This is an application of the assessee under section 66(2) of the Income-tax Act, 1922, which arises out of the order of the Income-tax Appellate Tribunal in I.T.A. No. 2555 of 1949-50. There is a consequential application (M.C.C. No. 124 of 1951) which arises out of the connected E.P.T.A. No. 450 of 1949-50. This order governs the disposal of both the applications.
2. The assessee is a Hindu undivided family of which Amolakchand is the Karta. The dispute relates to the following credits, dated April 26, 1946, in the assessees account-books for the assessment year 1946-48, viz.
The Income-tax Officer doubted the genuineness of these entries and accordingly issued a notice under section 23(2) of the Income-tax Act for further information. The explanation of the assessee was that the amount in question represented the sale price of the ornaments of the ladies of the family. This explanation was rejected and the amounts were treated as the assessees income from undisclosed sources.
3. The assessee was liable to pay a sum of Rs. 75,785 on account of income-tax by the end of March, 1946. It appears that the assessees application dated March 21, 1946, for grant of time for payment was refused by the Commissioner of Income-tax. The case of the assessee was that as no time was granted for payment, the family ornaments were sold in Bombay on April 15, 1946, and the tax was paid from the sale price in two installments of Rs. 40,000 and Rs. 35,785 on March 31, 1946, and April 27, 1946, respectively. The taxing authorities disbelieved this version inter alia on the following grounds : (1) that the amount of Rs. 40,000 was paid before the alleged sale of the ornaments; (2) that on April 27, 1946, the assessee sent Rs. 40,000 to the Laxmi Bank and Rs. 50,000 to the Bank; and (3) that the money was not likely to have been brought all the way from Bombay by Amolakchand on his person as alleged.
These facts do throw doubt on the story of the sale of ornaments in the absence of an explanation how the amount of Rs. 40,000 was raised on March 31, 1946, and the amount of Rs. 90,000 could be released on April 27, 1946, dispatch to the Laxmi Bank and the Central Bank. In Ganga Ram Balmodand v. Commissioner of Income-tax, Punjab, it was held that the law does not impose any burden on the Income-tax authorities to prove by positive evidence that the accounts are unreliable and if their finding is not altogether capricious and injudicial, it cannot be interfered with. In the instant case, the rejection of the assessees accounts is based on reasons and is not, therefore, open to interference.
4. It was, however, contended that before the assessees explanation was rejected, the Income-tax Officer ought to have made enquiries from the ladies concerned and from the Bombay market or specified the points on which he wanted further evidence. It appears that the Income-tax Officer had first directed the assessee to produce the ladies for examination but later gave up the idea as, in his opinion, no useful purpose was likely to be served thereby. They were virtually in the position of the assessee and their evidence would not have been of material help to determine the matter in controversy, especially when Amolakchand, the karta of the family, was already examined. Regarding the goldsmith and the merchant, the assessee had not made any definite request for their examination. The relevant part of the written statement filed by Amolakchand is reproduced below : "Assessee would be prepared to file any other evidence required on the subject. He requests that the merchant who purchased gold from us and the goldsmith who melted the ornaments be kindly examined on commission under section 37 of the Income-tax Act if the Income-tax Officer is not satisfied with the evidence tendered." It would thus appear that it was left by the assessee to the Income-tax Officer whether or not to examine these witnesses. Under section 23(3) of the Income-tax Act it is initially for the assessee to produce all material evidence in his possession or power. It is only when there is reason to believe the evidence but the Income-tax Officer considers it desirable to call for any specific evidence that provision is made in the Act to enable him to take that action. That does not, however, lessen the duty of the assessee to prove his case, and, therefore, he cannot if the Income-tax Officer does to ask him to adduce further evidence.
5. It was further contended that the assessee is not bound in law to prove how the party who credits an amount with him had received it and it is sufficient if the entries in his account books disclose the source of his own receipt. Reliance is placed in this connection on Narayandas Kedarnath v. Commissioner Income-tax, Central. That was, however, a case in which the receipt of money from an outside source was clearly established but the amount was treated as income solely on the ground that the assessee had failed to prove how the parties who had sent the money had received it.
In the instant case, the receipt from the alleged source itself is not proved. The case, therefore, is distinguishable.
6. It was lastly urged that even if the accounts be rejected, there is no material in support of the finding that the receipts represent revenue income. In Jambudas v. Income-tax Commissioner, C.P. it was doubtless held that the normal presumption is in favour of good faith and it is, therefore, for the Crown to prove that an entry in the account books is made with the intention to conceal the income.
However, as held in Mahabir Prasad Munna Lal v. Commissioner of Income-tax : "There is nothing in law to prevent an inference that a particular receipt is a revenue receipt, provided that that is a reasonable inference and the assessee fails to satisfy the Income-tax Officer or the appellate authority the source from which the money came." In that case there was reason to believe that the person in whose name the credit was made fictitious and no attempt was made by the assessee to prove his identity even though repeated opportunities were given to him to do so. This was, therefore, a circumstance from which it could be deduced that the credit represented a revenue income. Similarly. In G. M. Madappa v. Commissioner of Income-tax, Madras, there were two cash credits which were termed as "cash chest account", whose source was not proved. In these circumstances it was held that "when both the source and nature of the cash receipts shown in the accounting year have not been provide, the Income-Tax Officer cannot draw any other inference except that those two amounts are income receipts." It is, Therefore, evident that even though there may be no positive evidence on the source or nature of the receipt, the Income-tax authorities are entitled to draw an inference from the circumstances of the case that the receipt is a revenue income.
7. In the instant case the source of the credits was alleged to be of an independent character. In this respect the case is analogous to G.M. Madappa v. Commissioner of Income-tax, Madras, but there is also an additional factor. In Bachraj Amolakchand v. Commissioner of Income-tax the assessees explanation that Rs. 54,532 in the assessment year 1944-45 were drawn from the sale proceeds of family ornaments was rejected and the amount was held to be an income from undisclosed sources. This decision is a circumstance indicating the possibility of the assessee possessing an undisclosed source of income. In this context, the Income-tax Authorities were entitled to drawn an inference that the amounts which had admittedly no specific independent source represented revenue receipt from undisclosed sources.