# ESTHURI ASWANTHIAH v. COMMISSIONER OF INCOME-TAX, MYSORE April 18, 1967

- **Citation:** [1967] 3 S.C.R. 681
- **Court:** Supreme Court of India
- **Decided:** 1967-04-18
- **Case number:** Civil Appeal No. 631 of 1966
- **Bench:** J. C. Shah, S. M. S!Kri, V. Ramaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/esthuri-aswanthiah-v-commissioner-of-income-tax-mysore-april-18-1967-4009
- **Pages:** 6

## Headnote

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Ind/an Income-tax Act, 1922-Cash credits-Income from undisclosed
sources-Appellate Tribunal adding such income on concession
from
counsel-Duty 10- decide on evidence-Tribunnrs duty when dealing with
case after receiving opinion of High Court in. reference.
On July 1, 1949 the assessee who carried on business in Mysore State
brought into his books of account an
opening cash
balance of
Rs. 1,87,000. The Income-tax Officer held that out of the above sum
Rs. 1,37,000 was the assessee's income from
undisclosed sources. The
assessee's explanations were rejected by
the Income-tax Officer and in
appeal by the Assistant Commissioner. The Appellate Tribunal
considered that on the facts of tho case it was not unlikely that on the rel•·
vant date the asseS'See had some cash but held Rs. S0,000 to be income
from undisclosed sources observin~ :
"[Counsel] for the assessee
also
stated that his client was prepared to be
asses>ed on Rs. S0,000". In
reference the High Court held that the Tribunal's conclusion was based
on no evidence. The assessee appealed.
HELD : The function of the Tribunal hearing an appeal is purely
judicial. It is under a duty to decide all question of fact and law raised
in the appeal before it : for that purpose it must consider whether on
the materials relied upon by the assessee his plea is made out The Tribu·
nal cannot make arbitrary decisions.
Jts order in the present case without
recording any reasons in support of _the estimate of unaccounted income
could not, therefore, be sustained. There was
also substance in tho
assessee's plea that evidence in his favour had. not been properly considered and that his case had not been fairly tried.
(6840.F; 685A·B)
Income-tax Appellate Tribunal,
Bombay <l Ors. v. S. C, Cambatta
& Co. Ltd., 29 J.T.R. 118 and Rajkumar Mills Ltd. v. Income-ta.< Appellate Tribunal, 33 I.T.R. 750, referred to.

## Text

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ESTHURI ASWANTHIAH
v.
COMMISSIONER OF INCOME-TAX, MYSORE
April 18, 1967.
9
(J. C. SHAH, S. M. S!KRI AND V. RAMASWAMI, JJ.J
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Ind/an Income-tax Act, 1922-Cash credits-Income from undisclosed
sources-Appellate Tribunal adding such income on concession
from
counsel-Duty 10- decide on evidence-Tribunnrs duty when dealing with
case after receiving opinion of High Court in. reference.
On July 1, 1949 the assessee who carried on business in Mysore State
brought into his books of account an
opening cash
balance of
Rs. 1,87,000. The Income-tax Officer held that out of the above sum
Rs. 1,37,000 was the assessee's income from
undisclosed sources. The
assessee's explanations were rejected by
the Income-tax Officer and in
appeal by the Assistant Commissioner. The Appellate Tribunal
considered that on the facts of tho case it was not unlikely that on the rel•·
vant date the asseS'See had some cash but held Rs. S0,000 to be income
from undisclosed sources observin~ :
"[Counsel] for the assessee
also
stated that his client was prepared to be
asses>ed on Rs. S0,000". In
reference the High Court held that the Tribunal's conclusion was based
on no evidence. The assessee appealed.
HELD : The function of the Tribunal hearing an appeal is purely
judicial. It is under a duty to decide all question of fact and law raised
in the appeal before it : for that purpose it must consider whether on
the materials relied upon by the assessee his plea is made out The Tribu·
nal cannot make arbitrary decisions.
Jts order in the present case without
recording any reasons in support of _the estimate of unaccounted income
could not, therefore, be sustained. There was
also substance in tho
assessee's plea that evidence in his favour had. not been properly considered and that his case had not been fairly tried.
(6840.F; 685A·B)
Income-tax Appellate Tribunal,
Bombay <l Ors. v. S. C, Cambatta
& Co. Ltd., 29 J.T.R. 118 and Rajkumar Mills Ltd. v. Income-ta.< Appellate Tribunal, 33 I.T.R. 750, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 631 of
1966.
Appeal by special leave from the judgment and order dated
November 23, 1964 of the Mysore High Court in Income-tax
Revision Petition 6 of 1964.
K. Srinivasan and R. Gopalakrishnan, for the appellant.
S. T. Desai, A. N. Kirpa/, S. P. Nayyar for R. N. Sachthev,
for the respondent.
The Judgment of the Court was delivered by
Shah, .l.-The appellant a trader in groundnuts and other
commodities in the State of Mysore was taxed under the Mysore
Income-tax Act, 1923, for the assessment years ending with the
assessment year 1949-50.
On July 1, 1939, the l.\SSessee brought
SUPREME COl!RT RllrORTS
{1967] 3 S.C.R.
into his books of account an opening cash balance of RsJ,87,000.
In proceedings for assessment to tax for the year which ended
June 30, 1950 the assessee was called upon to explain that entry
and to produce his books of account of the earlier years. The assessee pleaded that his book_s of account upto June 30, 1949,
were Jost and that the amount of Rs. 1,87 ,000
represented
"cash brought from an iron safe kept in his house".
The Income-tax Officer found that in each previous year when the
asscssee was assessed under the. Mysore Income-tax Act, he
had pleaded that his books of account were either Jost or stolen
in the succeeding year.
The Income-tax Officer was of the view
that the assessee had probably an amount of Rs. 50,000 on hand
representing a cash balance brought forward from the previous
year. and that the balance of Rs. 1,37,000 was the assessee's
income from undisclosed sources.
The order passed
by the
I ncomc-tax Officer assessing to tax the incoine of the assessee for
the y~ar 1951-52 was set aside by the Appellate Assistant Commis•ioner on the ground that under s. 2 (11) of the Income-tax
Act, 1922, the previous year for the income from other sources
could only be the financial year ending March 31, 1950. Giving
effect to this finding, the Income-tax Officer issued a notice of
reassessment under s. 34 of the Indian Income-tax Act for bringing to tax the amount disclosed by the books of account of the
assessee for the assessment year 1950-51.
The assessee submitted a petition to the High Court of Mysore
for a writ declaring that the notice under s. 34 of the Act issued
by the Income-tax Officer was without jurisdiction, and for an
order quashing the notice and proceedings consequent thereon.
This petition was dismissed by the High Court of Mysore and
the order was confirmed by this Court in appeal.
In the meanwhile the Income-tax Officer completed the assessment for the year 1950-51 and brought to tax Rs. 1,37,000
as income from undisclosed sources which had escaped tax. The
assessee's contention that he had
assets on hand exceeding
Rs. 1,55,000 from his share of the joint family property, business income and other sources, and those assets were brought
into his books of account on July 1, 1949. was rejected by the
Income-tax Officer.
The order passed by the Income-tax Officer
was confirmed in appeal by the Appellate Assistant Commissioner.
The assessee appealed to the Appellate Tribunal and
contended, inter a/ia, that the evidence produced by . him
showed that he had
with him on
October 27.
1946.
in
his bank account Rs. 1,38.946 that he had received Rs. 55,846
as his share on partition of the joint family of which he was a
member, and that besides these sources he had agricultural income..
The Income-tax Appellate Tribunal modified the order
of the Appellate Assistant
Commissioner and brought to tn~
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ESTHURI AS\\'ANTH!AH I', C.l.T, lS/111/r, /.)
683
Rs. 50,000 as income from undisclosed sources. The reasons
recorded by the members of the Tribunal may be set out in their
own words:
"It is clear that the assessee has not been able to explain the source of Rs. 1,37,000 satisfactorily.
But
there have been trading additions for the assessment
years 1951-52 and 1952-53 of Rs.
27,899 and
Rs. 85,000. But the assessee has not proved t.hat this
amount was all intact and besides, as pointed out by
the Departmental Representative, the bank balance on
22· l 0-1946 would not have represented the cash poss·
essed by the assessee and at the same time, it is not
unlikely that the assessee had some cash having regard
to the trade in jaggery. the assets got ·On partition in
the Hindu undivided family and other sources; the
Counsel for the assessee also stat.ed that his client was
prepared to be assessed on Rs. 50,000. So we direct that
the addition must be confined to Rs. 50,000 only."
The Tribunal drew up a statement of the case under s. 66 ( 2)
of the Income-tax Act and submitted three questions to 'the High
Court of Mysore, of which the second and the third questions are
relev11nt for the purpose of this appeal :
"2, Havin& found that the assessee was not ablo to
explain satisfactorily the source of the credit of
Rs. 1,37,000. whether the Tribunal had any material to
come
to the conclusion
that the addition of
Rs. 1,37,000 inade by the Income-tax Officer as the
lnoome from undisclosed sources should be reduced
to Rs. 50,000 only ?
3. Whether on the facts and in the circumstances of
the case, the Tribunal was justified in law in reducing
the addition of Rs. 1,37,000 to Rs. 50,000 as income
from undisclosed sources ?"
The High Court answered the two questions in the negative. The
High Court observed 'that the Tribunal's conclusion that out of
the amount brought to tax by the Income-tax Officer only
R~. 50,000 represented income from undisclosed sources was
based on no evidence. The High Court observed :
"The finding . . . , shows that the Tribunal also
did not accept the explanation given by the assessee as
regards the cash credit entry on .1-7-1949. But
strangely enough, the Tribunal, for no reason whatsoever, came .to the conclusion that the unaccounted income may be es'timated at Rs. 50,000. We do not
684
SUPREME COURT REPORTS
[1967] 3 S.C.R.
know how the offer of the counsel for the assessee was
at all relevant. The Tribunal's sunnise about the assessee's
income from .iaggery trade and the receipt by him at
the time of the partition in his family is not based on
any material.
Surmises have no place in judicial and
quasi-judicial proceedings."
The judgment recorded by the Tribunal has not the merit of
clarity or of consistency.
The Tribunal commenced by disbelieving the explanation of the assessee relating to. the source of
the credit entry.
After some inconclusive statements it proceeded to record that it was nO't unlikely that the assessee had some
cash on hand from profits earned in the trade from jaggery, and
from assets received on partition of the ioint family of wMch the
assessee was a member.
In estimating Rs. 50,000 as the income
from undisclosed sources, 'the Tribunal merely relied upon the
offer made by counsel for the assessee.
This was an unsatisfactory way of disposing of the appeal.
The function of the Tribunal in hearing an appeal is purely judicial. It is under n duty
to decide all questions of fact .and law raised in the appeal before
it : for that purpose it must consider whether on the materials
relied upon by the assessee his plea is made out.
Conclusive
proof of the claim is not predicated : the Tribunal may act upon
probabilities, and presumptions may supply gaps in the evidence
which may not on account of delav or the nature of the transactions or for other reasons be supplied from indeoendent sources.
But the Tribunal cannot make arbitrary decisions :· it cannot found
its judgment on conjectures, surmises or speculation.
Between the
claims of the public revenue and of the tax-payers, the Tribunal
must maintain a judicial balance. . The order passed by the Tribunal without recording any reasons in support of the estimate of
unaccounted income cannot, therefore, be sustained.
But counsel for the assessee saidl that the case of the assessee
had not been fairly tried. He said that there was on the record
evidence that in a partition suit between the assessee and his
brother the assessee received on June 30, 1949 an amount of
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'Rs. 48,500 and Rs. 14,647 and Rs. 13,116 representing "money
bonds".
He also said that the assessee had made a profit of
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Rs. 70,000 in his business in iaggery, that between November 18.
1946 and December 16, 1948, the assessee had drawn cheques
"to self' on the Mysore Bank for Rs. 1.67 ,800, and between
January 18, 1947 and November 25, 1947 the assessee had drawn
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cheques "to self' for Rs. 52,255, and that on October 22. 1946
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the assessee had in his Bank Account a balance of Rs. 1,39,946.
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Counsel col'ltended that the assessee had at the material time larl!;e
funds which could have been brought into the books of account
on July 1, 1949, but the Tribunal failed to consider the evidence
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llSTHUll! ASWANTiiIAii v, C.!.T. (Shah, ).)
685
and had merely accepted the offer made by counsel for the
assessee that he should be assessed in the sum of Rs. 50,000.
For the reasons already recorded, we agree with the answers
recorded by the Hign Court on the two questions.
But it is necessary to give certain effective directions, lest a
bald order of dismissal of the appeal may result in injustice, espe·
cially when the assessee had not a fair trial of his case before the
Tribunal. Section 66 ( 5) of the Indian Income-tax Act, 1922,
requires the Tribunal on receiving a copy of the judgment of the
High Court to pass such orders as are necessary to dispose of the
case conformably to such judgment. This clearly imposes an obligation upon the Tribunal to dispose of the appeal in the light of and
conformably with the judgment of the High Court. Before the
Tribunal passes an order disposing of the appeal, there would 1
normally be a hearing. The scope of the hearing must of course
depend upon the nature of the order passed by the High Court.
If the High Court has agreed with the view of the Tribunal, the
appeal may be disposed of by a formal order : if the High Court
disagrees with the Tribunal on a question of law the Tribunal
must modify its order in the light of the order of the High Court :
if the High Court has held that the judgment of the Tribunal is
vitiated, because it is based on no evidence or that it proceeds
upon conjectures, speculation or suspicion, or has been delivered
after a trial contrary io rules of natural justice, the Tribunal would
be under a duty to dispose of the case conformably with the opinion of the High Court and on the merits of the dispute. In all
cases, however, opportunity must be afforded to the parties of
being heard
In income-tax Appellate Tribunal, Bombay & Ors. v. S. C.
Cambatta & Co. Ltd. (') the Bombay High Court explained the
procedure to be followed in the disposal of an appeal conformably to the judgment of the High Court. Chagla C. J. in delivering the judgment of the Court observed :
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". . . . when a reference is made to the High
<;ourt either under s. 66(1) or section 66(2) the deci:
s1on of t~e Appellate Tnbimal cannot be looked upon
as final; m o'!ter words, the appeal is not finally disposed of. . It 1s only when the High Court decides the
c.ase, exercises !ts advisory juri.sdiction, and gives directions to the ~nbunal on qllestmns of law, and the Tri·
.bunal reconsiders the matter and decides it that the
appeal
is
finally
disposed
of
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cl~ar that what the Appellate Tn'bunal ls doing. aft~r t~!
High Court has heard the case is to exercise its appellate powers under section 33. . . . . The shape that
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the ~...!'.eal~ould ultimately take and the decision that
II) 29 f.T.R, 118.
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SUPREME COURT REPORTS
t196 7] 3 s.c.R.
the Appellate Tribunal would ultimately give would entirely depend upon the view taken by the High Court."
A similar view was expressed by the Bombay High Court in
Raikumar Mills Lttl. v. lncome,tax Appellate Trlbuna/( 1).
The High Court has held, and we agree with the High Court,
that the judgment of the Tribunal is based on no reasoning and
is on that account speculative. But by recording that answer, it is
not to be implied that the order of the Appellate Assistant Commissioner is confirmed. It will be the duty of the Tribunal, conformably with the judgment of the High Court, to dispose of the
case after hearin~ the assessee and the Commissioner in the light
of the evidence and according to law.
Subject to this direction,
the appeal is
dismissed.
The
appellant wilt pay the costs of the Commissioner in this appeal.
G.C .
Appeal dismissed.
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