy the Income Tax Officer that the entry is real and not fictitious. When, however, in a case where the entry stands in the name of the third party, the assessee satisfies the Income Tax Officer as to the identity of the third party and also supplies such other evidence which will show, prima facie, that the entry is not fictitious the initial burden which lies on him can be said to have been discharged by him. It will not, thereafter, be for the assessee to explain further how or in what circumstances the third party obtained money and how or why he came to make a deposit of the same with the assessee. The burden will then shift on to the department to show why the assessee's case cannot be accepted and why it must be held that the entry, though purporting to be in the name of a third party, still represents the income of the assessee from a suppressed source. In order to arrive at such a conclusion, however, the department has to be in possession of sufficient and adequate material. Now, in the present case, the facts and circumstances are as follows : 6. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Nagarmal. This, according to the Appellate Assistant Commissioner, was the substance of the replies received by him from the Income Tax Officer with regard to the entry of ₹ 2,50,000 appearing in the account on the 10th October, 1942. As regards the entries for the year 1947-48, the reply was that Messrs. Surajmal Nagarmal had prepared a memoranda which they called account No. 2, for the period subsequent to 31st March, 1947, on the basis of concealed assets and income discovered by the Income Tax Investigation Commission, and that memoranda showed the cash advanced by them to Messrs. Orient Trading Co. Ltd. as follows : Rs. 2,00,000 on May 27, 1947, and ₹ 40,000 on March 19, 1948 . According to the Income Tax authorities this was not sufficient to establish the identity of these amounts appearing in the account books of the assessee as the amounts deposited with them by Messrs. Surajmal Nagarmal, because there was some discrepancy as to the dates occurring in the memorandum submitted by Messrs. Surajmal Nagarmal and in the account books of the assessee. Thus while the entry of ₹ 2 lakhs in the account books of the assessee was on the 24th May, 1947, that in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part which has been reproduced in the statement of the case actually and correctly means. Now, what we find from the order of the Appellate Assistant Commissioner is that the Income Tax Officer, Calcutta, in his reply stated that from the said account of Rampratap Agarwal occurring in the assessee's account books, a sum of ₹ 2,00,00, which was the outstanding credit balance in that account on 31st March, 1947, was regarded as part of the concealed income of Messrs. Surajmal Nagarmal. He, however, pointed out that the item of ₹ 2,00,000 could not be necessary connected with the initial deposit of ₹ 2,50,000 in that account on 10th October, 1942, because between that date and the 31st March, 1947, there were several other deposits and withdrawals in the said account. It that is the real position, then it seems to us impossible to take the view that the account of Rampratap Agarwal was not considered and treated as the account of Messrs. Surajmal Nagarmal by the Income Tax Investigation Commission in Messrs. Surajmal Nagarmal's case, If the whole of the account was considered as the account of Messrs. Surajmal Nagarmal, it was clearly not the assessee's o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e held to represent the assessee's income from undisclosed sources. There is no material whatsoever on the record on the basis of which the department can be said to have discharged that burden. The solitary circumstance of a difference of three days in the record of the entries with regard to the items of ₹ 2,00,000 and ₹ 40,000 in the books of account of the assessee and those of Messrs. Surajmal Nagarmal is not in view of the rest of the material on record sufficient to reject the assessee's case. Mr. Kolah has pointed out that the fact that the entries occur at a difference of three days in each case suggests that the difference may be due to the method of transmitting the amounts employed by Messrs. Surajmal Nagarmal or due to the particular method adopted by the parties of making entries in their accounts and this militates against any adverse inference which can be drawn against the case of the assessee. The explanation offered by Mr. Kolah cannot be accepted as the true explanation of the difference in the dates in the absence of any evidence relating to the method of transmission adopted by Messrs. Surajmal Nagarmal or with regard to any particular mode ..... X X X X Extracts X X X X X X X X Extracts X X X X
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