Esthuri Aswanthiah Vs. Commissioner of
Income-Tax, Mysore  INSC 113 (18 April 1967)
18/04/1967 SHAH, J.C.
CITATION: 1968 AIR 36 1967 SCR (3) 681
R 1968 SC 883 (8) R 1970 SC 352 (8)
Indian Income-tax Act, 1922-Cash
credits-Income from undisclosed sources-Appellate Tribunal adding such income
on concession from counsel-Duty to decide on evidence- Tribunal's duty when
dealing with case after receiving opinion of High Court in reference.
On July 1, 1949 the assessee who carried on
business in Mysore State brought into his books of account an opening cash
balance of Rs. 1,87,000. The Income-tax Officer held that out of the above sum
Rs. 1,37,000 was the assessee's income from undisclosed sources. The assessee's
explanations were rejected by the Income-tax Officer and in appeal by the
Assistant Commissioner. The Appellate Tribunal considered that on the facts of
the case it was not unlikely that on the relevant date the assessee had some
cash but held Rs. 50,000 to be income from undisclosed sources observing :
"[Counsel] for the assessee also stated that his client was prepared to be
assessed on Rs. 50,000".
In reference the High Court held that the
Tribunal's conclusion was based on no evidence. The assessee appealed.
HELD : The function of the Tribunal hearing
an appeal is purely judicial. It is under a duty to decide all question of fact
and law raised in the appeal before it : for that purpose it must consider
whether on the materials relied upon by the assessee his plea is made out. The
Tribunal cannot make arbitrary decisions. Its order in the present case without
recording any reasons in support of the estimate of unaccounted income could
not, therefore, be sustained. There was also substance in the assessee's plea
that evidence in his favour had not been properly considered and that his case
had not been fairly tried. [684C-F; 685A- B] Income-tax Appellate Tribunal,
Bombay & Ors. v. S. C.
Cambatta & Co. Ltd., 29 I.T.R. 118 and
Rajkumar Mills Ltd.
v. Income-tax Appellate Tribunal, 33 I.T.R.
750, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 631 of 1966.
Appeal by special leave from the judgment and
order dated November 23, 1964 of the Mysore High Court in Income-tax Revision
Petition 6 of 1964.
K. Srinivasan and R. Gopalakrishnan, for the
S. T. Desai, A. N, Kirpal, S. P. Nayyar for
R. N. Sachthey for the respondent.
The Judgment of the Court was delivered by
Shah, J.-The appellant a trader in groundnuts and other commodities in the
State of Mysore was taxed under the Mysore Income-tax Act, 1923, for the
assessment years ending with the assessment year 1949-50. On July 1, 1939, the
assessee brought 6 8 2 into his books of account an opening cash balance of Rs.
1,87,000. In proceedings for assessment to
'tax for the year which ended June 30, 1950 the assessee was called upon to
explain that entry and to produce his books of account of the earlier years.
The assessee pleaded that his books of account upto June 30, 1949, were lost
and that the amount of Rs. 1,87,000 represented " cash brought from an
iron safe kept in his house". The Income-tax Officer found that in each
previous year when the assessee was assessed under the Mysore Income-tax Act,
he had pleaded that his books of account were either lost or stolen in the
The Income-tax Officer was of the view that
the assessee had probably an amount of Rs. 50,000 on hand representing a cash
balance brought forward from the previous year, and that the balance of Rs.
1,37,000 was the assessee's income from undisclosed sources. The order passed
by the Income-tax Officer assessing to tax the income of the assessee for the
year 1951-52 was set aside by the Appellate Assistant Com- missioner on the
ground that under S. 2(11) of the Income- tax Act, 1922, the previous year for
the income from other sources could only be the financial year ending March 31,
1950. Giving effect to this finding, the Income-tax Officer issued a notice of
reassessment under s. 34 of the Indian Income-tax Act for bringing to tax the
amount disclosed by the books of account of the assessee for the assessment
The assessee submitted a petition to the High
Court of Mysore for a writ declaring that the notice under S. 34 of the Act
issued by the Income-tax Officer was without jurisdiction, and for an order
quashing the notice and proceedings consequent thereon. This petition was
dismissed by the High Court of Mysore and the order was confirmed by this Court
In the meanwhile the Income-tax Officer
completed the as- sessment for the year 1950-51 and brought to tax Rs.
1,37,000 as income from undisclosed sources
which had escaped tax. The assessee's contention that he had assets on hand
exceeding Rs. 1,55,000 from his share of the joint family property, business
income and other sources, and those assets were brought into his books of
account on July 1, 1949, was rejected by the Income-tax Officer. The order
passed by the Income-tax Officer was confirmed in appeal by the Appellate
Assistant Commissioner. The assessee appealed to the Appellate Tribunal and
contended, inter alia, that the evidence produced by him showed that he had
with him on October 27, 1946, in his bank account Rs. 1,38,946 that he had received
Rs. 55,846 as his share on partition of the joint family of which he was a
member, and that besides these sources he had agricultural income. The
Income-tax Appellate Tribunal modified the order of the Appellate Assistant
Commissioner and brought to tax 683 Rs. 50,000 as income from undisclosed
sources. The reasons recorded by the members of the Tribunal may be set out in
their own words "It is clear that the assessee has not been able to
explain the source of Rs. 1,37,000 satisfactorily. But there have been trading
additions for the assessment years 1951-52 and 1952-53 of Rs. 27,899 and Rs.
85,000. But the assessee has not proved that this amount was all intact and
besides, as pointed out by the Departmental Representative, the bank balance on
22-10-1946 would not have represented the cash possessed by the assessee and at
the same time, it is not unlikely that the assessee had some cash having regard
to the trade in jaggery, the assets got on partition in the Hindu undivided
family and other sources; the Counsel for the assessee also stated that his
client was prepared to be assessed on Rs.
50,000. So we direct that the addition must
be confined to Rs. 50,000 only." The Tribunal drew up a statement of the
case under s. 66(2) of the Income-tax Act and submitted three questions to the
High Court of Mysore, of which the second and the third questions are relevant
for the purpose of this appeal :
"2. Having found that the assessee was
not able to explain satisfactorily the source of the credit of Rs. 1,37,000,
whether the Tribunal had any material to come to the conclusion that the
addition of Rs. 1,37,000 made by the Income-tax Officer as the income from
undisclosed sources should be reduced to Rs. 50,000 only?
3. Whether on the facts and in the circumstances
of the case, the Tribunal was justified in law in reducing the addition of Rs.
1,37,000 to Rs. 50,000 as income from undisclosed sources ?" The High
Court answered the two questions in the negative.
The High Court observed 'that the Tribunal's
conclusion that out of the amount brought to tax by the Income-tax Officer only
Rs. 50,000 represented income from undisclosed sources was based on no
evidence. The High Court observed :
"The finding . . . . shows that, the
Tribunal also did not accept 'the explanation given by the assessee as regards
the cash credit entry on 1-7-1949. But strangely enough, the Tribunal, for no
reason whatsoever, came to the conclusion that the unaccounted income may be
estimated at Rs. 50,000. We do not 684 .lm15 know how the offer of the counsel
for the assessee was at all relevant. The Tribunal's surmise about the
assessee's income from jaggery trade and the receipt by him at the time of the
partition in his family is not based on any material.
Surmises have no place in judicial and
quasi-judicial proceedings." The judgment recorded by the Tribunal has not
the merit of clarity or of consistency. The Tribunal commenced by disbe-
lieving the explanation of the assessee relating to the source of the credit
entry. After some inconclusive statements it proceeded to record that it was
not unlikely that the assessee had some cash on hand from profits earned in the
trade from jaggery, and from assets received on partition of the joint family
of which the assessee was a member. In estimating Rs. 50,000 as the income from
undisclosed sources, 'the Tribunal merely relied upon the offer made by counsel
for the assessee. This was an unsatisfactory way of disposing of the appeal.
The function of the Tribunal in hearing an appeal is purely judicial. It is
under a duty to decide all questions of fact and law raised in the appeal
before it : for that purpose it must consider whether on the materials relied
upon by the assessee his plea is made out. Conclusive proof of the claim is not
predicated : the Tribunal may act upon probabilities, and presumptions may
supply gaps in the evidence which may not on account of delay or the nature of
the transactions or for other reasons be supplied from independent sources. But
the Tribunal cannot make arbitrary decisions it cannot found its judgment on
conjectures, surmises or speculation. Between the claims of the public revenue
and of the tax-payers, the Tribunal must maintain a judicial balance. The order
passed by the Tribunal without recording any reasons in support of the estimate
of unaccounted income cannot, therefore, be sustained.
But counsel for the assessee said that the
case of the assessee had not been fairly tried. He said that there was on the
record evidence that in a partition suit between the assessee and his brother
the assessee received on June 30, 1949 an amount of Rs. 48,500 and Rs. 14,647
and Rs. 13,116 representing "money bonds". He also said that the
assessee bad made a profit of Rs. 70,000 in his business in jaggery, that
between November 18, 1946 and December 16, 1948, the assessee had drawn cheque
"to self" on the Mysore Bank for Rs. 1,67,800, and between January
18, 1947 and November 25, 1947 the assessee had drawn cheques "to
self" for Rs.
52,255, and that on October 22, 1946 the
assessee had in his Bank Account a balance of Rs. 1,39,946: Counsel contended
that the assessee had at the material time large funds which could have been
brought into the books of account on July 1, 1949, but the Tribunal failed to
consider the evidence 685 and had merely accepted the offer made by counsel for
the assessee that lie should be assessed in the sum of Rs.
For the reasons already recorded, we agree
with the answers recorded by the High Court on the two questions.
But it is necessary to give, certain
effective directions, lest a bald order of dismissal of the appeal may result
in injustice, especially when the assessee had not a fair trial of his case
before the Tribunal. Section 66(5) of the Indian Income-tax Act, 1922, requires
the Tribunal on receiving a copy of the judgment of the High Court to pass such
orders as are necessary to dispose of the case conformably to such judgment.
This clearly imposes an obligation upon the Tribunal to dispose of 'the appeal
in the light of and conformably with the judgment of the High Court. Before the
Tribunal passes an order disposing of the appeal, there would normally be a
hearing. The scope of the hearing must of course depend upon the nature of the
order passed by the High Court. If the High Court has agreed with the view of
the Tribunal, the appeal may be disposed of by a formal order : if the High
Court disagrees with the Tribunal on a question of law the Tribunal must modify
its order in the light of the order of the High Court : if the High Court has
held that the judgment of the Tribunal is vitiated, because it is based on no
evidence or that it proceeds upon conjectures, speculation or suspicion, or has
been delivered after a trial contrary to rules of natural justice, the Tribunal
would be under a duty to dispose of the case conformably with the opinion of
the High Court and on 'the merits of the dispute. In all cases, however,
opportunity must be afforded to the parties of being heard.
Income-tax Appellate Tribunal, Bombay &
Ors. v. S. C. Canbatta & Co. Lid. (1) the Bombay High Court explained the
procedure to be followed in the disposal of an appeal conformably to the
judgment of the High Court. Chagla, C.
J., in delivering the judgment of the Court
observed ". . . . when a reference is made to the High Court either under
s. 66(1) or section 66(2) the decision of the Appellate Tribunal cannot be
looked upon as final; in other words, the appeal is not finally disposed of. It
is only when the High Court decides the case, exercises its advisory
jurisdiction, and gives directions to the Tribunal on questions of law, and the
Tribunal reconsiders the matter and decides it, that the appeal is finally
disposed of....... it is clear that what the Appellate Tribunal is doing after
the High Court has heard the case is to exercise its appellate powers under
section 33. . . . . The shape that the appeal would ultimately take in the
decision that (1) 29 I.T.R. 118.
6 8 6 the Appellate Tribunal would ultimately
give would entirely depend upon 'the view taken by the High Court." A
similar view was expressed by the Bombay High Court in Rajkumar Mills Ltd. v.
Income-tax Appellate Tribunal(1).
The High Court has held, and we agree with
the High Court, that the judgment of the Tribunal is based on no reasoning and
is on that account speculative. But by recording that answer, it is not to be
implied that the order of the Appellate Assistant Commissioner is confirmed. It
will be the duty of the Tribunal, conformably with the judgment of the High
Court, to dispose of the case after hearing the, assessee and the Commissioner
in the light of the evidence and according to law.
Subject to this direction, the appeal is
dismissed. The appellant will pay the costs of the Commissioner in this appeal.
G.C. Appeal dismissed.
(1) 33 I.T.R. 750.