Smt. Srilekha Banerjee And Others v. Commissioner Of Income-Tax, Bihar And Orissa

1963 8ijayt111011da Pot11ait v. Ga1,.,glina Sa/w w ...... J. 19/JJ M.,<11 11 552 SUPREME COURT REPORTS [1!164] VOL. for withdrawal of an appeal, the proper course for the High Court would be to consider all that is required bys. 110 itself. However in view of our decision on the first question we need not pursue the point further. We, therefore, allow the appeal, set side the order of the High Court and in view of the unconditional application for withdrawal made by Satrughna Sahu, the appellant before the High Court, order that the appeal before the High Court should stand with-drawn. In the circumstances we pass no order as to costs. Appeal allowed. SMT. SRILEKHA BANERJEE AND OTHERS COMMISSIONER OF INCOME-TAX, BIHAR AND ORISSA (S.K. DAS, A.K. SARKAR and M. HIDAYATUJ,LA.H JJ.) [1\COl1\t Tax-Sale of high denominalio1' notts-Sale procud•, if liable to tax-Indian Incomeo-ta~ Act, 1922 (11 of 1922). The asscssee had encashed 51 high denomination note• of R1. 1,000/- each injanuary, 1946. The assessee'• explanation in his application for encashment of the notes was that he '"1.'.U a colliery proprietor and contractor, that for conducting the buainess and for payment to labour which came tc a!,out Rs.30,000/-to 4-0,000/- every week he had to keep large sums of money to meet emergency and that the sum of R.. 5r ,000/ -realised by cncashment of the notes wa• neither profit nor part of profit but was floating capit~l for.the purpose of.condu.liaJ business. The Income-tax Officer did not accept thu explana-tion and treated this amount •• profit from 10me undisclosed 2 S.C.R. SUPREME COURT REPORTS source and assessed it as assessable income. The assessec conten-ded that the burden lay on the department to establish that the amount in question was income liable to tax and that the department had failed to establish this. Section: CONCLUSION Held that the department was justified in holding that Rs. 51,000/- was assessable income of the assessee from some undisclosed source. It was not correct that the assessce was not required to prove anything and that the burden was entirely upon the department to prove that the amount received from the encashment of high denomination notes was income. The correct position is as follows. If there is an entry in the account books of the assessee which shows the receipt of a sum or conversion of the notes by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money was and to prove that it did not bear the nature of income. The depanment is not at this stage required to prove anything. If the business, the state of accounts and dealing of the a1Scssee show that he might have, for convenience, kept the whole or part of a particular sum in high denomination notes, the assessee prima facie discharges his initial burden. If the assessee does this the department cannot act unreasonably and reject that explanation to hold that it was income. If the explanation is unconvincing, the department can reject it and draw the inference that the amount represents income either from the source already disclosed by the asscssee or from some undisclosed source. Before the department rejects such evi-dence it must either show an inherent weakness in the explana-tion or rebut it by putting to the asscssce son1e infortnation or evidence which it has in its possession. The fact that there was rec!eipt of money or conversion of notes is itself prima Jacia evidence against the assessee on which the department can proceed in absence of good explanation. In the present case though cash used to be received from Banks and sent to the various places where works were carried on by the asscssee and vice versa, no central account of such transf~rs was disclosed. There was also no account of personal expenses of the assessee and he failed to prove why such large sums were kept at hand in one place when at each of the places where work wa1 carried on, there were Banks with which he had accounts. Further though this large sum was kept on hand, further cheques were drawn to meet current needs and this amount remained untouched. not bear the nature of Kanpur Steel Co. Ltd. v. C. I. T. [1957] 32 I. T. R. 56, Lalchand Bhagat Ambica Ram v. CommisBioner of Inc"'1!e-tax, Bihar and Oriesa, [1959] 37 I. T. R. 288; Manindranath DaB1' v, OommisBioner of Income-tax, Bihar and Orissa, [1955] 196J Sriltk ho B11t11rj11 C.mmisriener •• •f lncome-1 eut1 Bihar ~ 01i11• J963 Sri/&ha B...,,j,, .. Ccrmmissiontr of ln"1nt·T~, Bihat (JI Orisso Hid•µlu//411 J. 554 SUPREME COURT REPORTS [196-i) VOL. 27 I. T. R. 522, A. Govindarajullt Mudaliar v. Co1nmi'8io11er of Income-lax, Hyderabad, fl958J 34 I. T. R. 807, Chunilal Ticam-cha_nd Goa! Co. l.Jd. v. Oommisllicmer of Income-tax, Bihar and Orissa,[19~5] 27 I. T. R. 602,MehJa Parikh & Co. v. Commia-si<mer of Income-tax, Bombay [1956] 30 I. T. R. 181 and Soyachand Baid v. Gommissianer of Income-tax, (1958] 34 I. T. R. 650, referred to. Crvrr. APPELLATE JunrsDICTION : Civil Appeal No. 486 of 1962. Appeal by special leave from the judgment and decree dated September 24, 1959, of the Patna High Court in Miscellaneous Judicial Case No. 318 of 1957. A. V. Viswanatha Sastri and P. K. ChaUerjet, for the appellants. K. N. Rajagopal Sastri and R. N. Sachtliey, for the respondent. 1963. March 27. The judgment of the Court was delivered by HTDAYATULLAH J.-This is assessee's appeal by special leave of this Court against an order of the High Court of Patna, answering in favour of the Department the question "whether in the circumstances of the case the amount of Rs. 51,000 being the value of high denomination notes encashed by the assessee, has been validly taxed as profits from some undisclosed business". The original assessee, Rai Bahadur H. P. Banerjee, is dead. His son, who was substituted in his place, also died during the pendency of the proceedings in the High Court. The present appeal has been filed by the widow of the son and other legal representa-ti vcs. Banerjee was the owner of several collieries in the Jharia Coal fields in the State of Bihar and was also a contractor for raising coal. This matter re- lates to the asse~sment year 1946-4 7. For that year, Banerjee was assessed on an income of Rs. 1,28, 738. The assessment was then re-opened under s. 34 of the Indian Income-Tax Act, and was enhanced, but subsequently on appeal, it was reduced to a sum a little below the original assessment. The present assessment was made on a second re-opening of the case under s. 34 in the following circumstances. On January 22, 1946, Banerjee encashed high denomination notes of the value of Rs. 51,000/-. In his application under the Ordinance which demone-tized high denomination notes, Banerjee gave the reason for the possession. of the notes as follows:- "! am engaged in business as colliery proprie- tor, contractor under Messrs. Kilburn & Co. in the name and style of H.P. Banerjee & Son and also under the State Rly. Bokaro, Swang, Hazari bagh district in the name of Jharia Dhanbad Coal & Mica Mining Co., .......... .. For conducting the business and payment to labour, I have to pay every week between 30/40 thousand as I did not get payment for work done every week. I had to keep large sum of money to meet emergency ...................... .. It is neither profit nor part of profit-it i1 very floating capital for purpose of conduc-ing business. It is not an excess of profit". He stated that he had accounts with (1} Imperial Bank of India, (2) Nath Bank Ltd., Jharia, and (3) Central Bank of India Ltd., Bhowanipore Branch, but added that he did not remember exactly from which Bank the notes came into his possession, as his transanctions were frequent. The notice which was issued to him under s. 34 of the Income Talli Act, was not questioned on any of the grounds which are usual in such cases. Banerjee's explanation 1963 Sti'l1kha Ban1r;'t1 v. C1111missi.n1r •f Jncomt·Tax, Bihar ~ Oriss• Hi"4,•tul11h /. Srillklrt1 llan1rj11 v. Commisliontr of /11com1-Tax, Bihot ti/ Vrissa Hiiay2tullah J, ~56 SUPREME COURT REPORTS [1964] VOL. 1963 was not accepted; The Income Tax Officer pointed out that although his busine~s was large and the withdrawals from the various banks were large and frequent, he had not maintained a central account showing withdrawab from the banks and remittances made to his various businesses, and that none of the books maintained by the as5essee and produced by him, contained a bank account. The Income Tax Officer found a discrepancy of nearly Rs. 50,000 in the i;tatements filed by the assessee. He, accordingly, treated the high denomination notes as profits from some un-disclosed source and assessed them as assessable in-come. Banerjee appealed to the Appellate Assistant Commissioner and further to the Tri bun al. Both the authorities upheld the order of the Income Tax Officer. The as5essee demanded a case which was refused, but the High Court directed a statement of the case on the question already quoted. The High Court decided the question against the assessee, and hence this appeal. The connection of the appellants is that since the Department had issued a notice under s. 34 of the Income Tax Act, it was incumbent on the department to establish that the amount in question was income which had escaped assessment. The appellants also contend that even if the assessee was required to prove the source of the high denomina-tion notes, he had sufficiently proved it by showing that he had large amounts on hand, which were held for convenience in high denomination notes. The appellants thus submit that the burden, if any, upon the assessee was discharged in the case, and the evidence being unrebutted, the additional assClSment could not be made. The appellant rely upon Kanpur Steel Oo., Ltd. v. C. I. T. ([1]) where, according to the appellants, the Allahabad High Court explained the nature of burden of proof in the way contended for by the appellants. They (I) [1957) 32 I, T, ll. ff. 557 claim that the Allahabad case applies to the facts here and point out that the said ruling was consider-ed and approved by this Court in Lalchand Bhagat Ambica. Ram v. Commissioner of Income Tax, Bihar and Orissa ([1]). Other cases have been cited on behalf of the department. The cases involving the encashment of high denomination notes are quite numerous. In some of them the explanation tendered by the tax·payer has been accepted and in some it has been rejected. The manner in which evidence brought on behalf of the tax-payer should be viewed, has of course, depended on the facts of each case. In these cases in which the assessee proved that he had on the relevant date a large sum of money sufficient to cover the number of notes encashed, this Court and the High Courts, in the absence of something which showed that the explanation was inherently impro-bable, accepted the explanation that the assessee held the amount or a part of it in high denomina-tion notes. In other words, in such cases, the assessee was held prima facie to have discharged the burden which was upon him. Where the assessee was unable to prove that in his normal business or otherwise, he was possessed of so much cash, it was held that the assessee started under a cloud and must dispel that cloud to the reasonable satis· faction of the assessing authorities, and that if he did not, then, the Department was free to reject his explanation and to hold that the amount represented income from some undisclosed source. The case which is strongly relied upon by the as-sessee is Kanpur Steel Co., Ltd. v. C. I. T.('). In that case, 32 notes of Rs. 1,000 were encashed. It was claimed that they were part of the cash balance of the company which amounted to Rs. 34,000 odd. The Income Tax Officer examined the entries regard-ing sales preceding the encashment of the notes and (I) [1959) 37 J.T.R. 288 (2) [1957) 321.T.R. 56. 196$ Srilekha Banerjee v. Commissioner of /n;om1.'f ax, Biht1r & Q,isso Hii•J•lull. h J, 1963 StildM B01t1rj11 v. ComrnUliorur 11/ lnccme-l u, Bihar ~ Oriss• /lii•yatullah J. 558 SUPREME COURT REPORTS [1964] VOL. found that those sales brought in sums under Rs. 1,000 and could not have resulted in the accumulation of so many high denomination notes. The Tribunal then came to the conclusion that Rs. 7,000 only could have been held in high deno· mination notes. On a reference, the Allahabad High Court held that the burden lay upon the Department to prove that Rs. 32,000 was suppressed income and there was no burden on the assessee to show whence he got the notes, because until demonetization, there was no idea that possession of high denomination notes would have to be explained. The High Court also found that the explanation was fairly satisfactory, because big notes might have been received even in small transactions and change taken, and that the High Court could not make a conjecture how many notes could or could not have accumulated. It is contended before us that the burden in such cases lies as stated by the Allahabad High Court. On the other hand, in 1ll anindranatli Das v. Commissioner of lrw1Jme Ta.r:, Biliar & Orissa ('), the tax-payer had encashcd notes of the value of Rs. 28,000, which he contended were his accumulated savings. His explanation was accepted in respect of Rs. 15,000, because 15 notes could be traced to a bank, but was rejected in respect of the balance. The Patna High Court pointed out that if an assessee received an amount in the year of account, it was for him to show that the amount so received did not bear the character of income, and the tax-payer in the case had failed to prove this fact in respect of the remaining notes. The Patna case finds support in A. Govindaraju Jludaliar v. Commissioner of Inoome Ta:c, Hyderab<1d; ('), where it is laid down by this Court that if an assessee fails to prove satis-factorily the source and nature of an amount receiv-ed by him during the accounting year, the Income Tax Officer is entitled to draw the inference that the (1)