AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1959 (5) TMI 12
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....f the assessment noticed that the appellant had encashed high denomination notes of the value of Rs. 2,91,000 on January 19, 1946. The Income-tax Officer asked for an explanation which the appellant gave stating that these notes formed part of its cash balances including cash balance in the Almirah account. The cash balances of the appellant on January 12, 1946, on which date the High Denomination Bank Notes (Demonetization) Ordinance, 1946, was promulgated were Rs. 29,284-3-9 in its Rokar and Rs. 2,81,397-10-0 in the Almirah account. The Almirah account was an account for moneys withdrawn and kept at home. The appellant sought to prove the fact that the high denomination notes encashed by it formed part of its cash balances from certain entries in its accounts wherein the fact that moneys were received in high denomination notes had been noted. Portions of these entries to the effect that moneys had been received in high denomination notes were found by the Income-tax Officer to be subsequent interpolations made by the appellant with a view to advance its case that the cash balances contained the high denomination notes encashed by it. The Income-tax Officer found that the appella....
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....missed both the appeals as regards income-tax as well as excess profits tax. Even though before the Income-tax Officer and the Appellate Assistant Commissioner the case of the appellant was that the account book which contained the entries in regard to the receipts of moneys in high denomination notes were genuine and correct, this position was abandoned by the appellant before the Tribunal. Before the Tribunal, the appellant stated that the said entries were made in sheer nervousness after the coming into force of the High Denomination Bank Notes (Demonetization) Ordinance, 1946, on January 12, 1946, as the appellant did not know that it had specific proof in its possession of having the high denomination notes as part of its cash balances. The Tribunal held that there was no other reason to suspect the genuineness of the account books in which these interpolations were made. If the entire account books were fabricated to serve its purpose, there would be no need for the appellant to make interpolations between the lines already written in a different ink and in such an obvious manner as to catch one's eye on the most cursory perusal. The Tribunal, however, examined the cash book ....
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....of the high denomination notes was business income liable to excess profits tax ?" By its order dated August 15, 1952, the Tribunal dismissed these applications stating that the finding of the taxing authorities was a pure finding of fact based on evidence before them and that no question of law arose out of the said order of the Tribunal. The appellant thereupon made applications to the High Court under section 66(2) for directing the Tribunal to state a case and raise and refer the said questions of law to the High Court for its decision. By its order dated January 21, 1953, the High Court directed the Tribunal to state a case and raise and refer the following question of law to the High Court for its decision in both the applications : " Whether there is any material to support the finding of the Appellate Tribunal that a sum of Rs. 1,41,000 is secreted profit liable to be taxed in the hands of the assessee under the Indian Income-tax Act and under the Excess Profits Tax Act. " The Tribunal accordingly stated a case and raised and referred the aforesaid question of law to the High Court. The said reference was heard by the High Court and judgment was delivered on Janua....
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.... contended that the finding reached by them is a perverse one which a reasonable body of men could not have arrived at on the material on the record. The limits of our jurisdiction to interfere with finding of fact reached by the courts or tribunals of facts have been laid down by us in various decisions of this court. In Dhirajlal Girdharilal v. Commissioner of Income-tax we observed that when a court of fact arrives at its decision by considering material which is irrelevant to the enquiry, or acts on material, partly relevant and partly irrelevant, where it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its decision, a question of law arises : Whether the finding of the court of fact is not vitiated by reason of its having relied upon conjectures, surmises and suspicions not supported by any evidence on record or partly upon evidence and partly upon inadmissible material. We also observed in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax that an assessment so made without disclosing to the assessee the information supplied by the departmental representative and without giving any opportuni....
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....res or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court. " It is in the light of these observations that we have to determine the question arising before us in the present appeals. It is clear on the record that the appellant maintained its books of account according to the mercantile system and there were maintained in its cash books two accounts: one showing the cash balances from day to day and the other known as "Almirah account" wherein were kept large balances which were not required for the day-to-day working of the business. Even though the appellant kept large amounts in bank deposits and securities monies were required at short notice at different branches of the appellant. There were also collections made from various beoparees or merchants and monies were also required for doing the grain purchase work on behalf of the Government. These monies were credited in the Almirah account which showed heavy cash balances from time to time. In the books of account for previous years it was the practice of the appellant to give details of the notes of high denominations giving the distincti....
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....t as genuine and worked up its theory on the basis of the entries which obtained in these books of account. The Tribunal had before it the statement of large amounts received by the appellant from the banks, different branches of the appellant and its beoparees or merchants which showed that between February 6, 1945, and January 11, 1946, amounts exceeding Rs. 1,000 aggregating to Rs. 5,04,713 had been received by the appellant. Even though large amounts may have been paid out by the appellant in this manner between the said dates, the entries of the balance in Rokar and the balance in Almirah showed that on January 12, 1946, the balance in Rokar was Rs. 29,234-3-9 and balance in Almirah was Rs. 2,81,397-10-0 the total cash balance thus aggregating to Rs. 3,10,681-13-9. Nobody had any inkling of the promulgation of the High Denomination Bank Notes (Demonetization) Ordinance, 1946, on January 12, 1946, and if in the normal course of affairs and situated as the appellant was, the appellant kept these large cash balances in high denomination notes of Rs. 1000 each, there was nothing surprising or improbable in it. If the appellant had to disburse such large sums of monies at short not....
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.... the 291 high denomination notes of Rs. 1,000 each on January 19, 1946. The Tribunal, however, appears to have been influenced by the suspicions, conjectures and surmises which were freely indulged in by the Income-tax Officer and the Appellate Assistant Commissioner and arrived at its own conclusion, as it were, by a rule of thumb holding without any proper materials before it that the appellant might be expected to have possessed as part of its business, cash balance of at least Rs. 1,50,000 in the shape of high denomination notes on January 12, 1946,---a mere conjecture or surmise for which there was no basis in the materials on record before it. The Income-tax Officer had indented in support of his conclusion the surrounding circumstances, viz., that the appellant was one of the premier arhatdars and grain merchants of Sahibganj with branches, doing similar business, at Nawgachia and Dhulian and all these places were very important business centres and Sahibganj the principal place of business had gained sufficient notoriety for smuggling foodgrains and other commodities to Bengal by country boats, and Dhulian which was just on the Behar-Bengal border was reported to be a g....
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....eing in possession of a fair proportion of their balances in the shape of high denomination notes. While recognising this probability of the appellant having been in possession of a fair proportion of its balances in the shape of high denomination notes, the Tribunal, unconsciously though it was, fell into an error when it held that the appellant might be expected to have possessed at least Rs. 1,50,000 in the shape of high denomination notes as part of its cash balance, thus treating the remaining Rs. 1,41,000 in the high denomination notes of Rs. 1,000 each as outside the purview of these cash balances. Unless the Tribunal had at the back of its mind the various probabilities which had been referred to by the Income-tax Officer as above it could not have come to the conclusion it did that the balance of Rs. 1,41,000 comprising of the remaining 141 high denomination notes of Rs. 1,000 each was not satisfactorily explained by the appellant. If the entries in the books of account were genuine and the balance in Rokar and the balance in Almirah on January 12, 1946, aggregated to Rs. 3,10,681-13-9 and if it was not improbable that a fairly good portion of the very large sums recei....
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.... when he talked of the possibility of the appellant earning a considerable sum as against which it showed a net loss of about Rs. 45,000. The Income-tax Officer indicated the probable source or sources from which the appellant could have earned a large amount in the sum of Rs. 2,91,000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appellant in its business was the result of pure conjectures and surmises on his part and had no foundation in fact and was not proved against the appellant on the record of the proceedings. If the conclusion of the Income-tax Officer was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely by a rule of thumb, as it were, came to the conclusion that the possession of 150 high denomination notes of Rs. 1,000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of Rs. 1,000 each. The position....
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....hese currency notes as suppressed income of the assessee from some undisclosed source. The Tribunal took into account the statement of sales relating to a few days preceding the date of encashment and found that the highest amount of any one single transaction was only Rs. 399. The Tribunal also referred to another statement of the daily cash balances of the assessee from December 20, 1945, to January 12, 1946, and noted that the cash balance of the assessee was steadily increasing. The Tribunal however, estimated that high denomination currency notes to the value of Rs. 7,000 only could form part of the cash balance of the assessee. It therefore upheld the assessment to the extent of RS. 25,000. On a reference to the High Court it was held (i) that the burden of proof lay upon the Department to prove that the sum of Rs. 32,000 represented suppressed income of the assessee from undisclosed sources, and the burden was not on the assessee to prove how it had received these high denomination currency notes; for, until the Demonetisation Ordinance came into force high denomination currency notes could be used as freely as notes of any lower denomination and no one had any idea that it ....