1. This is a reference on a case stated under s. 256(2) of the I.T. Act, 1961. The questions referred to us for our determination in this reference are as follows :
'(1) Whether there is any evidence to show that the cotton of the value of Rs. 1,06,066 (Rupees one lakh six thousand and sixty-six) represented the property of the applicant and that the value thereof was the income of the applicant assessable under section 69 of the Income-tax Act, 1961, on the ground that the applicant had not explained the source of its acquisition ?
(2) Whether the finding that the sum of Rs. 1,06,066 (Rupees one lakh six thousand and sixty-six) represented income of the applicant is based on suspicion, surmises and/or improper consideration of the evidence on record and is, therefore, unjustified in law ?'
2. The facts giving rise to this reference are as follows :
The assessee is a Hindu undivided family (HUF) and one Kacharulal Tejmal, after whom the HUF is named, was the karta of the HUF. The assessment year with which we are concerned is the assessment year 1962-63 and the relevant previous year was the Samwat year 2017, which ended on 8th November, 1961. In respect of the income earned during the relevant previous year, the assessee stated that its sources of income were business in cotton, business of building contracts and as a partner in four firms, one of which was Shri Ramanlal & Company. We propose to refer to the said firm hereafter as 'Ramanlal & Company'. The assessee was supplying finance to three out of the said four firms in which it was a partner. For the purpose of obtaining finances the assessee borrowed moneys from banks in its overdraft accounts. These loans were obtained by pledge of goods. The ITO obtained information that the particulars of goods pledged by the assessee with the banks in its overdraft accounts as on 8th November, 1961, were as follows :
________________________________________________________________________Name of the bank Details of the goods Value of the goodspledged________________________________________________________________________Rs.State Bank of India 117 fully pressed cotton bales 44,460Punjan National Bank 51 fully pressed cotton bales 21,68551 loose cotton bales 21,420188 quintals of raw cotton 15,400Central Bank of India 100 fully pressed cotton bales 42,500----------1,45,465.'---------- This shows that in all, as on 8th November, 1961, there were 268 fully pressed cotton bales pledged by the assessee in its said accounts, and the total value thereof was Rs. 1,45,465. According to the assessee, these goods pledged with the banks did not belong to the assessee but to Ramanlal & Company. However, according to the books of the account of Ramanlal & Company, the stocks of that firm as on 8th November, 1961, were as below : -----------------------------------------------------------------------Bales Bojas Raw CottonNo. Value No. Value Weight in Qt. Value-----------------------------------------------------------------------Rs. Rs. Rs.Khamgaon 30 6,000 24 10,250 150 15,250(50 Qts.)Jalna 18 7,650 103 45,150 680 68,000(215 Qts.)-----------------------------------------------------------------------
3. This would show that on 8th November, 1961, Ramanlal & Company had only 48 fully pressed bales of cotton in its stocks, although it had 838 Qts. of raw cotton. This discrepancy was pointed out to the assessee, namely, as to how 268 bales of cotton belonging to Ramanlal & Company could have been pledged by the assessee with the said books when that firm had only 48 such bales in its stock. The stand of the assessee, firstly, was that the banks had given the loans against the pledge of raw cotton, which was in the process of conversion into bales. Secondly, it was urged that though certain bales were not actually available with Ramanlal & Company on 8th November, 1961, the goods were being transported from elsewhere to Khamgaon and the bank there had advanced loans on the strength of such information. Although called upon, the assessee failed to produce evidence in support of its stand. On the contrary, on inquiries from the ITO, the bankers categorically stated that it was only pressed cotton bales which were pledged with them. As the investment of the excess stock could not be explained by the assessee, the ITO added the value thereof to the income of the assessee under the provisions of s. 69 of the I.T. Act, 1961. It may be mentioned here that s. 69 provides that where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments, or the explanation offered by him is not, in the opinion of the ITO, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. It is quite clear that in the present case the ITO rejected the explanation given by the assessee that the aforesaid bales of cotton pledged by the assessee in its overdraft accounts belonged to Ramanlal & Company, and added the aforesaid amount of Rs. 1,06,066 to the income of the assessee on the footing that the said bales represented unexplained investment by the assesses in the relevant previous year. The appeal preferred by the assessee against this order to the AAC failed and so did the appeal preferred by the assessee to the Income-tax Appellate Tribunal, save regarding some minor adjustments with which we are not concerned here. It is from this decision of the Tribunal that the aforesaid two questions have been referred to us.
4. The first submission of Mr. Munim, learned counsel for the assessee, was that, on the evidence, there was no nexus shown between the assessee and the pledged goods. In our opinion, this argument has only to be stated to be rejected. The said goods were pledged by the assessee in its overdraft accounts, which would clearly indicate that they were pledged on the footing that they belonged to the assessee. In these circumstances, one fails to see how it could ever be said that there was no nexus between the assessee and the said goods. It is possible that the assessee could have given an explanation to satisfy the tax authorities that, although the goods were pledged by the assessee on the aforesaid footing, they really did not belong to the assessee. But, it can never be suggested that, in these circumstances, there was no nexus between the assessee and the said goods.
5. The next submission pur forward by Mr. Munim, by way of an alternative submission, was that the assessee had on the evidence prima facie established that the said goods belonged to Ramanlal & Company and that the burden was on the Revenue to show that this explanation was false. This argument is also without any substance. Besides the bare word of the assessee, nothing was produced before the authorities concerned to show that the said goods belonged to Ramanlal & Company. No affidavit was produced of any of the other partners of Ramanlal & Company to show that these goods belonged to Ramanlal & Company. Stocks shown in the books of Ramanlal & Company not only failed to support the explanation given by the assessee but contradicted the same, because this stock statement established that on 8th November, 1961, Ramanlal & Company had only 48 bales of fully pressed cotton in its godown, whereas a much larger quantity of such bales was pledged by the assessee in its overdraft accounts. We may mention that even the explanation of the assessee that some of the raw cotton belonging to Ramanlal & Company was in the process of being converted into bales and that it was raw cotton which was shown by the banks in their statements as pressed cotton bales was totally unsupported by evidence. Nothing was shown, either from the books of Ramanlal & Company or books of any pressing factory, to show that this explanation was correct. Nor was any affidavit produced of any partner of Ramanlal & Company to support this story of the assessee. In these circumstances, we fail to see how it could be said that there is no evidence to support the conclusion arrived at by the Tribunal or by the I.T. authorities, or how it could be said that the conclusion arrived at by them was based on conjectures, suspicions or surmises or on utter misappreciation of the evidence.
6. In the result, the question referred to us are answered as follows :
Question No. 1 : In the affirmative and against the assessee.
Question No. 2 : In the negative and against the assessee. The assessee to pay the costs of the reference to the Commissioner.