Judgement

BHAGWATI, J. (with him S. R. DAS CJI.) : - Two questions were referred by the Income-tax Appellate Tribunal to the High Court of Bombay under S. 66 (1) Income-tax Act.

1. Whether there is any material to justify the assessment of Rs. 30,000 (Rupees thirty thousand) from out of the sum of Rs. 61,000 (Rupees sixtyone thousand) (for Income-tax and Excess Profits Tax and Business Profits Tax purpose) representing the value of high denomination notes which were encashed on the eighteenth day of January one thousand nine hundred and fortysix, and

2. Whether in any event by reason of the orders of the Revenue Authorities not having found that the alleged item was from alleged undisclosed business profits the assessment of Rs. 30,000 (Rupees thirty thousand) is in law justified for Excess Profits Tax and Business Profits Tax purposes?

2. The High Court answered the first question in the affirmative but refused to answer the second question, being of the opinion that even though it had asked the Tribunal to refer that question under S. 66(2) of the Act, it had no jurisdiction to do so inasmuch as the appellants had not asked the Tribunal to refer the second question and, therefore, no question arose of the Tribunal refusing to raise that question or to submit it for the decision of the High Court.

3. The appellants are a partnership firm doing business in Mill Stores at Ahmedabad. Their head office is in Ahmedabad and their branch office is in Bombay. The Governor-General on 12-1-1946 promulgated the High Court Denomination Bank Notes (Demonetisation) Ordinance, 1946 and High Denomination Bank Notes ceased to be legal tender on the expiry of 12th day of January 1946. Pursuant to clause 6 of the Ordinance the appellants on 18-1-1946 encashed high donomination notes of Rs. 1,000 each of the face value of Rs. 61,000. This was done in the calender year 1946 being the account year corresponding with assessment year 1947-48.

4. During the assessment proceedings for the year 1947-48 the Income-tax Officer called upon the appellant to prove from whom and when the said high denomination notes of Rs. 61,000 were received by the appellants and also the bona fides of the previous owners thereof.

After examining the entries in the books of account of the appellants and the position of the Cash Balances on various dates from 20-12-1945 to 18-1-1946 and the nature and extent of the receipts and payments during the relevant period, the Income-tax Officer came to the conclusion that in order to sustain the contention of the appellants he would have to presume that there were 18 high denomination notes of Rs. 1,000 each in the Cash. Balance on 1-1-1946 and before 13-1-1946 were received in currency notes of Rs. 1,000 each, a presumption which he found impossible to make in the absence of any evidence. He, therefore added a sum of Rs. 61,000 to the assessable income of the appellants from undisclosed sources.

5. On appeal to the Appellate Assistant Commissioner the appellants produced before him affidavits of three persons to show that the appellates had received Rs. 20,000, in 1,000 rupees currency notes on 28-12-1945, Rs. 15,000 in 1,000 rupees currency notes on 6-1-1946 and Rs. 8,500 in 1,000 rupees currency notes (making Rs. 8,000) on 8-1-1946, thus aggregating to Rs. 43,300 during the relevant period. The Appellate Assistant Commissioner did not accept the statement contained in the said affidavits and dismissed the appeal and confirmed the order of the Income-tax Officer.

6. An appeal was taken by the appellants before the Income-tax Appellate Tribunal. The Tribunal after taking into consideration all the materials which had been placed before the Appellate Assistant Commissioner including the said affidavits, was of the opinion that if it was to accept the appellants contention, it would mean that practically every payment above Rs. 1,000 was received by the appellants in high denomination notes, which was almost impossible.

The Tribunal could no