# 8ijayt111011da Pot11ait v. Ga1,.,glina Sa/w

- **Citation:** [1964] 2 S.C.R. 552
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Bench:** S.K. Das, A.K. Sarkar, M. Hidayatuj, La.H
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/8ijayt111011da-pot11ait-v-ga1-glina-sa-w-2946
- **Pages:** 16

## Headnote

[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 explanation and treated this amount •• profit from 10me undisclosed
2 S.C.R.
SUPREME COURT REPORTS
553
source and assessed it as assessable income.
The assessec contended 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.
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 evidence it must either show an inherent weakness in the explanation 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.
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
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 Ticamcha_nd Goa! Co. l.Jd. v. Oommisllicmer of Income-tax, Bihar and
Orissa,[19~5] 27 I. T. R. 602,MehJa Parikh & Co. v. Commi

## Text

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 withdrawn. In the circumstances we pass no order as to
costs.
Appeal allowed.
SMT. SRILEKHA BANERJEE AND OTHERS
v.
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 explanation and treated this amount •• profit from 10me undisclosed
2 S.C.R.
SUPREME COURT REPORTS
553
source and assessed it as assessable income.
The assessec contended 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.
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 evidence it must either show an inherent weakness in the explanation 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.
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
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 Ticamcha_nd Goa! Co. l.Jd. v. Oommisllicmer of Income-tax, Bihar and
Orissa,[19~5] 27 I. T. R. 602,MehJa Parikh & Co. v. Commiasi<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
Hid•μlu//411 J.
HTDAYATULLAH J.-This is
an
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 representati vcs.
Banerjee was the owner of several collieries
in the Jharia Coal fields in the State of Bihar and
2 S.C.R. SUPREME COURT REPORTS
555
was also a contractor for raising coal. This matter relates 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 demonetized high denomination notes, Banerjee gave the
reason for the possession. of the notes as follows:-
"! am engaged in business as colliery proprietor, 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 conducing 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.
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 undisclosed source and assessed them as assessable income.
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 denomination 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.
2 S.C.R.
SUPREME COURT REPORTS
557
claim that the Allahabad case applies to the facts
here and point out that the said ruling was considered 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 improbable,
accepted the explanation that the assessee
held the amount or a part of it in high denomination 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 assessee 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 regarding 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 satisfactorily the source and nature of an amount received by him during the accounting year, the Income
Tax Officer is entitled to draw the inference that the
(1) [1955] 27 I.T.R. 522.
(2) [1958) H 1.T.R .8.70
2 s.c.R.
SUPREME COURT REPORTS
559
receipts are of an assessable nature. In that case, the
explanation-of the assessee in respect of the amounts
shown as credits for him in the account books of a
firm of which he was a partner, was rejected as uni true. It was held that it was open to the Income
Tax Officer and the Appellate Tribunal to hold that
the amounts represented the concealed income of the
assessee.
From the last two cases, it is plain that if there
is receipt of an amount in the accounting year, it is
incumbent in the first instance upon the assessee to
show that it does not bear the character of income.
If he fails to do this, the Income Tax Officer may
hold that it represents income of the asse1see either
from the sources he has disclosed or from 11ome undisclosed source.
In applying this principle to the cases of encashment of high denomination notes, there is some
difficulty when the assessee has books of account
which are accepted and in which there is a cash
balance sufficient to cover the amount of high
denomination notes.
Each case must depend upon
its own peculiar facts.
A few illustrative cases may
be noticed, because they show some differences in
the approach to the problem. In Chunilal Ticamchand Coal Co., Ltd., v. Commissioner of Income
Tax, Bihar and Orissa (1 ), high denomination notes
of the value of Rs. 68,000 were encashed. Evidence
showed that the assessee was in the habit of keeping
large sums which he kept intact for eme1gencies and
meeting the current needs from withdrawals from
the banks.
This explanation was
supported by
receipts and disbursement in the books of account.
The explanation was rejected as to a part because the
accounts did not mention the high denomination notes
and further because such notes were hardly needed
to pay wages to labourers.
The Tribunal, however,
held that t~e explanation might be true as to a part
(I) [1955] 27 J, T. R, 602.
1963
Srilekha Ba1.trjt1
••
Commissioner of
Income~ Tax,
Bihar & Oii$Ja
196!
SrlUila Ba1urj11
••
Commissiontr of
l11eom1·Tax,
BiAar 6f Orissa
Hitla)atullah J.
560 SUPREME COURT REPORTS [1964) VOL.
and accepted it in respect of Rs. 35,000, rejecting
it in respect of Rs. 33,000. The Patna High Court
held that the explanation which was held to be
reasonable as to a part must be good for the whole,
because there was no material on which it could
be held that the balance constituted income from
some undisclosed source to distinguish the case about
the part rejected from the part accepted.
In .Mehta Parikh & Co. v. Commissioner of
/ncorM Tax, Bombay, (') high denomination notes of
the value of Rs.61,000 were encashed.
The explanation was that they were part of the cash balance
on hand. The accounts disclosed that in order to
sustain the explanation, it would
have to be
presumed that the entire balance on January 1,1946,
was held in 18 notes of Rs. 1,000 each and that all
receipts up to January 18, 1046, when the notes were
encashed, were also in high denomination notes.
The affidavits of persons who stated that they had paid
amounts in Rs.1,000 notes were not accepted. The
Tribunal accepted the explanation as to Rs.31,000
only. This Court held that if the account books
were accepted and the deponents were not crossexamined on their affidavits, the rejection of the
explanation as to a part proceeded only on surmise
and the finding that Rs.30,000 were income from
some undisclosed source was based on no evidence.
It may be pointed out that Venkatarama Ayyar
J., in that case, chose to rest his decision on the
second ground only, treating the decision as involving
an error of law.
But
in
Sovachand Baid v.
Cmnmissioncr of !11come Tax, (') high denomination
notes of the value of Rs.2,28,000 were encashed.
The assessee >lated that he had inherited that amount
from his father in l!l42, and produced account books
from 1926 to 1942. He did not produce earlier
account books.
The Tribunal found that the books
were such as could be written at any time and did
not contain full dealings even between 1926 and
(I) [195tj 301.T.R. 181.
(2) [19!8] 34 I.T.R. 6~0,
2 S.C.R.
SUPREME COURT REPORTS
561
1942, and there were no entries showing that any
amount as such was received from business. The
Tribunal, however, held that Rs.1,28,000 only was
income from some undisclosed source. The a~sessee's
appeal in this Court was dismissed,
because the
rejection of the account books was held to be
reasonable in the circumstances of the case.
This
Court observed that the par ti a 1 rejection of the
explanation by the Tribunal must be treated as a
concession rather than a reasoned conclusion.
We now come to Lalchand Bhagat's case which
is strongly relied upon, particulary, as it has cited
the Allahabad case, so it is said, with ~omplete
approval. It is therefore, necessary to txamine it
closely to see if there is such an approval. In that
case, 291 high denomination notes of the value of
Rs.2,91,000 were
encashed. The assessee
was
maintaining for a long time past two accounts: one
was known as "Almirah Account", and other, "Rokar
Account". On the date the notes were encashed
there was a balance of Rs.2,81,397 in the almirah
account and Rs.29,284 in the rokar account. These
two amounts between them were sufficient to cover
the encashed notes.
The explanation was that for
the purposes of the business which was distributed
in many branches, a large amount of ready cash was
always kept at the
head office,
so that any
emergency might be met.
The business of the
assessee was admittedly extensive and the almirah
account had also existed for several years. Except
in the previous year in which the high denomination
notes were encashed, even the numbers of the high
denomination notes used to be shown in the almirah
account. The explanation was rejected on the
ground that those were the days of emergency and
the assessee, as a grain dealer, could have secretly
made money by smuggling grain, and that he had
once been prosecuted, though acquitted. It wa1
also said that the area where he did his business was
1969
Srilekha Banerj11
v.
Commissioner of
Income-Tax,
Bihar & Orissa
Hidayatullah J
1!16S
S•i1""4 Bl11ltfju
••
O,mm;.uion•r of
/n.;(lt1U- [tut,
Blllt1r & Q,iJ,a
HidaJalutlab J ,·
~62 SUPREME COURT REPORTS [1964) VOL.
notorious for smuggling and also that he
had
speculated in the year and might easily have made
F!rofits, though he had returned a loss from speculat10n.
Emphasis was also laid upon the fact that in
the year of account,
the numbers of the high
denomination notes were written subsequently. The
Tribunal accepted the two books of account as
genuine and also that there was a balance of
Rs.3,10,681 with the assessee.
Before the Tribunal
it was explained that in the year of account the
numbers of the high denomination notes were inserted
in the almirah account out of nervousness owing to
the demonetization of the notes. The Tribunal
accepted the explanation with regard to Rs. l,50,000
and rajected it with regard to Rs.I,41,000.
No
reasons were given for distinguishing the good part
of the explanation from the bad.
This Court examined the reasons and held that
except for the insertion of the numbers of notes in
the book, none of the other reasons had any probative
value and that they were mere conjectures and
surmises. This court pointed out that if the explanation for the interpolations was good for the acceptance
of the eirplanation as to Rs.1,50,000, it must be held
to be good also for the balance, because there was
nothing to distinguish between the two parts. This
Court, therefore, pointed out that the main question
about Rs.1,41,000 was whether there was any
material to justify a different conclusion in respect
of that amount and pointed to the following facts.
The assessee had established the need for keeping a
large sum on hand and had proved the almirah
account as a genuine account. The almirah account
contained the numbers of the high denomination
notes in the years previous to the year relative to
the assessment.
In that year, the numbers were
inserted subsequently and this was the only substantial
point against the a~sessee. This Court also pointed
out that there were statements of banks and accounts
,
..
·~
2 S.C.R.
SUPREME COURT REPORTS
563
of the branches and of beoparis, showing that large
amounts were received by the assessee, which made
up the amount in the alrnirah account. Between
February 6, 1945 and .January 11, 1946, when. the
notes were encashed, sums above Rs. 1,000 received
by the assessee aggregated to as much as rupees five
lakhs.
As the almirah account was not questioned
by the Tribunal at all, and out of that amount,
more than half was held to be in the shape of high
denomination notes, this Court posed the following
question:-
"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. 1000
remained unexplained".
The Court, therefore, concluded
•
"If the entries in the books of account in
regard to the balance in the Rokar and the
balance in the 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. 1000 each
which it had encashed on .January 19, 1946".
The case of assessee was thus accepted in toto.
This
Court did not hold that the assessee need not prove
anything.
As we have said earlier, the burden of
proof must depend on the facts of the case.
One
such fact may be the existence of a large floating
cash balance on hand, and taken with other facts,
may be sufficient to show that the high denomination
notes constituted the whole or part of that balance.
In the Allahabad
case,
such a balance was
proved and was accepted as to a part by the
l96J
Srilekha BanerjH
v.
Commissio1ur of
lncoma·lax,
Bihar & Orissa
Hidayatullah I,
196S
Srilekha Ban1rjtt
v.
CommiJJiontr of
Income-Tax,
Bihm & Orissa
Hidayatullah J.
664 SUPREME COURT REPORTS [1964] VOL.
Tribunal. The High Court held that the explana·
tion was
good for
the whole of the amount
of the notes.
No doubt, this Court, in referring to that case, summarised the reasons, but it
pointed out that it was not open to the Tribunal to
make a guess a~ to the number of high denomination
notes which could
be accepted,
and cited the
Allahabad case and some others in that connection.
It seems to us that the correct approach to
questions of this kind is this. If there is an entry in
the account books of the assessee which shows the
receipt of a sum or conversion of high denomination
notes tendered for conversion by the as~essee himself,
it is necessary for the assessec to establish, if asked,
what the source of that money is and to prnvc that
it docs not bear the nature of income. The Department is not at this stage required to prove anything.
It can ask the assessee to bring any books of account
or other documeμts or evidence pertinent to the
explanation if one is furnished, and examine the
evidence and the explanation. If the explanation
shows that the receipt was not of an income nature,
the Department cannot act unreasonably and r~ccr
that explanation to hold that it was income.
If,
however, tlie explanation is unconvincing and one
which deserves to be rejected, the Department can
reject it and draw the inference that the amount
represents income either from the sources already
disclosed bv the assessee or from some undisclosed
source.
The Department does not then proceed on
no evidence, because the fact that there was receipt
of money, is itself evidence against the. assessee.
There is
thus prima Jacie evidence against the
assessce which he fails to rebut, and being unrehuttcd,
that evidence can be used against him by holding
that it was a receipt of an income nature. The very
words "an undisclosed source" show that the disclosure must come from the assessce and not form the
Department. In cases of high denomination notes,
2 S.C.R.
SUPREME COURT REPORTS
565
where the business and the state of accounts and
dealings of the assessee justify a reasonable inference
that he might have for convenience kept the whole or
a part of a particular sum in high denomination
notes, the assessee prima Jacie discharges his initial
burden when he proves the balance and that it might
reasonably have been kept in high denomination
notes. Before the Department rejects such evidence,
it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some
information or evidence which it has in its possession.
The Department cannot by merely rejecting unreasonably a good explanation, convert good proof
into no proof. · It is within the range of these principles that such cases have to be decided. We do not
think that the Allahabad view puts no burden upon
the assessee and throws the entire burden on the
Department. The case itself does not bear this out.
If it does, then, it is not the right view.
In the present case, the assessee claimed that
the high denomination notes were a part of the cash
balance at the head office. The Income Tax Officer
found that at first the cash on hand was said to be
Rs. 1,62,022, but on scrutiny, it was found to be
wrong.
Indeed, the assessee himself corrected it
before the Appellate Assistant Commissioner and
stated there that the balance was Rs. 1,21,875.
Ordinarily, this would have prima Jacie proved that
the assessee might have kept a portion of this balance
in high denomination notes. But the assessee failed
to prove this balance, as books of the assessee did not
contain entries in respect of banks. Though cash
used to be received from banks and sent to the
various places where works were carried on and vice
versa, no central account of such transfers was disclosed.
There was
also no account of personal
expenses of the assessee and he had failed to prove
why such large sums were kept on hand in one place
when at each of the places where work was carried .·
1963
S1ilekha Banerjee
v.
Cammis.sioner of
Income· 7 ax,
Bihar & 01issa
Hidayatullah J.
1963
Srilekha Ban1r;e1
v.
CornmiJ1ir11ur of
/ncom1-l ax,
BiJUJr & 01is1a
566
SUPREME COURT REPORTS [1964] VOL.
on, there were banks with which he had accounts.
The Appellate Assistant Commissioner also went into
the question and found that on the same day when
the high denomination notes were encashed, a sum of
Rs. 45,000 was drawn by cheque. The next remittance immediately afterwards was of Rs. 16,000 to
Bokaro, but Rs. 17,000 were withdrawn a few days
before to meet this expense.
A withdrawal of
Rs. 8,000 was made a day later and .l<.s. 20,000 were
withdrawn ten days later to finance the business.
It appears that the money on hand (Rs. 45,000) was
not touched at all, but on January 30, 1946, a further
sum of Rs. 6,000 was withdrawn and not utilized,
which made up the sum of Rs. 51,000 for which the
high denomination notes were encashed.
On these facts, the
Tribunal came to the
conclusion that the high denomination notes repre·
sented not the cash balance but some other money
which remained unexplained, and the Tribunal treatted it as income from some undisclosed source. The
High Court held on the above facts and circumstances that there were materials to show that
Rs. 51,000 did not form part of the cash balance, and
the source of money not having been satisfactorily
proved, the Department was justified in holding it to
be assessable income of the assessee from some undis·
closed source. In this conclusion, the High Court
was justified, regard being had to the principles we
have e Kplained above.
The argument that as this was a case under
s. 34 of the Income Tax Act, it cast a special burden
on the Department to show that this income had
escaped earlier, need not detain us.
No doubt,
proceedings under s. 34 can only be commenced
under the conditions prescribed in the section, but
when the proceedings are validly commenced, there
is no difference between an ordinary assessment and an
additional assessment under s. 34, and the same rule
2 S.C.R.
SUPREME COURT REPORTS
567
as to burden of proof governs the additional
assessment.
In our opinion, this appeal has no substance; it
fails and is dismissed with costs.
Appeal dismissed.
LAXMIDAS DAHYABHAI KABARWALA
v.
NANABHAI CHUNILAL KABARWALA
AND ORS.
(S. K. DA.s, A. K. SARKAR and N. RAJAGoPALA
AYYANGAR JJ.)
Civil Procedure-Amendment of Pleading•-Buit for decree
on aettled accaunts-Oounter·claim made in written statementCourt-fee paid a. on plaint-Court if can treat counter-claim
a. plaint in cro8'-8uit-Amendment when to be
refused or
alwwed-P/,ainl in cross-suit when shouUJ, be treated "" having
been filed-Liability of aurviving partner-Goodwill of a flrmExerciae of discretion by trial court, when can be interfered withConatitution of India Art. 136-Partnership Act. 1932 (9 of 1932)
s. 37-0od< of Civil Procedure, 1908 (Act Ii of 1908) 0. 6, r. 17,
0. 8, r. 6
The appellant filed a suit for the enforcement of an
agreement to the efl'ect that a partnership between himself
and one Bai Itcha since deceased had been dissolved and
that the partners had arrived at a specific amount to be
paid by the appellant in full satisfaction of the share
of Bai Itcha in
the partnership. The respondents who
were the heirs of Bai ltcha, not only denied the allegations
in the plaint but also made a counter-claim in the written
1tatement for the rendition of account against the appellent
and paid court fee on the counter-claim as on a plaint. At a
later stage, the respondents made a prayer to treat the counterclaim a• a plaint in a cross-suit. The trial court dismissed
tho 1uit oa the 11rc•uad that appellant had failed to prove the
19~3
Srilekha Bandfjee
v.
Commission1r of
Income-Tax,
Bihar & Orissa
Hidayatullah J,
1963
Mar<h 27