BRIJLAL GUPTA J. - This is an income-tax reference which comes to us in consequence of an order of this court, dated December 16, 1957, on an application by the assessee under section 66(2) of the Income-tax Act. The question which has been referred to us for opinion is :
'Whether there was any material for the finding given by the Tribunal that out of 21 high denomination notes, which were exchanged by the assessee, 13 represented income of the assessee from some undisclosed source.'
The facts giving rise to the reference are that the assessee carries on business in cloths, parchoon, kerosene and salt and has been income from zamindari. Upon the coming into force of the High Denomination Notes (Demonetisation) Ordinance in January, 1946, the assessee encashed 21 high denomination notes. Having been called upon to explain the nature and the source of the amount represented by these 21 notes the assessee explained that they were received by him in the usual course of business and formed part of his cash balance. In support of his case balance was 20,441-7-6. Obviously this could not include 21 High denomination notes but it could include 20 high denomination notes. The cash balance after December 27, 1945 was Rs. 26,846-5-6 on the immediately succeeding the date, namely, October 28, 1945, and on every other date thereafter the balance was more than Rs. 26,000. On January 11, 1946, the date immediately preceding the promulgation of the Ordinance the cash balance was Rs. 37,179-0-6. From this it is quite clear that the cash balance subsequent to December 27, 1945, was such that it could contain 21 high denomination notes. These notes were finally encashed by the applicant on January 25, 1946. The Income-tax Officer and the Appellate Assistant Commissioner in appeal rejected the explanation of the assessee in regard to the source of the 21 high denomination notes and included the entire amount represented by these notes in the total income of the assessee as his income from some undisclosed source. When the matter reached the Income-tax Appellate Tribunal, the Income-tax Appellate Tribunal did not reject the explanation of the assessee outright. They took overview that it was not possible for the assessee to get these notes in his business from parchoon kerosene and salt. They also took the view that it was not possible for the assessee to get these notes in his business from parchoon, kerosene and salt. They also took the view that it was not possible for the assessee to come into possession of any these notes out of zamindari. They however, accepted the position that it might have been possible for the assessee to come into possession of some of these notes in the course of his business in cloth. The assessee appears to have produced a chart of his sales and by reference to that chart the Tribunal took the view that there were three transactions of over Rs. 1,000 on December 27, 1945, and these transactions might very well have included one notes. They also noticed that there was another transactions of Rs. 1000 after December 27, 1945. Accordingly they took the view that from this transaction also the assessee might have received one high denomination note. Thus the total number of high denomination notes accounted for by the business operations of the assessee was four from December 27, 1945, onwards. Then the Tribunal proceeded to make an estimate. They took the view that it is possible that a certain proportion out of the cash balance of the assessee might very well represent some high denomination notes. The computation they made on the basis of the so-called proportion of high denomination notes in the cash balance was that in a cash balance of Rs. 29,441-7-6 the assessee might have had eight high denomination notes. They had already accounted for four notes as stated earlier. They allowed the possibility of the assessee having another four notes. Thus out of 21 high denomination notes they accepted the possibility of the assessee having had eight high denomination notes out of his business in cloth but rejected the explanation with regard to the remaining 13 high denomination notes. In regard to these 13 high denomination notes they affirmed the view of the income-tax authorities that these 13 notes represented the income of the assessee from some undisclosed source.
It has been laid down in a Division Bench case of this court in Kanpur Steel Co. Ltd. v. Commissioner of Income-tax that in a matter like this the burden is upon the department to prove that high denomination notes represent the concealed income of an assessee from some undisclosed source. Prior to January 12, 1946, high denomination notes were legal tender. Accordingly the Division Bench observed that prior to that date it was no part of the duty of an assessee to keep particulars of any high denomination notes that he might have received. It was only as a result of the Ordinance that the assessee was required by the income-tax authorities to furnish an explanation as to the nature and source of receipt of high denomination notes. In those circumstances prima facie the value represented by the high denomination notes which might be in the possession of an assessee was presumed to be a part of his cash balance. If the department wanted to treat the value of high denomination notes as the concealed income of the assessee from some undisclosed source then it was for the income-tax department to establish that fact. It is obvious that the fact could be established only on the basis of material which might be in the possession of the department. It may be that, in certain circumstances, if the explanation of the assessee was found to be false, that fact along with other circumstances might furnish material on the basis of which the department might be able to discharge that burden of proof which was upon it. This would obviously depend upon the facts and circumstances of each case. As we have already stated above the Income-tax Appellate Tribunal did not outright reject the explanation furnished by the assessee nor did they, in so many words, find that the explanation offered by the assessee was false. On the other hand they accepted the case of the assessee at least with regard to four notes and further the fact that they made their own estimate of the cash balance of the assessee containing some proportion of high denomination notes showed that the Tribunal themselves considered that it was possible for the assessee to receive high denomination notes during the course of his business. Having proceeded thus far, it appears to us that the Income-tax Appellate Tribunal committed an error in not accepting the assessees explanation in to in regard to all the twenty-one high denomination notes. They founded themselves partly upon the sales made by the assessee and took the view that high denomination notes could be received only in transactions of over Rs. 1,000, there is always the possibility of a receipt of high denomination notes. A buyer might hand over a note of Rs. 1,000 and pay for the transaction of purchase of say Rs. 500, 600 or 700 and take the balance in cash. This possibility is always there and this possibility cannot be ruled out because as already stated above the burden of proof in a matter like this is upon the department. Unless the possibility of the receipt of high denomination notes in transaction of less than Rs. 1,000 was completely ruled out, it could not be said that the mere fact that there were no sale transactions of Rs. 1,000 or over, would not exclude that possibility and the burden which rests upon department would remain undischarged. The other error which the Tribunal made was in mooting the possibility of a cash balance containing a certain proportion of high denomination notes. We cannot see any basis for this supposed proportion. It is possible that even in a cash balance of a very large amount there may be no high denomination notes at all. Equally it is possible that even in a cash balance of a small amount almost the entire cash balance may be made up only of high denomination notes. When both the possibilities are there, it cannot be said that in taking the existence or non-existence of high denomination notes in a certain cash balance in a certain proportion the Tribunal could hold that the burden which rested upon the income-tax department stood discharged. It follows that it cannot be said in the circumstance of this case that the Tribunal had before it material for holding that the assessee could not have in possession any of the remaining thirteen high denomination notes or any of them represented the income of the assessee from some undisclosed source.
The result is that the question referred to us for opinion must be answered in the negative and we do so. The reference application is allowed with costs which we assess at Rs. 200.
Questions answered in the negative.