MANCHANDA J. - This is a case stated under section 66(2) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act). Two questions have been referred as directed by this court. They are :
'1. Whether there was any material on the basis of which the Tribunal could come to the conclusion that with Rs. 28,200 the assessee was carrying on any business for his own benefit, and the sum of Rs. 28,200 was not merely an advance to Panna Lal ?
2. If the answer to the first question is in the affirmative, then, whether there was any material to hold that that business resulted in a profit of Rs. 5,000 ?'
The material facts are these : The relevant year of assessment is 1945-46, the previous year being the year ending Dewali 2001. The assessee was carrying on business in cloth. The kartas sister was married to one Panna Lal of Rewa. The Income tax Officer on examining the books of accounts of the assessee found that here was a squared-up account in the name of the said Panna Lal with debits and credits totaling Rs. 28,200. The assessee was asked to explain the debits and credits in the account of Panna Lal in its books of accounts. Panna Lal was produced and his statement recorded by the Income tax Officer. Panna Lal admitted that there were many transactions between him and his brother-in-law during the relevant accounting year. In support thereof he produced his broker. He admitted that he did not ascertain the profit and loss in the transactions. He also admitted that the accounts were ledgerised and further that no interest was admitted that the accounts were ledgerised and further that no interest was charged on the loan given to him by his brother-in-law. It was further stated that the full amount of Rs. 28,200 which had been borrowed by him from the assessee was returned within four months of the borrowing. The Income tax Officer was of the view that the broker 'was got up later on with a view to help his brother-in-law to get out of that impasse'. He accordingly concluded that the sum of Rs. 28,200 represented artificial receipts from a source not disclosed to the department and brought the entire sum of Rs. 28,200 to tax as income of the assessee from business.
On appeal, the Appellate Assistant Commissioner disagreed with the view taken by the Income-tax Officer. He took strong exception to the conclusion of the Income tax Officer that the cash book, as produced, was prepared to prove the assessees case and that his (Panna Lals) statement could not be accepted as correct as he was an interested party. The Appellate Assistant Commissioner in this connection observed : 'Credits being covered by withdrawals could not possibly be treated as income from undisclosed sources unless it was proved that he withdrawals were for some other purposes and were not available for reintroduction in business, but no such material is available on record. There is no doubt there were grounds for suspecting the genuineness of the cash book produced but it was absolutedly incorrect to suggest that the cross-examination of Sri Panna Lal revealed that the cash book was maintained with the sole idea of helping the relation as there was nothing in the statement to warrant such a presumption.' The Appellate Assistant Commissioner, however, after correcting the Income-tax Officer himself fell into the error of surmising that, as no interest was charged by the assessee on the said sum of Rs. 28,200, given for temporary use of four months to his brother-in-law, the assessee had some share in the business carried on by Panna Lal. In other words, he was of the view that the assessee could not have lent money to his brother-in-law without some return - if not by way of interest, at least a share of profit. He, therefore, estimated the profit that should have been earned, if Rs. 28,200 had been invested by the assessee or Panna Lal on his behalf, at Rs. 10,000. When the matter was taken on appeal to the Tribunal, without there being any material to connect the assessee with the business carried on by Panna Lal, it was assured that the assessee had a share in the profit resulting from the use of the said sum by Panna Lal in his business. There is not an iota of evidence to connect the assessee with the business of Panna Lal. Suspicion, however grave, can never take the place of proof.
For the reasons given above, question No. 1 will have to be answered in the negative and in favour of the assessee. In this view of the matter question No. 2 does not require any answer. The reference is answered accordingly. The department will pay the costs of the assessee, which we assess at Rs. 200. Counsels fee is also assessed at Rs. 200.
Reference answered accordingly.