1. This appeal filed by the assessee for the assessment year 1978-79 has three grounds. The main ground is in regard to the inclusion of Rs. 1,02,000 as income from undisclosed sources. The facts, as observed by the ITO in his order, are : 2. The assessee's sources of income are from horse racing, share of profit from the firm Tulshan Enterprises. In the year, the assessee had declared high denomination notes of Rs. 1,02,000 on 19-1-1978. A survey was conducted in the assessee's premises on 23-9-1980, at which time the assessee had given a statement regarding the high denomination notes. It was stated that Rs. 1,25,000 was received from the firm in which he is a partner which included 102 high denomination notes of Rs. 1,000 each. It was also explained that the firm Tulshan Enterprises was carrying on the business of advancing loans to parties. The ITO was not satisfied with the reasoning advanced by the assessee and since the addition was over Rs. 1 lakh, he made a draft order under Section 144B of the Income-tax Act, 1961 ('the Act'), 3. The IAC considered the objections of the assessee filed against the draft order. The IAC in his directions to the ITO, observed thus : In the declaration made on 19-1-1978 tendering the high denomination notes, the reasons stated are 'Business contingency, requirements, particularly for the company in which I am one of the managing directors'. Against the columnwhen and from what source did the bank notes come into possessionthe assessee had stated 'In course of business transactions during the past years'.
The assessee, by way of explanation, submitted that on 13-1-1978 he received from Tulshan Enterprises Rs. 1,25,000, which included 102 notes of Rs. 1,000 each. This cash was withdrawn specially for depositing in the Navrang Cine Centre (P.) Ltd., in which he is a managing director. Before the amount could be deposited, Rs. 1,000 notes were demonetised and he had to deposit the same with the banks on 19-1-1978. In support of his statement, he had filed copies of cash book transactions from 1-1-1978 to 31-1-1978 of the firm and his personal accounts as well as a certificate of the firm Tulshan Enterprises. It was also submitted that Rs. 1 lakh was deposited with Navrang Cine Centre (P.) Ltd. on 31-1-1978.
4. The IAC, after considering all the above submissions and supporting documents, pointed out the settled differences in the statement of the assessee. The differences are : On 19-1-1978, at the time of declaration of the high denomination notes, reason for holding these notes was given as business contingency requirements, particularly for the company in which he is the managing director and in the column for possession of these notes was given as in the course of business transactions during past years ; while on 23-9-1980, at the time of survey and during Section 144B proceeding, the assessee states that the amount came from the firm which was carrying on finance business.
5. The IAC also noted the inconsistencies in the version of the assessee. The assessee had stated that the amount was withdrawn from the firm as the company in which he was the managing director required funds but could not explain as to why he retained the same for six days (i.e., from 13-1-1978 to 19-1-1978) before depositing the same with the State Bank of India and even after the amount was given for credit by the bank on 25-1-1978, another six days gap was existing and the amount of Rs. 1 lakh only was deposited with the company. This led the IAC to conclude that there was no urgent need of funds by the company and the explanation was only an afterthought.
6. The IAC also observed that the firm Tulshan Enterprises, in which the assessee is a partner, were in possession of high denomination notes of a value of Rs. 6,10,000 and as they were unable to explain the possession of this huge cash, had filed their settlement petition with the Settlement Commission on 24-1-1978.
7. The IAC, while rejecting all the explanations, observed that had the high denomination notes come from the cash withdrawal from the firm, nothing prevented the assessee to put forth this reason even in the declaration made originally on 19-1-1978. He, therefore, upheld the ITO's addition, treating the reasons submitted by the assessee as a made up affair.
8. Aggrieved, the assessee preferred in appeal to the Commissioner (Appeals). In the appeal, the assessee stated that the firm was carrying on the sarafi/finance business and submitted all the statements and supporting documents as were filed before the IAC.9. The Commissioner (Appeals) observed that no light is thrown by the appellant on the question of the amounts stated to have been withdrawn from the partnership firm on 13-1-1978, not being deposited with Navrang Cine Centre (P.) Ltd. in which the appellant has a business interest. As regards the actual source for the receipt of high denomination notes, no positive proof is produced and the appellant's own statement cannot be said to be fully consistent with the appellant's own statement contained at the declaration stage. There was no material evidence produced at the bearing to reach a positive conclusion that the fact mentioned in the assessment order as also the directions of the IAC under Section 144B, were wrong or not related to actual facts. He, therefore, dismissed the appeal filed before him by the assessee.
11. Mr. V.H, Patil, the learned representative of the assessee, brought to our attention the following facts : 1. Tulshan Enterprises is a firm in which the appellant and three of his nephews are partners. The firm has its offices in Bombay, Bangalore and other places.
2. The extract of the cash book of the firm shows that on 13-1-1978, Rs. 1,25,000 was withdrawn by the assessee (page 14 of the paper book).
3. The extract of the assessee's personal cash book filed at pages 8 to 13 shows that on 13-1-1978, Rs. 1,25,000 received from the firm ; on 19-1-1978, Rs. 1,02,000 deposited as high denomination notes with the State Bank of India ; on 25-1-1978, draft for Rs. 1,02,000 received from the State Bank of India in lieu of the high denomination notes and on 31-1-1978, Rs. 1 lakh deposited with Navrang Cine Centre (P.) Ltd. 4. The copy of the certificate of the firm at page 7, wherein it has been mentioned that Rs. 1,25,000 was given to the assessee on 13-1-1978 which included 102 notes of Rs. 1,000 each and as the firm has been carrying on sarafi/finance business mostly on high denomination notes, as such it is impossible to correlate the receipts of the notes with a particular entry.
5. At page 15 is the assessee's statement before the ITO on 23-9-1980 at the time of survey under Section 133A of the Act, where the assessee had narrated that amount was withdrawn from the firm and the source lies with the business transactions in the past years.
6. Regarding the cash, being from the cash balance of the firm, reliance was placed on Mehta Parikh & Co. v. CIT  30 ITR 181 (SC), the Supreme Court in the case of Lalchand Bhagat Ambica Ram v. CIT  37 ITR 288, Anil Kumar Singh v. CIT  84 ITR 307 (Cal.) and Lakshmi Rice Mills v. CIT  97 ITR 258 (Pat.).
12. Mr. Mahadeshwar, the learned departmental representative, submitted that the assessee had filed the certificate from the firm in which he was a partner and that money was withdrawn from the firm. This certificate, according to Mr. Mahadeshwar, is only a self-serving statement. He further submitted that departmental authorities have confirmed the addition on various counts and "one of them was that the firm itself had gone to the Settlement Commission in regard to high denomination notes of Rs. 6.10 lakhs. Therefore, he pleaded that the assessee's appeal needs only to be rejected.
13.1 We have heard the parties. From the records before us, we notice that the assessee made his first statement on 19-1-1978, at the time of declaration of high denomination notes. In this declaration, against the column 'source', it had been mentioned as, 'in the course of business transactions during the past years'. The reason for holding the high denomination notes was mentioned as 'Business contingency, requirements particularly of the company in which I am a managing director'. There is no reference to the moneys having been withdrawn from the partnership firm. [Emphasis supplied] 13.2 The second statement is on 23-9-1980 at the time of survey under Section 133A. The submission was that Rs. 1,25,000 was withdrawn from the firm Tulshan Enterprises on 13-1-1978 for giying loan to Navrang Cine Centre (P.) Ltd. The amount so withdrawn contained 102 notes of Rs. 1,000 each. As a support of this statement, an undated certificate from the firm's (in which the assessee is a partner) office at Bangalore was filed.
13.3 The certificate on which much reliance has been placed, is from the firm in which the assessee is a partner. This certificate does not even bear a date. The certificate has been issued by a partner who is sitting in Bangalore, whereas the assessee is the partner-in-charge of office at Bombay. This certificate is a very general certificate which states "Our firm is having business of sarafi/finance to the persons in various cities in India. This being the position, most of the business transactions are in case and were done in high denomination notes only.
It is not possible to correlate the exact receipt of the high denomination notes with a particular entry." 14. The two statements, one of 19-1-1978 before RBI and the second on 23-9-1980, clearly indicate the contradiction in the assessee's theory.
The reference to the two statements also indicate that the assessee was unable to state precisely the source of these high denomination notes encased by him on 19-1-1978. Had the source of these high denomination notes been from his past profits as stated by him on 19-1-1978, there was no necessity of stating that it was out of the withdrawal from the firm. If the cash was out of the assessee's past profits, it could not have come from the withdrawal from the firm on 13-1-1978 and vice versa is also true. The assessee, therefore, is in two minds and there is no valid or reasonable explanation offered for this patent contradiction in his statement either before the departmental authorities or even before us.
15. The present case of the assessee, before the department as well as before us, is that these notes have come from out of his withdrawal from the firm. Is it at all probable or true The answer is clearly 'no' for the following reasons : 2. The unreliable nature of certificate of the firm as discussed above which is nothing but a self-serving statement.
3. Absence of any other contemporaneous evidence to corroborate the assessee's case.
4. The firm in which the assessee is a partner, has been unable to explain the source of the high denomination notes of Rs. 6.10 lakhs and has gone in for settlement before the Settlement Commission.
16. Much reliance has been placed by the assessee on the account books of the firm. The firm's account books are also kept by the assessee himself as he was the partner-in-charge of the Bombay office. The cash book that has been filed for the month of January 1978 indicates that the opening cash balance was Rs. 25,727 only and till 13-1-1978, there was no other cash transaction. On 13-1-1978, there is an entry in the cash book stating that Rs. 1 lakh was received in cash from Darshan Distributors (P.) Ltd. On 13-1-1978, the assessee states that he withdrew Rs. 1,25,000 from the firm. The assessee's statement on 23-9-1980 as well as the certificate of the firm which is undated mentioned that it is not possible to correlate exactly the receipt of high denomination notes with a particular entry. The obvious conclusion, therefore, is that the 102 high denomination notes could not have come from the opening balance of the firm which is just Rs. 25,727. It is also not the assessee's case that the high denomination notes were received from Darshan Distributors (P.) Ltd. If that was the case of the assessee, then the assessee would have obtained a certificate from Darshan Distributors (P.) Ltd., stating that they had paid cash in high denomination notes. The fact that the assessee was a partner in the firm, Tulshan Enterprises, cannot be ignored and the onus clearly lies on him to explain these entries in the firm's book with cogent evidence, which he had failed to do in the present case especially, when his case is being ceased on the firm's, book (sic).
Instead of presenting the cogent evidence, he makes a statement and supports this statement with another certificate from the firm itself.
In these circumstances, the entries in the firm's books cannot be accepted as proving the assessee's case as probable or true, Considering the evidence produced by the assessee in its totality, they do not lead to the conclusion that these high denomination notes could have come from the assessee's withdrawal from his partnership firm.
17. The Supreme Court in the case of Sreelekha Banerjee v. CIT  ' 49 ITR 112 have observed as under : If there is an entry in the account books of the assessee which shows the receipt of a sum on conversion of high denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money is and to prove that it does not bear the nature of income. The department is not at this stage required to prove anything. It can ask the assessee to produce any books of account or other documents or evidence pertinent to the explanation if one is furnished, and examine the evidence and the explanation. If the explanation shows that the receipt was not of an income nature, the department cannot act unreasonably and reject that explanation to hold that it was income. If, however, the explanation is unconvincing and one which deserves to be rejected, the department can reject and draw the inference that the amount represents income either from the sources already disclosed by the assessee or from some undisclosed source.
The department does not then proceed on no evidence, because the fact that there was receipt of money is itself evidence against the assessee. There is thus, prima facie, evidence against the assessee which he fails to rebut, and being unrebutted, that evidence can be used against him by holding that it was a receipt of an income nature. The very words 'an undisclosed source' show that the disclosure must come from the assessee and not from the department.
In cases of high denomination notes, where the business and the state of accounts and dealings of the assessee justify a reasonable inference that he might have for convenience kept the whole or a part of a particular sum in high denomination notes, the assessee, prima facie, discharges his initial burden when he proves the balance and that it might reasonably have been kept in high denomination notes. Before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof.
18. The other cases relied upon by the assessee also go to indicate that it is for the assessee to establish and explain that the high denomination notes could have come from out of the cash balance of the firm and it must also be established that the firm was in possession of cash and the high denomination notes could have come from out of the cash balance of the firm.
19. We have already clearly observed in the earlier paragraphs that the assessee has not been able to establish with cogent and unimpeachable evidence that the firm was in possession of sufficient cash balance and that the 102 high denomination notes could have come out of the firm's coffers. We have already observed that on 13-1-1978, the firm received in cash Rs. 1 lakh from Darshan Distributors (P.) Ltd. The assessee has not produced any confirmation or certificate from the said party to support its case because as on 1-1-1978, the opening cash balance was only Rs. 25,727. We have examined the entire evidence filed by the assessee, keeping in mind the principles laid down by the Supreme Court in the case of Sreelekha Banerjee (supra) and in the other High Court cases, and we have to come to the one and only conclusion that the high denomination notes were never part of the firm's cash and the assessee has not established this fact at all and thereby confirm the decision of the Commissioner (Appeals).