Case: Esthuri Aswanthiah Vs. Commissioner Of Income-Tax, Mysore

1. The appellant a trader in groundnuts and other commodities in the State of Mysore was taxed under the Mysore Income-tax Act, 1923, for the assessment years ending with the assessment year 1949-50. On July, 1, 1949, the assessee brought into his books of account an opening cash balance of Rs. 1,87,000/-. In proceedings for assessment to tax for the year which ended June 30, 1950, the assessee was called upon to explain that entry and to produce his books of account of the earlier years. The assessee pleaded that his books of account upto June 30, 1949, were lost and that the amount of Rs. 1,87,000/- represented "cash brought from an iron safe kept in his house". The Income-tax Officer found that in each previous year when the assessee was assessed under the Mysore Income-tax Act, he had pleaded that his books of account were either lost or stolen in the succeeding year. The Income-tax Officer was of the view that the assessee had probably an amount of Rs. 50,000/- on hand representing a cash balance brought forward from the previous year, and that the balance of Rs 1,37,000/ was the assessees income from undisclosed sources. The order passed by the Income-tax Officer assessing to tax the income of the assessee for the year 1951-52 was set aside by the Appellate Assistant Commissioner on the ground that under Sec. 2(11) of the Income-tax Act, l922, the previous year for the income from other sources could only be the financial year ending March 31, 1950. Giving effect to this finding, the Income-tax Officer issued a notice of reassessment under S. 34 of the Indian Income-tax Act for bringing to tax the amount disclosed by the books of account of the assessee for the assessment year 1950-513. In the meanwhile the Income-tax Officer completed the assessment for the year 1950-51 and brought to tax Rs. 1,37,000 as income from undisclosed sources which had escaped tax. The assessees contention that he had assets on hand exceeding Rs. 1,55000/- from his share of the joint family property, business income and other sources and those assets were brought into his books of account on July 1, 1949, was rejected by the Income-tax Officer. The order passed by the Income-tax Officer was confirmed in appeal by the Appellate Assistant Commissioner. The assessee appealed to the Appellate Tribunal and contended, inter alia, that the evidence produced by him showed that he had with him on October 27, 1946, in his bank account Rs. 1,38,946, that he had received Rs. 55,846 as his share on partition of the joint family of which he was a member, and that besides these sources he had agricultural income. The Income tax Appellate Tribunal modified the order of the Appellate Assistant Commissioner and brought to tax Rs. 50,000/- as income from undisclosed sources. The reasons recorded by the members of the Tribunal may be set out in their own words"It is clear that the assessee has not been able to explain the source of Rs. 1,37,000/- satisfactorily. But there have been trading additions for the assessment years 1951-52 and 1952-53 of Rs. 27,899 and Rs. 85,000. But the assessee has not proved that this amount was all intact and besides, as pointed out by the Departmental Representative, the "bank balance on 22nd October 1946 would not have represented the cash possessed by the assessee and at the same time it is not unlikely that the assessee had some cash having regard to the trade in jaggery, the assets got on partition in the Hindu undivided family and other sources, the Counsel for the assessee also stated that his client was prepared to be assessed on Rs. 50,000. So we direct that the addition must be confined to Rs. 50,000 only"4. The Tribunal drew up a statement of the case under Section 66(2) of the Income-tax Act and submitted three questions to the High Court of Mysore, of which the second and the third questions are relevant for the purpose of this appeal :"2 Having found that the assessee was not able to explain satisfactorily the source of the credit of Rs. 1,67,000, whether the Tribunal had any material to come to the conclusion that the addition of Rs. 1,37,000 made by the Income-tax Officer as the income from undisclosed sources should be reduced to Rs. 50,000 only ?3. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in reducing the addition of Rs. 1,37,000 to Rs. 50,000 as income from undisclosed sources ?5. The High Court answered the two questions in the negative. The High Court observed that the Tribunals conclusion that out of the amount brought to tax by the Income-tax Officer only Rs. 50,000 represented income from undisclosed sources was based on no evidence. The High Court observed :"The finding *** shows that the Tribunal also did not accept the explanation given by the assessee as regards the cash credit entry on 1st July 1949. But strangely enough, the Tribunal, for no reason whatsoever came to the conclusion that the unaccounted income may be estimated at Rs. 50,000. We do not know how the offer of the counsel for the assessee was at all relevant. The Tribunals surmise about the assessees income from "jaggery trade and the receipt by him at the time of the partition in his family is not based on any material. Surmises have no place in judicial and quasi-judicial proceedings".

Court's reasoning:
6. The judgment recorded by the Tribunal has not the merit of clarity or of consistency.The Tribunal commenced by disbelieving the explanation of the assessee relating to the source of the credit entry. After some inconclusive statements it proceeded to record that it was not unlikely that the assessee had some cash on hand from profits earned in the trade from jaggery, and from assets received on partition of the joint family of which the assessee was a member.In estimating Rs. 50,000 as the income from undisclosed sources, the Tribunal merely relied upon the offer made by counsel for the assessee. This was an unsatisfactory way of disposing of the appeal.The function of the Tribunal in hearing an appeal is purely judicial. It is under a duty to decide all questions of fact and law raised in the appeal before it, for that purpose it must consider whether on the materials relied upon by the assessee his plea is made out. Conclusive proof of the claim is not predicated; the Tribunal may act upon probabilities, and presumptions may supply gaps in the evidence which may not on account of delay or the nature of the transactions or for other reasons be supplied from independent sources. But the Tribunal cannot make arbitrary decisions; it cannot found its judgment on conjectures, surmises or speculation. Between the claims of the public revenue and of the tax-payers, the Tribunal must maintain a judicial balance. The order passed by the Tribunal without recording any reasons in support of the estimate of unaccounted income cannot, therefore, be sustained8. For the reasons already recorded, we agree with the answers recorded by the High Court on the two questions9. But it is necessary to give certain effective directions, lest a bald order of dismissal of the appeal may result in injustice, especially when the assessee had not a fair trial of his case before the Tribunal12. The High Court has held, and we agree with the High Court, that the judgment of the Tribunal is based on no reasoning and is on that account speculative. But by recording that answer, it is not to be implied that the order of the Appellate Assistant Commissioner is confirmed. It will be the duty of the Tribunal conformably with the Judgment of the High Court, to dispose of the case after hearing the assessee and the Commissioner in the light of the evidence and according to law.