CHANDRA REDDY, C.J. - This court had directed the Income-tax Appellate Tribunal, Madras Bench, to state a case on the following questions :
'1. Whether the order of the Tribunal based upon the facts and reasons given in their order, relating to the assessment year 1940-41 is legal; and
2. Whether the facts relating to the assessment year 1942-43 are identical to those of assessment year 1940-41 ?'
The reference relates to the assessment year 1942-43, the accounting year being 1941-42. The assessee is a firm having tanneries at Ellore and at other places. It had several purchasing centers of raw hides. In addition, purchases were made on a large scale at Calcutta through one Velak Syed Mohammad Ali, a brother of some of the partners, up to December, 1941, and thereafter through one M. K. M. D. Makdoon, a former employee of Velak Syed Mohammad Ali aforesaid. The partnership consisted originally of six persons. Subsequent to 1st April, 1940, eight other person joined the partnership, with the result that at the relevant time there were fourteen partners. This partnership had a personal account for the Calcutta agents in its books for the respective periods of their agency. On 31st March, 1940, sum of Rs. 1,15,000 was transferred to the capital account of the then four partners through the personal account of Velak Syed Mohammad Ali aforesaid. At the close of next year, the entries mentioned above were reversed and the sum was redistributed amongst all the fourteen aforesaid partners, thereby showing that this was contributed towards the capital by all the partners. Similar entries were made at the end of the next year in favour of all the partners and three outsiders, who are no other than the brothers of some of the partners, totalling Rs. 1,26,000.
In the course of assessment proceedings for 1942-43, the Income-tax Officer noticed both sets of entries and, since the suspected the genuineness of these credits, he called upon the assessee to prove that they were genuine ones. The explanation offered by the assessee was that the credits in both the years, i.e., for the years 1941-42 and 1942-43, represented the amounts brought in by the partners by way of additional capital. They explained that they were in respect of income from their agricultural salt-pans etc., that they first deposited these monies with one of the partners, Syed Mohammad, and that when the purchasing agents at Calcutta required monies for making purchases, they sent them in the year 1940-41 in one lump sum and in the accounting year in question in three instalments, Rs. 20,000, Rs. 75,000 and Rs. 31,000. Having regard to the nature of this explanation and other factors set out in his order, the Income-tax Officer felt that it was unconvincing and rejected it. In the result, he added Rs. 1,15,000 for the accounting year 1940-41 and Rs. 1,26,000 for the charging period, i.e., for 1942-43, as the concealed income. On appeal, the Appellate Assistant Commissioner, on a review of all the circumstances, concurred in the opinion of the Income-tax Officer, with the result that assessments made by the Income-tax Officer were confirmed. The assessee carried further appeals to the Income-tax Appellate Tribunal which dismissed both of them. The matter was discussed at some length in the appeal relating to the assessment year, 1940-41, i.e., the one in which proceedings under section 34 of the Income-tax Act were started. Since the considerations that applied to that appeal also governed the appeal arising out of the assessment proceedings for the year in question, the Tribunal did not give elaborate reasons in support of its conclusion. It is because the order did not contain the grounds for the dismissal of the appeal in regard to the year 1942-43, this court required the Tribunal to state the case on the questions referred to above.
The main point for consideration is whether the disposal of the appeal by the Tribunal in regard to the assessment year 1942-43 is vitiated by its failure to apply its mind to the facts and circumstances of the case bearing on the relevant period as contended for by the appellant. We feel, after going through the whole record and the accounts contained in the statement of the case submitted by the Tribunal that, having regard to the attendant circumstances, the course adopted by the Appellate Tribunal could not be regarded in any way as defective. It should be borne in mind that the Income-tax Officer mentioned the entries both in relation to the year 1940-41 and 1942-43 only while he was scrutinising the accounts in the course of the assessment proceedings for 1942-43. The proceedings in both the matters went on simultaneously, the lines of enquiry being similar. It also appears from the statement of the case that the assessee filed affidavits purporting them to be joint for both the proceedings from all the partners. The further explanation of the second set of items was the same as to the individual sources, initial payment of the contribution into the hands of the partner, Syed Mohammad, and the manner of transmission of the case through messengers, as that bearing on the year 1940-41. The assessee, when called upon by the Income-tax Officer to produce evidence in regard to the assessment proceedings for the year 1942-43, stated categorically that he had no evidence other than what the company produced in the re-assessment proceedings for 1940-41. It also transpires that before the Appellate Assistant Commissioner the counsel claimed that the facts and circumstances of the year 1942-43 were identical to those of the assessment year 1940-41. Again, even before the Tribunal, the assessee does not seem to have advanced separate arguments in regard to the relevant period. This course was adopted obviously for the reason that in regard to both the years, the common question was as to the capacity of the partners to make contributions towards the capital as also the story as to sending money to Calcutta through their messengers. The conclusion seems to be inescapable that the assessee did not attempt to put forward any separate arguments in the appeal arising out of the assessment proceedings for the year 1942-43. Since the point that presented itself in both the appeals was the same and since the arguments addressed in both were also the same, the Tribunal having dealt with the matter at some length in the other appeal, did not give separate reasons in support of its conclusion that the explanation regarding the entries was rightly rejected by the Income-tax Officer and the Appellate Assistant Commissioner.
Another argument presented by the counsel for the assessee is that whatever might be the position with regard to the entries standing in the names of the partners, so far as the credits in favour of third parties are concerned, the Tribunal should have allowed the appeal because the Department had not proved that the amounts standing in their names did not belong to them but belonged to the assessee. This argument is founded on the decision in Radhakrishna Behari Lal v. Commissioner of Income-tax. It was ruled by Ramaswami and Ahmad, JJ., of the Patna High Court that while with regard to cash credits in the assessees name in his books the burden of proof was on him to show positively the sources and nature of the amount shown in the items and in the absence of a satisfactory explanation it was open to the Revenue to draw the inference that the receipt was of an income nature, the position was different in regard to sums standing in the names of third parties. In the opinion of the learned judges, in such a case, the onus was upon the Department to show by some material that the amounts standing in the names of third parties did not belong to them, but to the assessee. With great respect to the learned judges, we are not able to subscribe to the proposition enunciated by them. It is very difficult for the Department to establish positively that these credits were not genuine ones and that the amounts represented thereby really belonged to the assessee and the entries were fictitious cases. In our view, the burden both with regard to credits in the names of the partners as also in the names of third parties is on the assessee to explain the credit entries irrespective of in whose names they stand.
A Bench of our High Court in Raghava Reddi v. Commissioner of Income-tax dissented from the view expressed by the Patna High Court cited above, viz., Radhakrishna Behari Lal v. Commissioner of Income-tax. Subba Rao, C.J., (as he then was), who delivered the opinion the Bench, remarked thus at page 948 :
'We do not think that the question of burden of proof can be made to depend exclusively upon the fact of a credit entry in the name of the assessee to or in the name of a third party. In either case, the burden lies upon the assessee to explain the credit entry, through the onus might shift to the Income-tax Officer under certain circumstances. Otherwise, a clever assessee can always throw the burden of proof on the income-tax authorities by making a credit entry in the name of a third party either real or pseudonymous.'
We express our respectful accord with the statement of law contained in the above passage. We think that our opinion is also reinforced by the observations in the judgment of the Supreme Court in Govindarajulu Mudaliar v. Commissioner of Income-tax which is to the following effect :
'There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature.'
This indicates that the learned judges did not make any distinction between the entries in the names of partners and those in the names of third parties. Therefore, our conclusion is that the credits in the names of third parties are not distinguishable from those in the names of the partners and even in regard thereto, in the absence of a satisfactory explanation, it is open to the Department to infer that these monies also belong to the assessee and represent the suppressed income. It follows that the appeal was rightly dismissed by the Income-tax Appellate Tribunal. The reference is answered accordingly. The assessee will pay the costs of this reference. Advocates fee is fixed at Rs. 250.
Reference answered accordingly.