1963 PLP 404 (PTD)

INAMULLAH, J.‑The following question has been referred to us under section 66 (1) of the Income‑tax Act by the Income‑tax Appellate Tribunal, Karachi Bench :‑ "Whether in the circumstances of this case there is material to justify the findings that the amount of Rs. 25,000 appearing in the account of Mst. Chaman Ara Begum represented secreted profits of the assessee"? The facts briefly put giving rise to the above question are these :‑ The applicant before the Tribunal Sultan Illahi, hereinafter called the assessee, is a dealer in articles of general merchandise on wholesale basis. The assessment year is 1956‑57, and the corresponding accounting period ended on 3ist March 1956. The assessee showed a net profit of Rs. 17,580 from his accounts in this period. The Income‑tax Officer raised the profits to Rs. 48,528, this figure included a sum of Rs. 25,000 for income from undisclosed source. This amount of Rs. 25,000 was credited in cash on the ist of August 1955, in the accounts of Mst Chaman Ara Begum, second wife of the assessee. The Income‑tax Officer called upon the assessee to prove the nature and source of this item. It was alleged that the entire amount was brought over by the said Mst. Chaman Ara Begum from India on her migration to this country in 1950. Mst. Chaman Ara Begum had filed an affidavit stating that she had brought in all Rs. 31,000 from India. She advanced a sum of Rs. 25,000 out of the said amount to her husband as a loan. The Income‑tax Officer did not believe this story and added the amount as income from undisclosed source of the assessee. On appeal the Appellate Assistant Commissioner accepted the contention of the assessee that the said amount belonged to Mst. Chaman Ara Begum.

2. The Department went in appeal before the Appellate Tribunal. It would be useful to reproduce the relevant discus sion of the Appellate Tribunal leading to the conclusion that the said sum of Rs. 25,000 was secreted income. The observation runs as under :‑ "It is asserted that the lady had Rs. 16,000 with her at the time of death of her former husband and Rs. 15,000 were paid to her for her property and articles of furniture by her father Mehar Ellahi residing in Calcutta. These facts were, however, not believed to be correct. The assessee also filed affidavits from Mehar Ellahi (father of the lady) residing in calcutta, Muhammad Nasim (brother of the lady), Ehsan Ellahi (maternal uncle of the lady) and Muhammad Yousuf, a cousin of her first husband. She also gave her own affidavit corroborating the facts alleged by her in respect of the money in dispute. The assessing officer discarded the facts on the ground that they were unilateral statements by relatives of the lady who were interested in the assessee as well. Besides, no definite evidence was placed on the record to show the status of the first husband of the lady and whether he left behind enough capital or not out of which Rs. 16,000 came to her share. The financial status of the first husband at the time of his demise is not proved at all. There could have been evidence to show the total assets left behind by the deceased and the persons who inherited them. As regards Rs. 15,000 said to have been given by Mehar Elahi, father of the lady, in lieu of property and articles of furniture at Calcutta there are no facts on the record to convince a reasonable person that the lady in fact possessed the goods valued at the above figure. It is interesting to note that the assessee's representative stated that the respondent had declared a substantial amount for hidden income under Martial Law Regulation No. 43/48, it throws a flood of light on the facts alleged by the assessee. No wonder that the alleged sum of Rs. 25,000 could have been out of the secreted income." Mr. Pasha, the learned Advocate for the assessee raised three fold contentions before us namely :‑ (1) that the conclusion of the Appellate Tribunal that the sum of Rs. 25,000 is secreted income of the assessee is based on mere surmise and conjecture ; (2) that the conclusion of the Tribunal at any rate is based partly on relevant and partly on irrelevant material and there fore it is impossible to say to what extent the mind of the Tribunal was affected by the irrelevant material used by it in arriving at its finding ; and (3) that the assessee having discharged his burden of proof the onus shifted to the Income‑tax Department to prove that the alleged sum of Rs. 25,000 was an income from an undis closed source. We propose to dispose of these contentions in order.

4. There is not much force in the contention that the conclusion of the Appellate Tribunal is based on mere surmise and conjecture. The Tribunal considered all the evidence which was of in the shape of affidavits filed by various persons in support of the contention of the assessee and came to the conclusion that the assessee had failed to establish that the alleged sum of Rs. 25,000 belonged to his wife. In this connection we would reproduce a few lines from the affidavit of Mst. Chaman Ara Begum and that of Muhammad Yusuf. Mst. Chaman Ara Begum stated as under :‑-- "I, the deponent had received Rs. 15,000 from my father in lieu of my furnished house in India and I had received Rs. 16,000 (approximately) at the time of my first marriage as dowry, gifts and presents in respect of various ceremonies which I still had. The total amount of Rs. 31,000 was brought by me from India, out of which I had deposited the said amount of Rs. 25,000 with my husband as Amanat." Muhammad Yusuf on behalf of the assessee stated as under; "That I was present in the marriage ceremony of Muhammad Raunaq when he was married with Mst. Chaman Ara Begum I also know very well that when Muhammad Raunaq died Chaman Ara Begum had about Rs. 16,000 with her which she had amassed during the marital life with the first husband."

5. It has been conceded by Mr. Pasha, the learned Advocate for the assessee, that the burden of proof lay on the assessee to disclose the source of receipt of Rs. 25,

000. It would appear from what has been reproduced above that the assessee's witnesses made out a contradictory case. Mst. Chaman Ara Begum tried to make out that she had received Rs. 16,000 at the time of her marriage in the shape of dowry, gifts etc., while Muhammad Yusuf alleged that she had saved Rs. 16,000 during her marital life with her first husband. No one had compelled the assessee to produce the affidavit of Muhammad Yousuf. The Tribunal however could not ignore the facts deposed to by Muhammad Yousuf, and accept what was stated by Mst. Chaman Ara Begum. So far as the sum of Rs. 15,000 which is said to have been received by Mst Chaman Ara Begum from her father is concerned, it was open to the Tribunal not to accept the story put forward by Mst. Chaman Ara Begum in the absence of any details of the property and articles sold by her to her father. In these circumstances, we would hold that there was material before the Tribunal for the conclusion that the sum of Rs. 25,000 was secreted income of the assessee.

6. It was contended by Mr. Pasha, the learned Advocate for the assessee, that the finding of the Tribunal was based on irrelevant evidence inasmuch as it relied upon the admission of the representative of the assessee who had stated that the assessee had made a declaration of hidden income under Martial Law Regulation No. 43/48. Reliance was placed by the learned Advocate for the assessee on the following observations of the Tribunal:‑ "It is interesting to note that the assessee's representative stated that the respondent had declared a substantial amount for hidden income under Martial Law Regulation No. 43/48, it throws a flood of light on the facts alleged by the assessee. No wonder that the alleged sum of Rs. 25,000 could have been out of the secreted income." Mr. Pasha contended that the admission made by the representa tive of the assessee could not be made use of under the Martial Law Regulation. Mr. Pasha, therefore, urged that the finding of the Tribunal was based on no material. The learned Advocate relied in this connection on the case of Dhirafal Girdharilal v. Commissioner of Income‑tax, Bombay ((1954) 26 I T R 736). It was held in that case that when a Court of fact acts on material partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the Tribunal was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material. There is not much force in this contention: The protection given by Martial Law Regulation No. 43 as amended by Martial Law Regulation No. 48 is as under:‑

"No action of any kind whatsoever shall be taken for having submitted an incorrect return originally or in respect of the nature of the transaction from which the income represented by the difference between the revised return and the original return, hereinafter called the excess income was derived ; nor will the fact of his having filed a revised return be taken as a ground for the re‑opening of any assessment under subsection (2) of section 34 of the Income‑tax Act." Mr. Pasha relied on the following circular dated 20th December 1958, issued by the Central Board of Revenue :‑ "In order to avoid the case of an assessee being prejudiced either in appeal or in the course of the re‑assessment proceed ings, the sealed covers will not be opened till the appeals are finally disposed of or the re‑assessment proceedings are completed." It would appear from what is reproduced above that if the assessee's representative were to state that the assessee had declared a substantial amount as hidden income under Martial Law Regulation it cannot be said that the Tribunal was precluded from making use of it.

7. Lastly, it was contended that the assessee had discharged his burden of proof by filing the affidavits of various persons to prove that the sum of Rs. 25,000 belonged to his wife. In these circumstances it was urged that the burden shifted to the Income-tax Department which did not lead any evidence to rebut the same. It was contended that the Tribunal should have accepted the affidavits filed by the assessee. In this connection reliance was placed on the case of Mehta Parikh & Co. v. Commissioner of Income‑tax, Bombay ((1956) 30 I T R 181). In that case a sum of Rs. 61,000 was assessed as undisclosed profits. Mr. Pasha relied on the following observation of the Supreme Court of India; "The cash book of the appellants was accepted and the entries therein were not challenged. No further documents or vouchers in relation to those entries were called for, nor was the presence of the deponents of the three affidavits con sidered necessary by either party. The appellants took it that the affidavits of these parties were enough and neither the Appellate Assistant Commissioner, nor the Income‑tax Officer, who was present at the hearing of the appeal before the Appellate Assistant Commissioner, considered it necessary to call for them in order to cross‑examine them with reference to the statements made by them in their affidavits. Under these circumstances it was not open to the Revenue to challenge the correctness of the cash book entries or the statements made by those deponents in their affidavits." These observations on the face of it would not apply to the circumstances of the present case. In, this case the Income‑tax Department has challenged the entry in the account books of the assessee in respect of Rs. 25,

000. Moreover, as we have already mentioned, there was material before the Tribunal for coming to the conclusion that Rs. 25,000. represented the secreted profits of the assessee inasmuch as the evidence produced by the assessee in respect of the sum of Rs. 16,000 was contradictory.

7. Mr. Pasha relied on the case of S. N. Ganguly v. The Commissioner of Income‑tax Bihar and Orissa ((1953)24 I T R 16). In that case the Income‑tax Officer did not reject the account books produced by the assessee but he added a sum of Rs. 15,000 which was the amount of high denomination notes encashed by the assessee. The amount encashed was not mentioned in the books of account produced by the assessee. The Income‑tax Officer called upon the assessee to explain the source of the high denomination notes. He was not satisfied with the explanation and treated the amount of Rs. 15,000 as secreted profit of the assessee. On these facts it was held that the onus of proof was on the Department to show by at least some material that the amount did not belong to the assessee's wife. There being no material to support the conclusion of the Department, the reference was answered in favour of the assessee. The circumstances of this case are quite distinguishable from the case relied upon. In the case before us the Income‑tax Authorities challenged the correctness of the account book inasmuch as the sum of Rs. 25,600 entered in the account book of the assessee was not accepted to belong to the assessee's wife. It is noteworthy that in the very case relied upon by Mr. Pasha it has been held that when an 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. It was further held that the burden of proof of such a case is not upon the Revenue Authorities.

8. Mr. Noorul Arfin, the learned Advocate for the Income-tax Commissioner, relied on the case of P. V. Raghava Reddi and another v. Commissioner of Income‑tax, Madras ((1956) 29 I T R 942), in support of his contention that even a circumstance which would negative the assessee's contention would be a material so as to support the finding of the assessing authorities. In that case the assessee, a Hindu undivided family, had opened in its accounts a ledger in the name of the wife of one of the members of the family and a credit entry of Rs. 6,500 was made in her favour. The entry indicated that the amount represented the sale proceeds of a diamond necklace. The Income-tax Authorities including the Tribunal came to the conclusion that the amount represented the profits of the assessee. On the application of the assessee the High Court directed the Tribunal to state the case after giving an opportunity to the assessee to adduce evidence to prove that the jewel belonged to the wife of one of the members of the family. Two affidavits were filed that the jewel was sold so that the wife could make a new one but it was not explained why the amount was credited in family accounts and left with the family for two years. A brother of the wife had also given evidence that the jewel was given to her at the time of her marriage. The High Court came to the conclusion in these circumstances that there was sufficient material on which the Tribunal could come to the conclusion that the amount represented income from an undisclosed source.

9. For the reasons given above we have come to the con clusion that there was sufficient material to justify the finding that the amount of Rs. 25,000 represented secreted profits of the assessee and we would answer the question in the affirmative. We would, in the circumstances of the present case, order the parties to bear their own costs. Question answered in affirmative.