TMI Blog1959 (5) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the judgment and order passed by the High Court will be set aside and the referred question will be answered in the negative. Appeal allowed. - - - - - Dated:- 14-5-1959 - Judge(s) : BHAGWATI., HIDAYATULLAH., S. R. DAS JUDGMENT The judgment of the court was delivered by BHAGWATI, J.---These are two connected appeals with special leave granted by this court under article 136 of the Constitution and arise out of the appellant's assessment to income-tax for the assessment year 1946-47 and excess profits tax for the chargeable accounting period January 9, 1945, to February 2, 1946. The appellant is a Hindu undivided family carrying on extensive business in grain as merchants and commission agents. It is one of the premier grain merchants and wholesalers of Sahibganj in the District of Santhal Parganas in the State of Bihar. It has branches at Nawgachia in the District of Bhagalpur and at Dhulian in the District of Murshidabad in West Bengal. The appellant filed its income-tax return for the assessment year 1946-47 showing a loss of Rs. 46,415 in the business. The Income-tax Officer, Patna, however, in the course of the assessment noticed that the appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commodities to Bengal by country boats. Dhulian which was just on the Bengal-Behar border was also reported to be a great receiving centre for such commodities. Having regard to all these circumstances, the Income-tax Officer rejected the appellant's explanation that the high denomination notes formed part of its cash balances and treated the sum of Rs. 2,91,000 as the appellant's secreted profits from business and included it in its total income and assessed the appellant for the said assessment year on the income of Rs. 1,39,117. Dealing with the excess profits tax assessment, he also held that the said income was derived from the business of the appellant and hence it was liable to excess profits tax also. The appellant preferred an appeal to the Appellate Assistant Commissioner against both these assessment orders and by his orders dated February 28, 1951, the Appellate Assistant Commissioner upheld the orders of the Income-tax Officer and dismissed the appeals. On further appeals from the said orders of the Appellate Assistant Commissioner to the Income-tax Appellate Tribunal, the Tribunal by its order dated April 29, 1952, dismissed both the appeals as regards income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax assessment based upon the result of the connected excess profits tax appeal. In regard to the excess profits tax appeal the Tribunal after taking into account the preceding and succeeding assessments and the nature of the appellant's business and the opportunities that it had to make substantial business profits outside the books held that the add back of Rs. 1,41,000 must be made to the business profits disclosed by the appellant. Consequential relief was accordingly given in the excess profits tax appeal also. The appellant thereafter applied to the Tribunal for stating a case and raising and referring to the High Court the following questions of law arising from the said order of the Tribunal both as regards the income-tax and the excess profits tax assessments : " (1) Whether there is any material to justify the conclusion that Rs. 1,41,000 is secreted profit for the purpose of assessment, this amount being a part of Rs. 2,91,000 and which was the amount represented by high denomination notes encashed by the petitioner ? (2) Whether there is any material for a finding that the sum of Rs. 1,41,000 is the secreted value of the high denomination notes was busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by this court on November 28, 1955, in both the appeals arising out of the assessment for income-tax as well as excess profits tax. Both the appeals arising out of these orders being Civil Appeals Nos. 679 and 680 of 1957 are now before us. The main question to determine in these two appeals is whether there was any material to support the finding of the Tribunal that the sum of Rs. 1,41,000 represented the secreted profits of the appellant's business and as such liable to be taxed in the hands of the appellant under the Indian Income-tax Act and the Excess Profits Tax Act ? The contention of the Revenue all throughout has been that it is a finding of fact reached by the authorities competent in that behalf and this court should not interfere with such findings of fact. The contention of the appellant, on the other hand, has been that even though it may be a finding of fact to be reached by the authorities concerned on the materials on the record before them, such finding is vitiated by reason of the authorities indulging in conjectures, suspicions and surmises and basing the same on no material whatever which goes to support the same. It is also contended that the finding reach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income-tax summarises the position thus : " We are aware that the Income-tax Appellate Tribunal is a fact finding tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there was with the appellant on January 12, 1946, an aggregate sum of Rs. 3,10,681-13-9 and it was highly probable that the high denomination notes of Rs. 2,91,000 were included in this sum of Rs. 3,10,681-13-9. The books of account of the appellant were not challenged in any other manner except in regard to the interpolations relating to the number of high denomination notes of Rs. 1,000 each obviously made by the appellant in the accounts for the assessment year in question in the manner aforesaid and even in regard to these interpolations the explanation given by the appellant in regard to the same was accepted by the Tribunal. Even though the Income-tax Officer made capital out of the interpolations and subsequent insertions in the books of account and styled the evidence furnished by them as created or manipulated evidence thus discounting the story of the appellant in regard to the source of these high denomination notes, the Tribunal was definitely of opinion that there was no other reason to suspect the genuineness of the account books in which these interpolations were found. As a matter of fact the Tribunal accepted these books of account as genuine and worked up i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cash balance at least Rs. 1,50,000 in the shape of high denomination notes on January 12, 1946, when the Ordinance was promulgated, was there any material on record which would legitimately lead the Tribunal to come to the conclusion that the nature of the source from which the appellant derived the remaining 141 high denomination notes of Rs. 1,000 each remained unexplained to its satisfaction. If the entries in the books of account in regard to the balance in Rokar and the balance in Almirah were held to be genuine, logically enough there was no escape from the conclusion that the appellant had offered reasonable explanation as to the source of the 291 high denomination notes of Rs. 1,000 each which it encashed on January 19, 1946. It was not open to the Tribunal to accept the genuineness of these books of account and accept the explanation of the appellant in part as to Rs. 1,50,000 and reject the same in regard to the sum of Rs. 1,41,000. Consistently enough, the Tribunal ought to have accepted the explanation of the appellant in regard to the whole of the sum of Rs. 2,91,000 and held that the appellant had satisfactorily explained the encashment of the 291 high denomination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its earning a considerable sum as against which it showed a net loss of about Rs. 45,000 and that the appellant had all these probable source or sources from which the appellant could have earned the sum of Rs. 2,91,000 which was represented by the high denomination notes of Rs. 1,000 each. The Appellate Assistant Commissioner also emphasized the said aspect but based his conclusion mainly on the ground that the appellant had failed to prove that the high denomination notes had their origin in capital and not in profit and held that the Income-tax Officer was justified in treating the sum of Rs. 2,91,000 as secreted profits. This was the background against which the Tribunal came to its own conclusion. Even though it recognised that it was not improbable that when very large sums, say in excess of Rs. 10,000 at a time, were received, a fairly good portion thereof consisted of high denomination notes and as high denomination notes were valid tender and nobody could have foreseen that they would be demonetised suddenly in January, 1946, there was nothing out of the way in persons dealing with tens of thousands of rupees and whose balances ran to lakhs, being in possession of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain licence at Nawgachia and the prosecution of the appellant under the Defence of India Rules was also of no consequence inasmuch as the appellant was acquitted of the offence with which it had been charged and its licence also was restored. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the Income-tax Officer and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denomination notes,---this also was a pure conjecture or surmise on the part of the Income-tax Officer. As regards the disclosed volume of business in the year under consideration in the head office and in branches the Income-tax Officer indulged in speculation when he talked of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of any evidence to show that the excluded notes were profits earned by the assessee from undisclosed sources. The assessee having given a reasonable explanation the Tribunal could not, by applying a rule of thumb, discard it so far as the rest were concerned and act on mere surmise. In arriving at its decision this court referred to the case of Chunilal Ticamchand Coal Co. Ltd. v. Commissioner of Income-tax and stated that the case before it should also have been similarly decided by the High Court in favour of the assessee. A decision of the Allahabad High Court reported in Kanpur Steel Co. Ltd. v. Commissioner of Income-tax may also be noted in this context. The assessee there encashed 32 currency notes of Rs. 1,000 each on January 12, 1946, when the High Denomination Bank Notes (Demonetization) Ordinance, 1946, came into force, and when the Income-tax Officer called upon it to explain how these currency notes came into its possession, the assessee claimed that the notes represented part of its cash balance which, on that date, stood at Rs. 34,313. The Income-tax Officer rejected the explanation and assessed the amount of Rs. 32,000 represented by these currency not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Mehta Parikh Co. v. Commissioner of Income-tax and Chunilal Ticamchand Coal Co. Ltd. v. Commissioner of Income-tax. It is, therefore, clear that the Tribunal in arriving at the conclusion it did in the present case indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of the facts which could not 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 finding was, in other words, perverse and this court is entitled to interfere. We are, therefore, of opinion that the High Court was clearly in error in answering the referred question in the affirmative. The proper answer should have been in the negative having regard to all the circumstances of the case which we have adverted to above. The appeals will accordingly be allowed, the judgment and order passed by the High Court will be set aside and the referred question will be answered in the negative. The appellant will be entitled to its costs of the reference in the High Court and of these appeals in this court as against the respondent. Appeals allowed. - - TaxTMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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