Case: Smt. Srilekha Banerjee And Others Vs. Commissioner Of Income-Tax, Bihar And Orissa

1. This is an assessee s appeal by special leave of this Court against an order of the High Court of Patna answering in favour of the Department the question whether in the circumstances of the case the amount of Rs. 51,000 being the value of high denomination notes encashed by the assessee, has been validly taxed as profits from some undisclosed business. The original assessee, Rai Bahadur H. P. Banerjee is dead. His son, who was substituted in his place, also died during the pendency of the proceedings in the High Court. The present appeal has been filed by the widow of the son and other legal representatives2. Banerjee was the owner of several collieries in the Jharia Coal fields in the State of Bihar, and was also a contractor for raising coal. This matter relates to the assessment year 1946-47. For that year, Banerjee was assessed on an income of Rs. 1,28,738. The assessment was then reopened under S. 34 of the Indian Income Tax Act, and was enhanced, but subsequently on appeal, it was reduced to a sum a little below the original assessment. The present assessment was made on a second re-opening of the case under S. 34 in the following circumstances.3. On January 22, 1946, Banerjee encashed high denomination notes of the value of Rs. 51,000. In his application under the Ordinance which demonetized high denomination notes, Banerjee gave the reason for the possession of the notes asam engaged in business as colliery proprietor, contractor under Messrs. Killburn and Co. in the name and style of H. P. Banerjee and Son and also under the State Rly. Bokaro, Swang, Hazaribagh district in the name of Jharia Dhanbad Coal and Mica Mining Co.,.......For conducting the business and payment to labour I have to pay every week between 30/40 thousand. As I did not get payment for work done every week I had to keep large sum of money to meet emergency.......It is neither profit nor part of profit- it is very floating capital for purpose of conducting business. It is not an excess ofstated that he had accounts with (1) Imperial Bank of India. (2) Nath Bank Ltd., Jharia, and (3) Central Bank of India Ltd., Bhowaniporoe Branch, but added that he did not remember exactly from which Bank the notes came into his possession as his transactions were frequent. The notice which was issued to him under S. 34 of the Income-tax Act, was not questioned on any of the grounds which are usual in such cases. Banerjees explanation was not accepted. The Income-tax Officer pointed out that although his business 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 Income-tax Officer found a discrepancy of nearly Rs. 50,000 in the statements filed by the assessees. He, accordingly, treated the high denomination notes as profits from some undisclosed source and assessed them as assessable income. Banerjee appealed to the Appellate Assistant Commissioner and further to the Tribunal. Both the authorities upheld the order of the Income-tax Officer. The assessee demanded a case which was refused, but the High Court directed a statement of the case on the question already quoted. The High Court decided the question against the assessee, and hence this appeal.

Court's reasoning:
14. In the present case, the assessee claimed that the high denomination notes were a part of the cash balance at the head office.The Income-tax Officer found that at first the cash on hand was said to be Rs. 1,62,022, but on scrutiny, it was found to be wrong. Indeed, the assessee himself corrected it before the Appellate Assistant Commissioner and stated there that the balance was Rs. 1,21,875. Ordinarily, this would have prima facie proved that the assessee might have kept a portion of this balance in high denomination notes. But the assessee failed to prove this balance, as books of the assessee did not contain entries in respect of banks. Though cash used to be received from banks and sent to the various places where works were carried on and vice versa, no central account of such transfers was disclosed. There was also no account of personal expenses of the assessee and he had failed to prove why such large sums were kept on hand in one place when at each of the places where work was carried on, there were banks with which he had accounts. The Appellate Assistant Commissioner also went into the question and found that on the same day when the high denomination notes were encashed, a sum of Rs. 45,000was drawn by cheque. The next remittance immediately afterwards was of Rs. 16,000 to Bakaro, but Rs. 17,000 were withdrawn a few days before to meet this expense. A withdrawal of Rs. 8,000was made a day later and Rs. 20,000 were withdrawn ten days later to finance the business. It appears that the money on hand (RS. 45,000) was not touched at all, but on January 30, 1946, a further sum of Rs. 6,005 was withdrawn and not utilized, which made up the sum of Rs. 51,000 for which the high denomination notes were encashed.15.On these facts, the Tribunal came to the conclusion that the High Court denomination notes represented not the cash balance but some other money which remained unexplained, and the Tribunal treated it as income from some undisclosed source. The High Court held on the above facts and circumstances that there were materials to show that Rs. 51,000 did 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 assessable income of the assessee from some undisclosed source. In this conclusion, the High Court was justified, regard being had to the principles we have explained above.16. The argument that as this was a case under S. 34 of the Income-tax Act, it cast a special burden on the Department to show that this income had escaped earlier, need not detain us. No doubt, proceedings under S. 34 can only be commenced under the conditions prescribed in the section, but when the proceedings are validly commenced, there is no difference between an ordinary assessment and an additional assessment under S. 34, and the same rule as to burden of proof governs the additional assessment.