CHANDRA REDDY C.J. - The two questions on which the Income-tax Appellate Tribunal, Hyderabad, was directed to state a case for the opinion of this court under section 66 (2) of the Indian Income-tax Act were formulated in the following terms :
'(1) Whether on the facts and circumstances of the case there is any material on which the Tribunal could find that a sum of Rs. 21,000 in the name of Kurma Rao is a fictitious credit and represented the income of the assessee from undisclosed sources and
(2) Whether on the facts and in the circumstances of the case the proceedings initiated under section 34 of the Income-tax Act have been legally and validly initiated ?'
The reference relates to the assessment year 1947-48, the corresponding accounting period being the financial year ended with March 31, 1947. The assessee is a Hindu undivided family carrying on business in wholesale grains and pulses. For the relevant assessment year, the assessee was assessed on a total income of Rs. 2,28,658 of which the income from business amounted to Rs. 2,16,363. The assessment was completed on March 29, 1952.
Some time later, it came to light that the assessee had introduced a spurious credit of Rs. 21,000 in the name of one of B. Kurma Rao on March 16, 1947. This led the Income-tax Officer to initiate proceedings under section 34 (1) (a) of the Indian Income-tax Act after obtaining the necessary approval of the Commissioner of Income-tax by a notice issued on August 30, 1954. The assessee submitted the same return as the earlier one asserting that the credit entry in the name of Kurma Rao was a genuine one and not a fictitious one.
Disbelieving the version of the assessee, the proper Income-tax Officer included the sum of Rs. 21,000 in the assessment as his undisclosed income. It may be mentioned here that in support of his case the assessee filed a letter of Kurma Rao to the effect that he advanced a sum of Rs. 21,000 to the assessee in March, 1947, out of a cash legacy of Rs. 31,000 left by his mother as also from the savings effected by him while he was in military service. Support was sought for this statement from a letter of Kurma Raos brother-in-law, Satyanarayana, wherein it was, inter alia, recited that after Kurma Raos mother i.e., Satyanarayanas mother-in-law, died in 1942, the iron safe was opened in the presence of one Kalidasa, an employee of the shipyard. Visakhapatnam, his cousin brother, wherein they found a sum of about Rs. 30,000 cash and 200 tolas of gold, that the same was handed over to her only son, B. Kurma Rao, and that this sum of Rs. 30,000 was got by his mother-in-law as the only daughter of Sri Buttala Bullayya, who was a Government Revenue Inspector.
The Income-tax Officer, not satisfied with this material, called upon the assessee to produce other documentary evidence to show that Kurma Rao inherited a sum of Rs. 30,000 from his mother and that he had capacity to lend a sum of Rs. 21,000 to the assessee.
The assessee pleaded his inability to do so except filing the letter. The Income-tax Officer did not accept the story about this inheritance, as it was not supported by evidence of an acceptable kind especially having regard to the fact that there was no evidence of the depositor dealing with these monies in the past which could prove possession of these monies by him. He, accordingly included the said amount in the assessable income as the assessees own monies, out of undisclosed income.
Dissatisfied with this order of assessment, the assessee went in appeal to the Appellate Assistant Commissioner. The appellate authority felt that the source was duly proved and there was no reason to doubt the capacity of the lender. In this view of the matter, the appeal was allowed resulting the deletion of Rs. 21,000 from the assessable income of the assessee.
The department took the matter in appeal to the Appellate Tribunal from the order of the Appellate Assistant Commissioner. The Tribunal reversed the order of the Appellate Assistant Commissioner and restored that of the Income-tax Officer, having come to the conclusion that the considerations relied on by the Appellate Assistant Commissioner were part of a collusive scheme adopted by the assessee to bring in its own monies in the scope of outside deposits and there was really no borrowing in 1947 from Kurma Rao and that it only represented the undisclosed profits of the assessee. The Tribunal remarked that the scheme adopted by the assessee was consistent with his past history, namely, introduction of spurious credit entries in the names of third parties. The Tribunal also thought that the fact that the depositor, Kurma Rao, admitted the deposit and also offered the interest allegedly received from the assessee for taxation in his hands was of no consequence, since in its view it was part of a collusive arrangement between them.
Thereupon, the assessee requested the Tribunal to make a reference to this court under section 66 (1) but this was rejected, as in its opinion there was no question of law which warranted action under section 66 (1) of the Act.
Having failed there, the assessee approached this court invoking section 66 (2) and it is in those circumstances that the questions set out above were framed by this court.
The principal argument presented by Sri K. Ramachandra Rao, learned counsel for the assessee, is that not having called for the authors of the two letters, namely, Kurma Rao and Satyanarayana, and cross-examined them with reference to the recitals in the two letters, it was not competent either for the Income-tax Officer or the Appellate Tribunal to reject the letters, that they were bound to accept the statements contained therein, that if that was done it would have led to the inevitable inference that the entry in question was genuine and that the amount of Rs. 21,000 could not be regarded as forming part of the suppressed income of the assessee.
As substantiating this proposition, the learned counsel calls in aid the judgment of the Supreme Court in Mehta Parikh & Co. v. Commissioner of Income-tax. There, the assessee encased high denomination notes of Rs. 1,000 each, of the face value of Rs. 61,000. Notwithstanding the fact that the department accepted the entries in the account books to be correct which showed at the relevant time a cash balance of Rs. 69,891-2-6, it rejected the case of the assessee that high denomination notes of Rs. 1,000 were included in the cash balance stated above, that these notes were in the custody of the assessee in January, 1946, and that it was they that were encased. The Income-tax Officer thought that it was impossible that every payment would have been received by the assess in multiples of thousand rupees or in high denomination notes of Rs. 1,000 each. It was by reason of this visualisation of such an impossibility that the Income-tax Officer negatived the assessees contention. On appeal by the aggrieved assessee before the Appellate Assistant Commissioner, in addition to the circumstances indicated above, the assessee filed affidavits of persons who stated that they paid the assessee in currency notes of Rs. 1,000 denomination. The Appellate Assistant Commissioner, without requiring the assessee to produce the deponents of the affidavits for cross-examination or lead any other documentary evidence, rejected the explanation of the assessee and confirmed the order of the Income-tax Officer. On further appeal to the Income-tax Appellate Tribunal, the Tribunal accepted the assessees explanation in regard to 31 notes and the assessment was modified to the extent of Rs. 31,000. This was confirmed by the High Court in proceedings under section 66 of the Indian Income-tax Act. On appeal to the Supreme Court, their Lordships observed that it was not open to the revenue to challenge the correctness of the cash book entries or the statements made by those deponents in their affidavits in the circumstances enumerated above.
We do not think that the principle enunciated by their Lordships of the Supreme Court in the above cited case governs the instant case, since the essential features relied on in that case are no present here. It is to be borne in mind that the Income-tax Officer had afforded an opportunity to the assessee in this case to produce documentary evidence to substantiate his case that Kurma Rao was in a position to lend a sum of Rs. 21,000 to the assessee. This is not a case where the concerned officer deprived the assessee of an opportunity to lead further evidence and at the same time declined to act on the statements contained in the letters. It is plain from the order of the Income-tax Officer that the assessee was required to adduce other evidence to substantiate his case. Moreover, unlike in the cited case, where the entries in the books of account were not challenged, in the case on hand, neither the Income-tax Officer nor the Income-tax Appellate Tribunal was prepared to accept the correctness of the relevant entry, they feeling that it was a spurious entry. There is, therefore, no similarity between the facts of Mehta Parikh & Co. v. Commissioner of Income-tax, relied upon by the assessee, and those of the present case. Thus, the ruling cited to us does not establish the board proposition that without calling for the authors of the letters or the deponents of the affidavits to cross-examine them, the department could not reject them in any case but must act on them. All that their Lordships ruled was that without asking the assessee to produce other evidence on the ground that the department was not satisfied with the truth of the statements in the affidavits, they should not be rejected.
The rulings underlying Sohan Lal Gupta v. Commissioner of Income-tax is similar to the one adumbrated above. What was laid down, inter alia, by the Allahabad High Court in the cited case was that the Income-tax Appellate Tribunal was not entitled to reject the affidavits filed by the assessee without calling upon the assessee to produce documentary evidence, if it was thought that the affidavits did not constitute sufficient evidence, or without cross-examining the deponents to find out how far their assertions in the affidavits were correct. Therefore, this ruling also does not lend much colour to the contention of the assessee.
It was next urged by the learned counsel for the assessee that the Tribunals finding is vitiated by its failure to give due weight to the fact that Kurma Rao had included in the assessable income the interest paid by the assessee on the loan and that this was brought to tax on the assumption that the relevant entry in the account books of the assessee was a genuine one. Developing this argument, it is said that having accepted the genuineness of the accounts of the assessee in regard to the assessment proceedings relating to Kurma Rao, it was not open to the department to treat it as a spurious one for the present purpose. We find it difficult to give effect to this contention. It is not as if the Tribunal had ignored this circumstance. Indisputably, it had considered by the assessee and that this was in consonance with the past history of the assessee who resorting to similar things in the previous years. It is certainly within the competence of the Tribunal to arrive at its own decision on the material available to it different matter if a particular piece of evidence or a fact is not noted by it. So, the finding of the Tribunal, which is one of fact, is immune from attack on the ground stated by the learned counsel. Even if that conclusion were liable to be reviewed, we do not think that the assessee would fare better.
It is no doubt true that the records filed in this court for the first time disclose that sum of Rs. 1,261-12-7 was received by Kurma Rao by way of interest in the accounting year 1951-52 and a similar sum as representing the interest was shown as adjusted in the accounting year 1949-50. But it should be remembered that the alleged deposits were shown for the first time in the year 1953 in regard to the accounting year 1951-52 as per the material placed before us. It has also to be remembered that the adjustment regarding interest in the accounting year 1949-50 was shown only some time in 1958 when action was taken against the said Kurma Rao under section 34 of the Indian Income-tax Act. Again it is very curious that while copies of the assessment proceedings for the years 1944-45, 1945-46, 1946-47 and 1948-49 were filed now, those concerning 1947-48 were not filed. This omission is significant in that it would have thrown light on the genuineness of this entry, since the money is said to have been advanced on March 16, 1947, and if so, there would have been adjustment in this regard. Further comment in this regard is unnecessary. It is also to be remarked that the originals or certified copies of these proceedings are not available to us. Reliance is only placed on private copies.
Further, in the assessment proceedings for 1951-52, the Income-tax Officer disbelieved the story of Kurma Rao that he inherited Rs. 30,000 from his mother for very cogent and convincing reasons. He had pointed out the several improbabilities in the story of Kurma Rao getting a legacy of Rs. 30,000. We find it difficult to disagree with that conclusion of the Income-tax Officer. In the present proceedings, the Income-tax Officer in rejecting this part of the assessees case also adduced valid reasons. We are not, therefore, persuaded that the conclusion reached by the Income-tax Officer or the Tribunal is fallacious. Moreover, the documents on which the arguments regarding the capacity of Kurma Rao to lend money to the assessee are built were not before any of the Tribunals and so they had no opportunity to consider and pronounce upon them. In these circumstances, it is futile to attack the conclusion of the Tribunal on the basis of the documentary evidence produced for the first time here.
Another submission made on behalf of the assessee is that the finding of the Tribunal should be set at large since it is based on conjectures, surmises and irrelevant considerations. In support of this submission Omar Salay Mohamed Sait v. Commissioner of Income-tax is called in aid. It was laid down by their Lordships of the Supreme Court, inter alia, that the conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matter of prejudice nor should it base its findings on suspicions, conjectures or surmises. That ruling is not quite in point here. In the present case, the Tribunal had not based its findings on suspicions, conjectures or surmises. Nor could it be posited that the Tribunal had taken into account any irrelevant matters. It is true one or two clerical mistakes were committed by the Tribunal in setting out the facts. But that does not affect the real decision in the matter. It does not appear that these mistakes have in any way coloured the decision of the Tribunal
Much of the difficulty would disappear if the basic principle is borne in mind, namely, that the burden is on the assessee to explain the entries and show positively their nature and source. In the absence of a satisfactory explanation it is open to the revenue to infer that the entries represent the undisclosed income of the assessee. This proposition is not contested. If that rule is applied to the instant case, there can be little doubt that the assessee has not discharged the burden and has not succeeded in establishing that the entry in question was a genuine one and that, in fact, he had borrowed Rs. 21,000.
The second question was not debated before us, as, admittedly, there was nothing invalid or illegal in the proceedings initiated under section 34 of the Indian Income-tax Act.
In the result, we answer the reference against the assessee and in favour of the department. The assessee will pay the costs of this reference. Advocates fee is fixed at Rs. 100 (one hundred).
Reference answered against the assessee.