The main legal point established in the judgment is the requirement for justification in treating an amount as secreted profit and the importance of providing a reasonable explanation for possession of disputed assets.

1. The question in this case arises as to the assessment of income-tax on the petitioner for the assessment year 1946-47.

The petitioner is a private limited company called Messrs. Chunilal Ticamchand Coal Company carrying on business of coal mining . at Kusunda in the district of Manbhum. The shares of the company are held by the members of the two Hindu undivided families of Ticamchand Chaudhury and Baijnath Gopalka. The accounting year in this case is Bengali Samvat 1352 which corresponds to the period from 14-4-1945 to 13-4-1946. For this year the petitioner showed a sum of Rs. 27,917 in his return. But this return was not accepted by the Income-tax Officer who increased the assessable income of the petitioner to a sum of RS. 49,779. On appeal the amount was reduced by the Appellate Commissioner to a sum of Rs. 29,360. The matter was taken in further appeal to the Income-tax Appellate Tribunal who reduced the assessable income to the figure of Rs. 25,360; in ether. words, the Income-tax Appellate Tribunal practically accepted the figures given by the petitioner in his return except for minor details.

In January 1947 the Income-tax Officer received information that the assessee had exchanged high denomination notes after the passing of the Demonetization Ordinance on 12-1-1946. A pro ceeding under Sec.34 was started against the peti tioner and as a result of this proceeding the Income-tax Officer held that an additional sum. of Rs. 68,000.00 should be added to the income of the petitioner. An appeal was preferred by the assessee against this assessment before the Appellate Assistant Commissioner but the appeal. was dismissed. A further appeal was taken before the Income-tax Appellate Tribunal who took the view that out of the sum of Rs. 68,000 only a portion, viz., Rs. 35,000 should be treated as coming out of the cash balance of the business, and the rest of the amount, viz., Rs. 33,000 should. be treated as secreted profit of the assessee,. liable to be taxed.

2. In this state of facts the. Appellate Tribunal has referred the following question of law for the opinion of the High Court:

"Whether there is any material to justify the-conclusion that Rs. 33,000 is secreted profit for the purpose of assessment, this amount being a part of Rs. 68,000 which was the amount, represented by high denomination notes encashed by the petitioner on 24-1-1946?"

3. The main argument put forward by Mr. Dutt on behalf of the assessee is that the order of the Appellate Tribunal is wholly arbitrary and no reasons have been given why a sum of Rs. 33,000 should be taken as secreted profit of the business. Mr. Dutt contended also that no reasons have been given by the Tribunal for making apportionment.

In our opinion the contention of Mr. Dutt must be accepted as correct. It should be pointed out that the Income-tax Officer gave two main reasons in support of his order that the whole amount of Rs. 68,000 should be taxed in the hands of the assessee as secreted profit. The Income-tax Officer stated in the first place that the account books as such did not contain any express, reference to the high denomination notes, and secondly that the petitioner did not require high denomination notes for carrying on daily transactions in the coal business. The Income-tax Officer observed that payment of the petitioner hardly exceeded Rs. 100 to each labourer per day and it was not necessary for the petitioner to keep the cash balance in high denomination notes.

In this connection reference was made to the circumstance that the petitioner had current accounts in several banks located at Jharia and there was no good reason why the petitioner-should keep a heavy cash balance. The Income-tax Officer also said that for the week commencing from 14-12-1945 the account books showed a sum of Rs. 20,000 as having been credited on account of the proceeds of a cheque (No. 355368) drawn on Virji Bank of Jharia, but the Bank pass Book as well as the date mentioned