1947 (4) TMI 10 - HC - Income Tax

Court Upholds Tax Officer's Power to Demand Proof of Credit Entry, Allows Proceedings under Section 34

Mahabir Prasad Munna Lal Versus Commissioner of Income-Tax

Mahabir Prasad Munna Lal Versus Commissioner of Income-Tax - [1947] 15 ITR 393 Issues Involved:1. Authority of the Income-tax Officer under Section 23(3) to suspect and require proof of a credit entry.2. Legal implications of a false or unbelievable explanation by the assessee regarding a credit entry.3. Legality of the initiation of proceedings under Section 34 of the Income-tax Act.Detailed Analysis:Issue 1: Authority of the Income-tax Officer under Section 23(3)The first issue addresses whether the Income-tax Officer can require the assessee to prove the genuineness of a credit entry in the personal account of a third party under Section 23(3) of the Indian Income-tax Act. The court affirmed that the Income-tax Officer had reasonable grounds to suspect the genuineness of the credit entry in the name of Hari Kishan. The officer's examination of the books and the unsatisfactory statement of the munim led to this suspicion. The court stated, 'The Income-tax Officer could, therefore, require the assessee to prove that the entry represented a genuine credit in favour of a third party.' Thus, the Income-tax Officer's actions under Section 23(3) were deemed proper.Issue 2: Legal Implications of a False or Unbelievable ExplanationThe second issue concerns whether the Income-tax Officer or the appellate authority can infer that a receipt evidenced by a credit entry is a revenue receipt if the assessee provides a false or unbelievable explanation. The court clarified that there is no legal impediment to such an inference. It stated, 'If an assessee gives an explanation which is false or unbelievable, there is nothing in law to prevent the Income-tax Officer or the appellate authority from inferring that the receipt evidenced by the credit entry is a revenue receipt.' The court emphasized that this would depend on whether the inference is reasonable and whether the assessee fails to prove the source of the money.Issue 3: Legality of the Initiation of Proceedings under Section 34The third issue examines whether the initiation of proceedings under Section 34 was contrary to law, rendering the assessment invalid. The court noted that the main argument was whether the Income-tax Officer had 'definite information' leading to the belief that income had escaped assessment. The court referenced the case of Badar Shoe Stores, In re [1946] 14 I.T.R. 431, which held that 'definite information' must be more than mere suspicion but need not be direct evidence. The court concluded that the information obtained during the assessment for the year 1939-40, which led to the belief that income had escaped assessment, was sufficient to justify the notice under Section 34. The court stated, 'We are not prepared to say that the information that he had received was not such as could lead a reasonable person acting honestly to believe that a part of the income of the assessee had escaped assessment.' Thus, the initiation of proceedings under Section 34 was deemed lawful.Conclusion:The court answered the third question in the negative, affirming the legality of the proceedings under Section 34. For the first question, the court upheld the Income-tax Officer's authority to require proof of the credit entry. Regarding the second question, the court confirmed that a false or unbelievable explanation by the assessee allows the Income-tax Officer to infer that the receipt is a revenue receipt. The department was awarded costs of the reference, assessed at Rs. 200, with a fee certificate to be filed within six weeks. A copy of the judgment was ordered to be sent to the Income-tax Appellate Tribunal.