1963 (11) TMI 84 - HC - Income Tax

High Court affirms tax on undisclosed income despite borrower's evidence. Burden on proof emphasized.

The High Court upheld the department's decision to treat the sum of Rs. 21,500 as undisclosed income and subject it to taxation. Despite the assessee's ... - Issues:Whether the sum claimed as borrowed by the assessee from two individuals represents income assessable under 'other sources' and as income from undisclosed sources.Analysis:The assessee operated a clearing and forwarding agency and declared a net income for a specific year. However, the Income-tax Officer discovered deposits and withdrawals in the names of two individuals, Murugesam Pillai and Krishnamurthi of Karaikal. The officer deemed these individuals fictitious as investigations revealed no such persons at the provided addresses. Consequently, the officer treated the sum of Rs. 21,500 as undisclosed income and subjected it to taxation. The assessee contended that the transactions were genuine borrowings, supported by letters from the alleged lenders. Despite the department's correspondence with the lenders and an inspector's failed attempt to locate them, doubts persisted regarding the authenticity of the transactions. The Appellate Assistant Commissioner refused to accept affidavits from the lenders and suggested producing them for examination, which the assessee declined due to alleged fear of consequences.The High Court directed the examination of Murugesam Pillai and Krishnamurthi by a departmental inspector. The assessee's counsel argued that the department's independent correspondence with the lenders should have sufficed to establish the transactions' veracity. Reference was made to a Bombay High Court decision, emphasizing the burden on the assessee to prove the transactions' legitimacy. The court clarified that the initial burden lies on the assessee to demonstrate the transactions' authenticity, not merely the lenders' existence. The court highlighted the necessity for the assessee to provide evidence supporting the nature of the transactions to discharge this burden effectively.The court noted the suspicious behavior of the lenders, who refused to appear before the Income-tax Officer, raising doubts about the transactions' genuineness. It rejected the argument that the department must identify alternative income sources before taxing unexplained entries. The court emphasized that if the assessee fails to prove the funds' non-income nature, they must be treated as income. Even excluding subsequent statements from the lenders, the court found sufficient material for the Tribunal to conclude that the sum in question represented income from undisclosed sources.Upon examining the lenders' statements, which revealed vague reasons for lending without documentation or interest agreements, the court affirmed that even with this evidence, the department's conclusion would have remained unchanged. Consequently, the court ruled against the assessee, ordering them to bear the department's costs and counsel fees.