1. S.4 : Income – Chargeable as – Assessee’s books actually showing a cash balance of above Rs. 38,000 as on the day immediately preceding the date of demonetisation. – In the absence of material before the Tribunal, it could not have been held that only 22 out of 28 high denomination notes represented cash balance and the remaining 6 constituted income from undisclosed sources.
Allahabad HC had reversed ITAT order upholding undisclosed income addition to the tune of Rs. 6,000/- during AY 1947-48. In the present case, assessee encashed 28 high denomination notes of Rs. 1,000 each after issuance of High Denomination Bank Notes (Demonetisation) Ordinance, 1946. On being asked to explain the source of the notes, the assessee stated that it had a closing balance; in respect of the account maintained for its business, on 11-1-1946 and that these 28 notes had come out of the aforesaid closing cash balance. However ITO disbelieved explanation and treated entire amount as assessee’s income from an undisclosed source. On appeal, Tribunal partly upheld addition by holding that 22 notes of the denomination of Rs. 1,000 each could have come out of the cash balance of Rs. 38,000 and odd, but was not satisfied that the balance of six notes of Rs. 1,000 each were also from the same source. Accepted that 22 notes out of 28 could have come out of cash balance, however remaining 6 notes could not have formed part of such balance. On further appeal by assessee, HC held that finding of Tribunal was based upon surmises and conjectures and cannot be upheld. HC relied on Co-ordinate Bench ruling in
Kanpur Steel Co. v. CIT [ 32 ITR 56]. [Corresponding to Section 3 of the Indian Income-tax Act, 1922] (AY 1947-48)
Madhuri Das Narain Das v. CIT 67 ITR 368 (All.)(HC)
2. S.68 : Cash credits – Burden of proof-If explanation of the assessee is not found satisfactory -assessee’s claim about the amount is not genuine
Assessee had shown certain amounts in capital accounts in books claiming same to be winnings from horse races. She filed sworn statement to effect that she started going for races only towards end of year 1969 and had no experience in races but she purchased jackpot tickets on combination worked out by her on basis of advice given by her husband. She had allegedly won 16 jackpots besides trebles. The AO disbelieved her version and taxed amount as income from undisclosed sources. The Settlement Commission by its majority order upheld assessment order holding that it was reasonable to infer, on facts, that assessee did not participate in races but purchased winning tickets after events with unaccounted money. Matter in question had to be considered in light of human probabilities. Having record to conduct of assessee as disclosed by her in sworn affidavit as well as other material on record, an inference could reasonably be drawn that winning tickets were purchased by her after race event. Therefore, finding of majority of Settlement Commission that amount in question was not winnings from horse races but income from undisclosed sources was justified. (AY 1971-72 and 1972-73)
Sumati Dayal v. CIT 214 ITR 801 (SC)
3. S.69 : Income from undisclosed sources – Burden of proof – Tribunal having accepted that some of the high denomination notes belonged to assessee, it could not have treated the value of balance notes as assessee’s undisclosed income on the material on record
The assessee carried on business in cloth, parchoon, kerosene and salt and had also income from zamindari. With the demonetisation of high denomination notes in January, 1946, the assessee encashed 21 high denomination notes. The assessee claimed to have received them in the usual course of business and formed part of his cash balance. The ITO as well as the AAC, on 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. On second appeal, the Tribunal took the view that it was not possible for the assessee to get these notes either in his business from parchoon, kerosence and salt or out of zamindari. It, however, accepted the position that some of these notes might have come into his possession in the course of his business in cloth.
The Tribunal ultimately came to conclusion that out of 21 high denomination notes the possibility of the assessee having had eight high denomination notes could be accounted in the cloth business. In regard to the remaining
13 high denomination notes, they affirmed the view of the income-tax authorities.
The Honourable High Court held that, Tribunal having accepted that some of the high denomination notes belonged to assessee, it could not have treated the value of balance notes as assessee’s undisclosed income on the material on record. [Corresponding to s. 23(3) of the Indian Income-tax Act, 1922](AY 1947-48)
Gur Prasad Hari Das v. CIT  47 ITR 634 (All.)(HC)
4. S.69A : Unexplained money etc. – In pursuance of High Denomination Bank Notes (Denomination) Ordinance, 1946 – Revenue authorities could not treat income from undisclosed sources if explanation was reasonable
Assessee Company exchanged 32 high denomination notes. Regarding source of these high denomination notes, assessee claimed that these notes represented part of its cash balance. The ITO rejected claim of assessee and held that amount represented by those currency notes was suppressed income of assessee. The Tribunal though did not find assessee’s explanation to be false, yet it deleted only a part of amount added back by ITO as income from undisclosed sources. The Honourable High Court observed that when assessee had given an explanation which was reasonable, revenue authorities could treat amount in question as income from undisclosed sources only if there was some other material from which such inference could have been drawn. Since, no other material had been mentioned, it could be concluded that amount being value of high denomination currency notes exchanged in pursuance of 1946 ordinance, did not represent income of assessee from undisclosed sources. [corresponding to section 23 of the Indian Income-tax Act, 1922] (AY 1948 49)
Kanpur Steel Co. Ltd. v. CIT  32 ITR 56 (All.)(HC)
5. S.69A : Unexplained moneys -books of account of assessee were accepted by revenue as genuine – assessee not required to prove source of receipt of said high denomination notes which were legal tender at that time
It is a fundamental principle governing the taxation of any undisclosed income or secreted profits that the income or the profits as such must find sufficient explanation at the hands of the assessee. If the balance at hand on the relevant date is sufficient to cover the value of the high denomination notes subsequently demonetised and even more, in the absence of any finding that the books of account of the assessee were not genuine, the source of income is well disclosed and it cannot amount to any secreted profits within the meaning of the law. What has to be disclosed and established is the source of the income or the receipt of money, not the source of the receipt of the high denomination notes which were legal tender at the relevant time.(AY 1946-47)
Lakshmi Rice Mills v. CIT  97 ITR 258 (Pat.)(HC)
6. S.69A : Unexplained moneys -books of account of assessee were accepted by revenue as genuine – assessee not required to prove source of receipt of said high denomination notes which were legal tender at that time
It is a fundamental principle governing the taxation of any undisclosed income or secreted profits that the income or the profits as such must find sufficient explanation at the hands of the assessee. If the balance at hand on the relevant date is sufficient to cover the value of the high denomination notes subsequently demonetised and even more, in the absence of any finding that the books of account of the assessee were not genuine, the source of income is well disclosed and it cannot amount to any secreted profits within the meaning of the law. What has to be disclosed and established is the source of the income or the receipt of money, not the source of the receipt of the high denomination notes which were legal tender at the relevant time (AY 1946-47)
Lakshmi Rice Mills v. CIT  97 ITR 258 (Pat.)(HC)
7. S.69A : Unexplained money – on demonetisation of high denomination notes, assessee deposited such notes in bank declaring their source as past profits – in subsequent statement made in course of survey, source was given as withdrawal from a partnership firm, but examination of entries’ in firm’s books made possession of such high denomination cash by firm on date of withdrawal improbable – ITO was justified in treating impugned high denomination cash as assessee’s income
There was a clear contradiction in the two statements of the assessee about the source of the impugned amount. Had the source of the notes been his past profits as stated on 19-1-1978, there was no necessity for him to state subsequently that the amount had been withdrawn from the firm. Clearly if it represented his past profits, there was no need for any withdrawal from the firm. Also, the certificate of the firm was in general terms and there was no other contemporaneous evidence to corroborate the assessee’s case. Even the firm itself had not explained the source of high denomination notes worth more than Rs. 6 lakh and had asked for a settlement.
Considering all the evidence produced by the assessee, the conclusion would be that the notes were never part of the firm’s cash and the assessee had not been able to establish this fact. The lower authorities were, accordingly, justified in making the addition. (AY 1978-79).
Naresh Kumar Tulshan v. ITO  11 ITD 537 (Mum.) (Trib.)
8. S.69A : Unexplained money – High denomination currency encashed on demonetisation – Merely because assessee not mentioned high denomination notes in books before demonetisation would not justify addition
The assessment of the assessee was completed after making certain additions to the income. On second appeal the Tribunal with minor changes accepted the figures given by the assessee. Thereafter the ITO received information that the assessee had exchanged high denomination notes to the extent of Rs. 68,000/- after the passing of the Demonetization Ordinance on 12-1-1946. A proceeding u/s. 34 was started against the assessee and as a result of this proceeding the ITO held that an additional sum of Rs. 68,000/- should be added to the income of the assessee. An appeal was preferred by the assessee against this assessment before the AAC but the appeal was dismissed. A further appeal was taken before the Tribunal who took the view that out of the sum of Rs. 68,000/- only a portion, Rs. 35,000/- should be treated as coming out of the cash balance of the business and the rest of the amount of Rs. 33,000/- should be treated as secreted profit of the assessee, liable to be taxed.
Tribunal is a judicial tribunal and u/s. 33 of 1922 Act the powers conferred on the Tribunal are very wide and extensive. It is essential in the public interest that these powers should be exercised by the Tribunal carefully and in a judicial manner. In the present case it is a matter of regret that the Tribunal has not indicated upon what material they have reached the conclusion that the amount of Rs. 33,000/- out of the amount of Rs. 68,000/- should be treated as secreted profit of the assessee. Therefore, the order of the Tribunal is bad on account of this defect As it must indicate the material on which the conclusion is based. [Corresponding to s. 33 of the Indian Income-tax Act, 1922] (AY 1946-47)
Chunilal Ticamchand Coal Co. Ltd. v. CIT  27 ITR 602 (Pat.)(HC)
9. S.143 (3) – Assessment – Additions to income – assessee was unable to adduce any evidence or confirmation from currency – addition justified
ITO found that during accounting year relevant to assessment year, assessee had encashed two denomination notes of Rs. 10,000/- each. On being questioned, assessee stated that same were received from currency office, but he didn’t produce any evidence. On reference being made to currency officer, ITO was informed that no record showing names and addresses of persons to inform high denomination notes were issued was maintained by that office. Accordingly, ITO made an addition in that respect, further found that assessee had lent a sum in form of high denomination notes to ‘S’. Assessee stated that these high denomination notes were part of sale proceeds of his property for Rs. 1,53,000 /-. ITO found that said high denominations notes were encashed by ‘S’ and tallied with notes mentioned in deed of conveyance only to extent of Rs. 1,10,000/-. So far as balance of Rs. 16,000 was concerned, ITO did not accept assessee’s explanation that he received one high denomination note of Rs. 10,000/- in exchange for smaller denomination notes from ‘R’ and Rs. 6,000/- was cash in hand as neither books of account nor any other evidence was produced in support of such contentions and also treated same as assessee’s income from disclosed sources. Whether tallying was done with number of notes encashed by ‘S’ that was not assessee itself even though it was closely associated with assessee and, therefore, explanation that either assessee or S who had cash in hand in notes might have changed one high denomination note, was not inherently improbable. As regards to Rs. 6,000/- which assessee had with him, onus was on assessee to establish that assessee had this amount of cash with him and since he had failed to discharge that onus to satisfaction of revenue authority, addition of that amount was justified. As regards denomination received from currency office, assessee wanted an opportunity before Tribunal to prove that from currency office and Tribunal gave such an opportunity to assessee but inspite of that, assessee was unable to adduce any evidence or confirmation from currency officer regarding high denomination notes of face value of Rs. 20,000/- and, therefore, addition in that respect was justified. (AY 1945-46)
Anil Kumar Singh v. CIT  84 ITR 307 (Cal.)(HC)
10. S.143(3) : Assessment – Additions to income – Encashment of high denomination notes – Cash book of assessee having been accepted, there could not have been challenged by the Revenue
The assessee firm was carrying on mill store business at Ahmedabad. The Governor-General on 12-1-1946, promulgated the High Denomination Bank Notes (Demonetisations) Ordinance, 1946, and high denominations bank notes ceased to be legal tender on the expiry of 12-1-1946. Pursuant to clause 6 of the Ordinance the assessee, on 18-1-1946, encashed high denomination notes of Rs. 100 each of the face value of Rs. 61,000/-. During the assessment proceedings for the year 1947-48 the ITO called upon the assessee to prove from whom and when the said high denomination notes were received by the assessee and also the bona fides of the previous owners thereof. After examining the entries in the books of account of the assessee and the position of the cash balances on various dates 20th December, 1945, to 18th January, 1946, and the nature and extent of the receipts and payments during the relevant period, the ITO came to the conclusion that in order to sustain the contention of the appellants it would have to presumed that there were 18 high denomination notes of
Rs. 1,000/- each in the cash balance on 1-1-1946, and that all cash receipts after 1-1-1946, and before 13-1-1946, were received in currency notes of Rs. 1,000/- each, a presumption which was impossible to make in the absence of any evidence. He, therefore, added the sum of
Rs. 61,000 to the assessable income of the assessee from undisclosed sources. The AAC upheld the said addition. The Tribunal accepted the assessee’s explanation only in regard to 31 notes and directed that the assessment for the year under reference be reduced by that amount and dismissed the rest of the appeal. On reference to the High Court held that the finding of the Tribunal was a finding of fact based on materials before it.
The Supreme Court held that cash book of assessee having been accepted, and deponents not having been examined, these could not have been challenged by the Revenue and there was no justification for accepting the explanation of assessee in part and treating 30 notes out of 61 notes of Rs. 1,000/- denomination as income from undisclosed sources. [Corresponding to s. 23 of the Indian Income-tax Act, 1922] (AY 1947-48)
Mehta Parikh & Co. v. CIT  30 ITR 181 (SC)
11. S.143(3) : Assessment (Benami transactions) – the unit ‘P’ belongs to assessee and income of such unit is income of the assessee. So the income of the unit ‘P’ should be clubbed with the income of the assessee
Assessee filed returns of his daughter declaring income derived from a fabrication unit ‘P’. He stated that daughter was deriving income from unit ‘P’. She was married in year 1994 and after marriage she could not give personal attention and executed power of attorney in assesse’s favour to run said unit. The daughter had purchased said unit from her mother on payment of Rs. 10,000/- and executed a promissory note of Rs. 60,000/- as security in favour of her mother. The unit was a separate small scale unit under Director of Industries and had got licences under sales tax department. The AO clubbed income of daughter derived from unit with income of assessee on plea that income declared by daughter belonged to assessee. Since it was apparent from record that unit was neither owned by daughter nor by wife, it would have to be held that unit was benami property of assessee and income of such unit was income of assessee. Therefore income of unit was rightly clubbed within income of assessee. (AY 1992-93 to 1997-98).
Sri Suru Bhaskar Rao vs. CIT (2016) 386 ITR 419 (Orrissa)(HC)
12. S.147 : Income – escaping assessment – If there is entry in account books of assessee which shows receipt of sum on conversion of high denomination notes – failed to explain source of said money, department was justified in treating value of said high denomination notes as income
The assessee was the owner of several collieries-coal fields and was also a contractor for raising coal. For the AY 1946-47, the assessment of the assessee was completed. Subsequently, the ITO reopened the assessment on finding that the assessee was in possession of some high denomination notes. The assessee contended that for conducting the business and payment to labour he had to pay every week in thousands; that as he did not get payment for work done every week he had to keep large sum of money to meet emergency and that it was neither profit nor part of profit, it was very floating capital for purpose of conducting business. He also stated that he had accounts with India, at some banks, but added that he did not remember exactly from which bank the notes came into his possession as his transactions were frequent. The ITO pointed out that the business of the assessee was large and the withdrawals from the various banks were large and frequent, he had not maintained a central account showing withdrawals from the banks and remittances made to his various businesses, and that none of the books maintained by the assessee, and produced by him, contained a bank account. The ITO found a discrepancy in the statements filed by the assessee. He, accordingly, treated the high denomination notes as profits from some undisclosed source and assessed them as assessable income. On appeal, the AAC as well as the Tribunal confirmed the order of the ITO.
The Hon’ble High Court had taken a view that, there were materials to show that the value of the High denomination notes not form part of the cash balance, and the source of money not having been satisfactorily proved, the department was justified in holding it to be the assessable income of the assessee from some undisclosed course. The same has been confirmed by the Supreme Court (corresponding to s. 34 of the Indian Income-tax Act, 1922] (AY 1946-47)
Sreelekha Banerjee v. CIT  49 ITR 112 (SC)
13. S.271(1)(c) : Penalty – For concealment of income -Assessee declared on 19-1-1978 five high denomination notes of Rs. 10,000/- each acquired from certain bank – On enquiry bank denied having issued such notes – Assessment was completed on a total of Rs. 60,000 rejecting assessee’s explanation and penalty u/s. 271(1)(c) was levied. Tribunal cancelled penalty on ground that explanation of assessee was rejected merely on plea that certificate from bank was dated 9-1-1979 as against declaration on 19-1-1978. In fact no certificate was filed but letter issued by bank was dated 9-1-1979 – Since order was passed by Tribunal merely on one statement and real factual position was not kept in mind, Tribunal was unjustified in cancelling penalty.
In the present case, assessee declared five high denomination notes of Rs. 10,000 each acquired from certain bank. On enquiry bank denied having issued such notes. Assessment was completed on a total of Rs. 60,000 rejecting assessee’s explanation and penalty under section 271(1)(c) was levied. Tribunal cancelled penalty on ground that explanation of assessee was rejected merely on plea that certificate from bank was dated January 9, 1979 as against declaration on January 19th , 1978. In fact no certificate was filed but letter issued by bank was dated January 9, 1979. Delhi HC held that tribunal was not justified in cancelling penalty on one statement and real factual position was not kept in mind. It was held that “Tribunal has not kept in view the real factual position and was not justified in cancelling the penalty. We may note that there was submission made by the assessee before the Tribunal that Commissioner, Delhi-II had considered that there was no concealment or misrepresentation and the prosecution case was to be withdrawn. No material seems to have been placed before the Tribunal to test the correctness of the said stand”. (AY 1978-79)
CIT v. Allied International Product Ltd.  120 Taxman 589 (Del.)(HC)
14. S.271(1)(c) : Penalty – For concealment of income – Addition made to income of assesse u/s. 69A and also levied a penalty u/s. 271(1)(c) on ground that though assessee was in possession of high denomination notes, it had not recorded same in books of account maintained by it and had failed to offer any explanation about nature and source of acquisition of money – Assessee was found to be in possession of said high denomination notes, same did not have any representative value as RBI had refused to honour said notes when tendered for exchange, it could not be said that assessee was in possession of unexplained money warranting levy of penalty.
In the present case, assessee was found in possession of unexplained money in form of high denomination notes, which had ceased to be legal tender and had no value in market at all in terms of Ordinance issue by Government in 1978. Upon additions u/s. 69A made by AO for unexplained money and penalty levied u/s. 271(1)(c), Bangalore ITAT held that “since assessee was found in possession of unexplained money in the form of high denomination notes after these notes had ceased to be legal tender, addition under s. 69A is unsupportable and question of levying penalty under s. 271(1)(c) cannot arise.”(AY 1978-79)
CIT v. Andhra Pradesh Yarn Combines (P) Ltd. (2006) 282 ITR 490 (Ker.)(HC)