MASUD J. - The facts in this reference under section 66(2) of the Income-tax Act, 1922, are stated as follows :
The assessee, a limited liability company it its registered office at Kalimpong, carries on substantial business at Kalimpong with Tibetan traders in the purchase and sale of wool and textiles. The assessment years under consideration of this reference is the year 1950-51 and the corresponding year of account is 2006 R. M. in the year of account, a sum of Rs. 70,000 was found credited in the assessees books of account in the name of a Tibetan, Kunjo Amdo Bhutia. The assessee explained this cash credit as sum deposited by Kunjo Amddo who being an illiterate and simple Tibetan did not believe in doing business through banks. The Income-tax Officer did not accept the assessees explanation as to the genuineness of the alleged deposit of Rs. 70,000. On appeal before the Appellate Assistant Commissioner, Kunjo Amdo gave evidence on 9th April, 1957. The Appellate Assistant Commissioner found his evidence unsatisfactory and dismissed the assessees appeal. Thereafter, the matter went up to the Appellate Tribunal who also dismissed the assessees second appeal. On the facts set out above, the following three question are referred to this court :
'(1) Whether, on the failure of the depositor to satisfy the income-tax authorities about the nature of the sums and source from which he came in possession thereof, the Income-tax Tribunal was justified in drawing an inference that this amount represented the undisclosed profits of the company assessable for the year 1950-51 ?
(2) Whether, on the facts and circumstances of the case, the said Tribunal erred in law in finding that the onus of proof lay on the petitioner to prove that the said item of cash credit which stood in the name of a third party was in fact not the petitioners income ?
(3) Whether the Tribunal should have held that, in the facts and circumstances of this case, the burden of proof lay upon the income-tax authorities to show that the item of cash credit was really a part of the petitioners income ?'
The learned counsel for the assessee, Mr. Tarun Bose, has submitted before us that his client has given a good explanation as to the source and nature of the said cash credit amounting to Rs. 70,000 and, as such, the assessee has discharged the onus of proving that the said amounts belonged to a third person and, as such, could not be assessed as the assessees income. Mr. Bose has stated that the evidence given by Kunjo Amdo Bhutia, a Tibetan trader, is a possible and believable story and it cannot be rejected by the department without some positive evidence. According to Mr. Bose, these Tibetan traders are persons, who bring raw materials from Tibet to Kalimpong carrying them on the shoulders of mules. They did not believe in doing transactions through banks as they could not sign their names in any Indian language. Various certificates were produced before the Income-tax Officer to show that, in the peculiar circumstances of the case, the assessee acted as bankers for Kunjo Amdo. The clear case of the assessee was that the said sum of Rs. 70,000 was deposited by Kunjo Amdo him on April 7, 1949. This amount was supposed to be the sale proceeds of wool brought by Kunjo Amdo from Tibet to Kalimpong, and Kunjo Amdo, according to the assessees case, got back the money through cheques on the Central Bank of India Ltd., at Kalimpong. According to Mr. Bose there was nothing unusual or unnatural in such explanation and the revenue authorities should not have rejected such explanation.
In our opinion, Mr. Boses contention cannot be accepted in the facts and circumstances of this case. It is not correct to say that as soon as the initial burden of proof on the part of the assessee is discharged, the Income-tax Officer is not entitled to reject the assessees explanation without some other positive evidence falsifying the assessees case. It cannot be true that any possible explanation which an assessee puts forth for clarifying the source and nature of a cash receipt must have to be accepted by the income-tax department nor can it be lawfully urged that the Income-tax Officer can arbitrarily reject the assessees explanation. A dogmatic assertion on the part of either the assessee or the revenue authorities cannot determine the issue. Objectively it must be found out that the assessees explanation suffers from inherent infirmity of is inconsistent with more reliable evidence adduced by the department, before the assessees explanation is rejected. The Madras High Court in P. V. Raghava Reddi v. Commissioner of Income-tax, has rightly observed 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 or in the name of a third party. In either case, the burden lies upon the assessee to explain the credit entry, though 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 third party either real or pseudonymous.'
The point is now laid at rest by the Supreme Court in A. Govindarajulu Mudaliar v. Commissioner of Income-tax and Kale Khan Mohammad Hanif v. Commissioner of Income-tax. Applying the principles set out in the aforesaid cases we do not think that the assessee has discharged the onus satisfactorily in the instant case. The assessees books of account show that there is inherent weakness in the evidence adduced by the assessee. Kunjo Amdo Bhutia is supposed to have sold wool worth Rs. 70,000 at Kalimpong and the sale proceeds had been deposited with the assessee on April 7, 1949. The only person to whom Kunjo Amdo sold wool are Kedarmull, Kalooram and the assessee. According to him 300 bharis of wool were sold to Kalooram and 200 bharis to Kedarmull and another 300 to the assessee. In the books of account of the assessee we find two sums of money, Rs. 34,459-6-6 and Rs. 1,780-1-3 credited on December 19, 1949, and January 5, 1950, as the price of 227 bharis of wool and 14 bharis of wool, respectively. There is no evidence that wools were sold to the assessee or any other person prior to April 7, 1949. Thus, how the sale proceeds would amount to Rs. 70,000 and were kept deposited by Kunjo with the assessee are not clear. The amount of Rs. 70,000 was supposed to have been deposited with the assessee but no receipt for such deposit could be produced. Not only the particulars of the sales were not available but Kunjo, stated that he did not keep any account. Further, according to Kunjo, cheques were encashed by himself personally from the Central Bank of India Ltd. and yet is was found out, on enquiry, that the cheques were encashed by the employees of the assessee. This fact shows that Kunjo has been brought to give false evidence to support the assessees case. Apart from the oral statement of Kunjo, there is not one single document to substantiate his story. Under these circumstances, the Tribunal has rightly held that the assessee has failed to prove the genuineness of this deposit and the department was justified in bringing the amount to tax.
For the reasons stated above, the answers to the questions are given as follows :
Question No. 1 - Yes.
Question No. 2 - No.
Question No. 3 - No. The assessee shall pay the costs of this reference to the respondent.
MITTER J. - I agree.