Decided on October 14,1954

STATE Respondents


Falshaw, J. - (1.) The following question has been stated for our consideration by the Income-tax Appellate Tribunal: "Whether it lay upon the assessee firm to explain the nature of the credit of Rs. 30,500/- on 17-1-1944 appearing in the bank account of one of its partners and whether there was any material on record on which the Tribunal could find that this sum represented the firm's income from some undisclosed sources and deposited in the bank in the name of one of the partners?" The question arises out of the income-tax assessment of a firm which is known as Messrs. Indo European Machinery Company at Delhi for the year ending March 1944 (assessment year 1944-45). The Income-tax Officer had added to the income disclosed in the account books of the firm certain items totalling Rs. 47,500/-. The result of the appeal to the Appellate Assistant Commissioner by the assessee firm was that he dismissed the appeal so far as it concerned Rs. 17,000/out of these items, but he accepted the appeal as regards the item now in dispute of Rs. 30,500/- and deducted it. Both the assessee firm and the Income-tax Officer appealed to the Appellate Tribunal, which dismissed the appeal- of the assessee firm and accepted the appeal of the Income-tax Officer, with the result that the sum of Rs. 30,500/- was again added to the firm's taxable income. This was done after this matter had again been referred to the Income-tax Officer who had conducted a further investigation and submitted a report which was considered by the Tribunal.
(2.) The item in dispute was found to have been credited in the personal account of one of the partners of the firm named Seth Mohan Lal on 17-1-1944 with the Chartered Bank of India, Australia and China. The explanation of Seth Mohan Lal of this deposit was that one Bijay Chand who was the son of an old friend of Seth Mohan Lal had come to him in January 1944 with a sum of Rs. 31,000/- which he wanted to invest in some business, the money having been raised partly from his mother by means of a loan from a Calcutta firm Seth Chunna Mal Bhanot Mal. Seth Mohan Lal took Rs. 30,500/- of this from Bijay Chand and deposited it in his own name in the Chartered Bank. Bijay Chand then entered into a partnership at Lahore under the name of Messrs. Huidson and Company, and the records of the banks concerned show that on the 15th of March Rs. 20,000/- were drawn out of the account in the chartered Bank and on the 16th of March Rs. 21,000/- were paid into the account of Messrs. Hindson and Co., in the Frontier Bank Ltd., at Lahore. Again on 30-3-1944 Rs. 4,500/- were drawn and a sum of Rs. 4,000/- was paid into the account of Messrs. Hindson and Co., at Lahore on the 4th of April. When the case was remanded for further enquiry by the Income-tax Officer some acount books were produced which showed that on 29-3-1944 a sum of Rs. 21,000/- had been debited to Messrs. Hindson and Co., the entry being to the effect that the money had actually been advanced to Bijay Chand at Churu on Magh Badi 5 Sambat 2001, which is a date early in January
(3.) Even on the evidence which was available when the matter was under consideration by the Appellate Assistant Commissioner he was satisfied that in fact the money had been raised by Bijay Chand in the manner he alleged and deposited with Seth Mohan Lal, and he expressed the view that by no stretch of imagination could the sum of Rs. 30,500/- be considered to be the income of the firm. The income-tax Officer when he conducted further enquiries appear to have been impressed by the evidence produced before him and he has recorded that he also took the trouble to ascertain that sufficient funds were available at Churu to the persons who actually advanced the money to Bijay Chand. No evidence at all seems to have been produced on behalf of the Income-tax authorities to rebut all this evidence, and it is quite clear from the order of the Appellate Tribunal that the considerations which led them to reverse the order of the Appellate Assistant Commissioner, and to reject the evidence produced on behalf of the assessee firm, were solely based on so-called probabilities.;

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