Onus is on assessee to prove the source and nature of an amount received by him is not in the nature of income to avoid its addition

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Onus is on assessee to prove the source and nature of an amount received by
him is not in the nature of income to avoid its addition

CHUNILAL RASTOGI vs. COMMISSIONER OF INCOME TAX
HIGH COURT OF PATNA
Ramaswami & Choudhary, JJ.
Misc. Judicial Case No. 154 of 1952
19th October, 1954
(1954) 22 CCH 0126 PatHC
(1955) 28 ITR 0341
Legislation Referred to
Section 69A
Case pertains to
Asst. Year 1947-48
Decision in favour of:

Revenue
Income from undisclosed sources—Encashment of high denomination notes during
the year of account—Assessee giving prevaricating and unsatisfactory explanation
regarding the source of high denomination notes worth Rs. 73,000 during the year
of account—Tribunal treating a sum of Rs. 20,000 as cash balance in view of the
status and living habits of assessee and adding the balance of Rs. 53,000 as
assessee's secreted business profits—Justified—Burden was on the assessee to
prove that the sum of Rs. 73,000 representing high denomination notes was not a
receipt of income nature and on his failure to discharge the burden, IT authorities
were justified in treating the same as his undisclosed income—Fixation of savings
of Rs. 20,000 was also not arbitrary

Held :
If the assessee receives a certain amount in the course of the accounting year, the burden
of proof is upon the assessee to show that the item of receipt is not of an income nature,
and if the assessee fails to prove positively the source and nature of the amount of the
receipt, the Revenue authorities are entitled to draw an inference that the receipt is of an
income nature. The burden of proof in such a case is not upon the Department but the
burden of proof is upon the assessee to show by sufficient material that the item of receipt
was not of an income character.—S.N. Ganguly vs. CIT (1953) 24 ITR 16 (Pat) :
TC42R.1180, Manindranath Das vs. CIT (1955) 27 ITR 522 (Pat) and M.L. Tewary vs. CIT
(1955) 27 ITR 630 (Pat) : TC42R.1141 followed.
The assessee never put forward a claim that the high denomination notes formed part of his
zamindari income. The explanations that he has given are prevaricating. Different
explanations have been put forward by the assessee at different times. On the very first
occasion when he had to make a declaration under s. 6 of the High Denomination Bank
Notes (Demonetization) Ordinance, 1946 he declared that though the said notes were kept
with the female inmates of the family privately, they belonged to him and were not benami
holdings. When he was required by the ITO to give his explanation as to how he could be in
possession of those notes, he changed his version and definitely stated that they did not
belong to him and put forward a different case that out of the above sum of Rs. 73,000, a
sum of Rs. 55,000 belonged to his daughter-in-law as having been given to her by her
grandfather at the time of her marriage and the balance of Rs. 18,000 belonged to his wife
as being her personal savings. When any gift of this amount to his daughter-in-law was
denied by B, the father of his daughter-in- law, the assessee came out with a new case that
the entire sum of Rs. 73,000 belonged to one Mr. N. who cashed the notes in his name. No
material was placed before the ITO to support the explanation. Mr. N. was not examined,
and, the assessee conceded before the Tribunal that N. might not support the assessee's
version. Thus, the authorities were left only with the contradictory versions of the assessee
on the point of the explanation as to how he could be in possession of those high
denomination notes and they were, therefore, perfectly justified and within their rights to
refuse to accept the explanation given by the assessee. The assessee not having
satisfactorily proved the source and nature of the aforesaid amount of Rs. 73,000 which he
encashed in the accounting year, the Revenue authorities were perfectly justified in drawing
an inference that the said sum was of an income nature. As the assessee never put forward
the case of having got the said amount or any part thereof as being part of his zamindari
income, the argument that the increase in wealth could not only be from the taxable income
but could also be from the zamindari income which was not taxable, has to be rejected as
being without any substance.

The other point, namely, that the fixation of only Rs. 20,000 as representing the assessee's
savings is arbitrary, is also without any merit. The Tribunal has considered the status,
habits and expenses of the assessee and on consideration of those aspects it has come to
the conclusion that a sum of Rs. 53,000 should be added as being the amount unexplained
by the assessee. On the materials that were placed before the Tribunal it could have very
well come to the conclusion in agreement with the ITO that the entire sum of Rs. 73,000
represented the taxable income. The assessee, therefore, cannot have any grievance if
without his having discharged the onus that lay on him to prove the source and nature of
the aforesaid high demonination notes and without there being any material on the record
the Tribunal excluded the sum of Rs. 20,000 from his taxable income. The question that fell
to be decided by the Tribunal was a question of fact, the onus lay on the assessee to prove
the source and nature of the money which he miserably failed to discharge. The Tribunal
was perfectly entitled to decide this question of fact by drawing an adverse inference
against the assessee because of his failure to discharge the onus that lay on him and where
the question has not passed from the region of fact into the region of law, the High Court
has no authority to interfere with the finding of the Tribunal. The Tribunal has not
committed any error of law in coming to the finding on the question referred. Thus it follows
that the High Court has no jurisdiction to interfere with the conclusion reached by the
Tribunal.—Chunilal Ticamchand Coal Co. Ltd. vs. CIT (1955) 27 ITR 602 (Pat) : TC8R.730
distinguished.

Conclusion :
Burden was on the assessee to prove that the sum of Rs. 73,000 representing high
denomination notes was not a receipt of income nature and on his failure to discharge the
burden, IT authorities were justified in treating the same as his undisclosed income.
Counsel appeared:
Baldeva Sahay and Ramanugrah Prasad, for the Assessee : R. J. Bahadur, for the Revenue.
CHOUDHARY, J.
In this case the assessee has been assessed in the status of an HUF for the asst. yr. 1947-
48. The accounting year is the Diwali Year 2002-2003 corresponding approximately to the
period 24th Oct., 1945, to 23rd Oct., 1946. The assessee is a zamindar and apart from the
agricultural income from the zamindari he derives non-agricultural income from that
zamindari as well as income from house property and money-lending. For the assessment
year in question the assessee returned a total income of Rs. 3 only. He showed in his return
the income of house property at Rs. 423 and deducted a sum of Rs. 420 out of it as being
business loss. After the passing of the High Denomination Bank Notes (Demonetization)
Ordinance, 1946, the assessee encashed 73 high denomination notes of Rs. 1,000 each on
the 19th Jan., 1946, which falls within the accounting period. The ITO estimated the income
from house property at Rs. 1,200 and from other sources at Rs. 1,000. The business income
estimated by him amounted to Rs. 2,06,082. This sum included the amount of Rs. 73,000
representing the value of the high denomination notes encashed by the assessee. We are
concerned only with this amount of Rs. 73,000 in this case.
2. In the form of declaration that had to be made under s. 6 of the aforesaid Ordinance
against column No. 16 as to when and from what source the declarant came in possession
of bank notes now tendered the assessee noted "not rememberable because of above being
kept with female inmates of the family" and against column No. 15 as to the reasons for

keeping above amount in high denomination notes rather than in current account, fixed
deposit or securities, he noted "kept with the female inmates of the family privately." In the
verification of that declaration, however, the assessee declared that the bank notes
tendered belonged to him and were not benami holdings. On being required by the ITO to
explain the nature and source of the high denomination notes encashed by him, the
assessee stated that out of the above sum of Rs. 73,000, a sum of Rs. 55,000 was the
money given to his daughter-in-law on the occasion of his son's marriage and the balance of
Rs. 18,000 represented the savings of his wife. It may be noted that the assessee never put
forward a case that the aforesaid notes formed part of the cash balance of his zamindari
income. In his statement recorded under s. 37 of the IT Act the assessee stated that the
sum of Rs. 55,000 had been given to his daughter-in-law by her grandfather, Lala Raghubir
Dayal of Rastogi Tola, Lucknow. With regard to the sum of Rs. 18,000, the assessee could
not give any account as to how his wife could be in possession of that sum. He, however,
stated that that amount might be her personal savings. The ITO, thereafter, made a
reference to the Inspecting Assistant CIT, Lucknow, and requested him to verify the truth of  the assessee's version about the payment of Rs. 55,000 by Lala Raghubir Dayal to the assessee's daughter-in-law. The statement of Brij Gopal, son of the aforesaid Lala Raghubir Dayal, recorded under s. 37 of the Act, shows that the said Lala Raghubir Dayal did not take any active part in the marriage and that the presents at the time of marriage consisted only nof cash of Rs. 5000 and of clothes and ornaments worth Rs. 8,000 to 10,000. The assessee being confronted with the statement of Brij Gopal put forward a different claim as regards the source of those notes. The case that he put forward was that the notes had been
encashed in his name in order to oblige one Mr. N. K. Misra, who was the manager of the
Bank of Bihar. No satisfactory proof having been given, the ITO refused to accept this
belated version. Therefore, as the assessee could not disclose the nature and source of
those notes, the ITO treated the entire sum of Rs. 73,000 as the assessee's secreted
income and included it in his total income. On appeal being preferred by the assessee the
AAC accepted the assessee's version that the notes belonged to Mr. N. K. Misra and had
been encashed on his behalf in the name of the assessee. He, however, took the view that
the assessee, in having the notes encashed in his name, might have been given a share in
the profit and he estimated his share of profit at Rs. 7,500. He, therefore, excluded the
balance of Rs. 65,500 from the assessment. The ITO went in appeal to the Tribunal who
gave an opportunity to the assessee to produce Mr. N. K. Misra for examination. Mr. Dutt
who appeared for the assessee before the Tribunal, however, frankly admitted that Mr. N.
K. Misra was not likely to support the assessee's version and, therefore, he could not
examine him. The Tribunal accepted the Department's contention and held that the
aforesaid notes were not encashed on behalf of Mr. N. K. Misra. The Tribunal, however, held
that it was not unlikely that the assessee who was a zamindar and moneylender could have
some notes of high denomination with him as part of his savings and estimated such
savings at Rs. 20,000. The Tribunal, therefore, excluded this sum of Rs. 20,000 from the
assessment and confirmed the inclusion of the balance of Rs. 53,000 in the assessee's total
income from secreted sources. An application before the Tribunal by the assessee to refer to
the High Court certain questions of law having failed, the assessee filed an application in
this Court under s. 66(2) of the IT Act to require the Tribunal to state a case on questions
enumerated therein. In this state of facts the Tribunal on being required by this Court
referred the following question of law for the opinion of the High Court :
"Whether on the facts of this case there is any material for holding that the amount of Rs.
53,000 representing the value of high denomination notes was income assessable to
income-tax received during the accounting period."

3. In paragraph 7 of the statement of facts the Tribunal has stated certain principles which
guide the Tribunal in treating the value of the high denomination notes. The relevant portion
of paragraph 7 runs as follows :
"We may state here the principles which guide the Tribunal in treating the value of the high
denomination notes encashed by an assessee as his secreted profits. The assessee's version
regarding the source of the notes is examined. If it is found to be true then the source of
the high denomination notes would have been proved and no part of the value of the high
denomination notes will be included in the assessment. If the assessee's version as to the
source of the high denomination notes is not proved or is found to be false, it would follow
that to the extent to which the source of the high denomination notes had not been proved,
there is an increase in the assessee's wealth."
4. Mr. Baldeva Sahay appearing for the assessee has not challenged the correctness of this
principle. But his argument is that when an assessee has both taxable and non-taxable
income, there is no presumption that the increase in the assessee's wealth was from taxable
income and not from non-taxable income. The argument put forward by the counsel is that
the assessee in this case is possessed of agricultural income from the zamindari and the
increase in his wealth might be due to income from his zamindari which cannot be taxed.
His further contention is that in this case no investigation has been made as to whether the
said sum of Rs. 53,000 could represent his savings from his zamindari income and in that
view of the matter, the order of the Tribunal treating this sum of Rs. 53,000 as assessee's
secreted profits is wrong in law. His other contention is that in this case the order of the
Tribunal is wrong in law also on the ground that there being no material on the record the
fixation of only a sum of Rs. 20,000 as representing the savings of the assessee is arbitrary.
In my opinion, both the points raised by the counsel are unsound.
5. It is by now an established principle of law that the onus is on the assessee to prove
positively the source and nature of an amount received by him in the accounting year, and
if he fails to discharge that onus, the IT authorities are entitled to draw an inference that
the amount received was of an income nature. In S. N. Ganguly vs. CIT, (1953) 24 ITR
16(), a Bench of this Court held as follows :
"When the assessee fails to prove positively the source and nature of a certain amount
which he received in the accounting year, the Revenue authorities are entitled to draw an
inference that the receipts are of an income nature, unless the assessee proves the source
and nature of the particular receipt. The burden of proof in such a case is not upon the
Revenue authorities, but the burden of proof is upon the assessee to show that the item of
receipt was not of an income nature."
6. In support of their view their Lordships in that case relied on the cases of Jadunandan
Sahu Deokisanram vs. CIT,(1948) 16 ITR 175 and G. M. Madappa vs. CIT, (1948) 16 ITR
385(). Roman face Manindranath Das vs. CIT, (1955) 27 ITR 522, where a Bench of this
Court held that if the assessee receives a certain amount in the course of the accounting
year, the burden of proof is upon the assessee to show that the item of receipt is not of an
income nature ; and if the assessee fails to prove positively the source and nature of the
amount of the receipt, the Revenue authorities are entitled to draw an inference that the
receipt is of an income nature. The burden of proof in such a case is not upon the
Department but the burden of proof is upon the assessee to show by sufficient material that
the item of receipt was not of an income character. The same view has been taken by this
Court in M. L. Tewary vs. CIT, (1955) 27 ITR 630(), wherein it has been laid down that the
onus is upon the assessee to prove positively the source and nature of the money which

was received during the accounting year. In the absence of any explanation of the assessee
the Revenue authorities are entitled to draw the inference that the receipt is of an income
nature ; in other words, the burden of proof in such a case is not upon the Revenue
authorities, but the burden of proof is upon the assessee to show that the item of receipt is
not of an income nature. On the above principle of law the question that arises to be
determined in this case is whether the assessee has discharged the onus of showing that
this amount of Rs. 53,000 was not liable to be taxed.
7. In this case, as already observed, the assessee never put forward a claim that the high
denomination notes formed part of his zamindari income. The explanations that he has
given are prevaricating. Different explanations have been put forward by the assessee at
different times. On the very first occasion when he had to make a declaration under s. 6 of
the High Denomination Bank Notes (Demonetization) Ordinance, 1946, he declared that
though the said notes were kept with the female inmates of the family privately, they
belonged to him and were not benami holdings. When he was required by the ITO to give
his explanation as to how he could be in possession of those notes, he changed his version
and definitely stated that they did not belong to him and put forward a different case that
out of the above sum of Rs. 73,000, a sum of Rs. 55,000 belonged to his daughter-in-law as
having been given to her by her grandfather at the time of her marriage and the balance of
Rs. 18,000 belonged to his wife as being her personal savings. When any gift of this amount
to his daughter-in-law was denied by Brij Gopal, the father of his daughter-in-law, the
assessee came out with a new case that the entire sum of Rs. 73,000 belonged to one Mr.
N. K. Misra who encashed the notes in his name. No material was placed before the ITO to
support the explanation. Mr. N. K. Misra was not examined, and, as already observed, Mr.
Dutt appearing for the assessee conceded before the Tribunal that N. K. Misra might not
support the assessee's version. Thus, the authorities were left only with the contradictory
versions of the assessee on the point of the explanation as to how he could be in possession
of those high denomination notes and they were, therefore, perfectly justified and within
their rights to refuse to accept the explanation given by the assessee. The assessee not
having satisfactorily proved the source and nature of the aforesaid amount of Rs. 73,000
which he encashed in the accounting year, the Revenue authorities were perfectly justified
in drawing an inference that the said sum was of an income nature. As the assessee never
put forward the case of having got the said amount or any part thereof as being part of his
zamindari income, the argument of Mr. Sahay that the increase in wealth could not only be
from the taxable income but could also be from the zamindari income which was not
taxable, has to be rejected as being without any substance.
8. The other point, namely, that the fixation of only Rs. 20,000 as representing the
assessee's savings is arbitrary, is also without any merit. Mr. Sahay has contended that the
Tribunal has given no reason for coming to the conclusion that a sum of Rs. 53,000
represented the assessee's secreted profits and the order of the Tribunal is, therefore, bad
in law. In support of his argument he has placed reliance on an unreported Bench decision
of this Court in Chunilal Ticamchand Coal Co., Ltd. vs. CIT, (1955) 27 ITR 602 () decided on
the 2nd of March, 1954. In that case also the assessee had encashed high denomination
notes amounting to Rs. 68,000 which was sought to be added to his income. On appeal the
Tribunal took the view that out of the sum of Rs. 68,000 a sum of Rs. 35,000 only should be
treated as coming out of the cash balance of the business and the balance of Rs. 33,000
should be treated as secreted profits of the assessee liable to be taxed. The argument put
forward in this Court was that no reasons had been given by the Tribunal for making
apportionment and the Tribunal had not stated on what ground the amount of Rs. 33,000
should be treated as secreted profits. This contention was accepted by this Court as being
well founded. Mr. Sahay has put forward an argument that in the present case also the
contention accepted in that case applies in all respects. I do not think Mr. Sahay is right in

this contention. In that case, there were materials on the record which showed that the
intention of the assessee was always to keep in his hands a sum of at least over Rs. 63,000
as emergency reserve and his habit was to keep the reserve as far as possible intact and to
take out money from the current account of various banks for meeting the day to day
expenditure of the colliery business. The contention that their Lordships accepted in that
case depended on the particular facts of that case. Moreover, in the present case, the
Tribunal has given reasons for coming to the finding as to why only a sum of Rs. 20,000 out
of the aforesaid amount of Rs. 73,000 should be excluded from being taxed. The following
passage occurring in paragraph 5 of the order of the Tribunal is of importance in this case :
"He (the assessee) has not produced any evidence apart from that of himself to prove that
the monies belonged to the ladies. We have nevertheless to consider the assessee's status
in life and the habits of a person so placed. It is in the nature of things for people like the
assessee to keep some high denomination notes. The question is how much and what would
be an estimate of such notes of high denomination that the assessee could have held.
Admittedly, there is no evidence as to these and we have to make an estimate taking into
consideration the expenses of the assessee and his status, etc. Considering all aspects, we
feel that the assessee would have had Rs. 20,000 in high denomination notes and excluding
this from Rs. 73,000 the balance is to be added as being the amount unexplained by the
assessee."
9. Thus, it appears that the Tribunal has considered the status, habits and expenses of the
assessee and on consideration of those aspects it has come to the conclusion that a sum of
Rs. 53,000 should be added as being the amount unexplained by the assessee. On the
materials that were placed before the Tribunal it could have very well come to the
conclusion in agreement with the ITO that the entire sum of Rs. 73,000 represented the
taxable income. The assessee, therefore, cannot have any grievance if without his having
discharged the onus that lay on him to prove the source and nature of the aforesaid high
denomination notes and without there being any material on the record the Tribunal
excluded the sum of Rs. 20,000 from his taxable income. The question that fell to be
decided by the Tribunal was a question of fact ; the onus lay on the assessee as already
observed to prove the source and nature of the money which he miserably failed to
discharge. The Tribunal was perfectly entitled to decide this question of fact by drawing an
adverse inference against the assessee because of his failure to discharge the onus that lay
on him and where the question has not passed from the region of fact into the region of
law, the High Court has no authority to interfere with the finding of the Tribunal. In the
present case I am satisfied that the Tribunal has not committed any error of law in coming
to the finding on the question referred. Thus it follows that the High Court has no
jurisdiction to interfere with the conclusion reached by the Tribunal. The question referred
to the High Court, therefore, must be answered against the assessee and in favour of the IT
Department. The assessee must pay costs of the reference. Hearing fee Rs. 250.

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