KISHINCHAND CHELLARAM vs. THE COMMR. OF INCOME-TAX BOMBAY CITY II, BOMBAY

CIVIL APPEAL No. 2728/1972Supreme Court[1981] 1 S.C.R. 72016 September 1980Bench: 2 JudgesAuthor: P.N. BHAGWATI, E.S. VENKATARAMIAH12 pages
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What did the Supreme Court hold?

The Supreme Court held that there was no material evidence to support the Tribunal's finding that the amount of Rs. 1,07,350 was remitted by the assessee. The Court found the Tribunal's conclusion unreasonable and perverse, especially in light of the remittance application signed by Tilok Chand. The Court emphasized that the burden of proof was on the Revenue to demonstrate that the amount belonged to the assessee. Simply showing that an employee (Tilok Chand) remitted funds to another employee (Nathirmal) was insufficient. The Revenue failed to rule out the possibility that Tilok Chand had his own resources. The Court also criticized the non-disclosure of the banker's letters to the assessee, which prevented proper cross-examination. The appeal was allowed, setting aside the High Court's judgment and answering the reference in favour of the assessee.

What were the facts?

The assessee, Kishinchand Chellaram, was assessed for AY 1947-48. The Income Tax Officer (ITO) sought to reopen the assessment based on information that Rs. 1,07,350 was remitted by the assessee via telegraphic transfer from Punjab National Bank, Madras, to Bombay favouring Nathirmal on October 16, 1946. The assessee denied any such remittance. The ITO, disbelieving the assessee and relying on a banker's statement, brought the amount to tax as concealed income. The Assistant Appellate Commissioner, Tribunal, and High Court ruled against the assessee, holding that the assessee had not discharged the burden of proof. It was later revealed the application for transfer was signed by 'Tilok Chand C/o M/s. K. Chellaram, Madras', and received by 'N.B. Bani' in Bombay. The assessee appealed to the Supreme Court.

What were the issues?

1. Whether there was any material evidence to justify the Tribunal's finding that the amount of Rs. 1,07,350 was remitted by the assessee from Madras and represented concealed income (turning on Section 34 of the Income-tax Act, 1922)? Assessee's arguments: - The primary evidence, the remittance application, was signed by Tilok Chand, not the assessee, indicating Tilok Chand made the remittance. - The banker's letters, relied upon by the revenue, were not disclosed to the assessee, preventing cross-examination and proper rebuttal. - The banker's statement was not based on personal knowledge and lacked supporting documents. - The burden of proof lay on the Revenue to show the amount belonged to the assessee, which it failed to discharge. Revenue's arguments: - The Tribunal's finding was based on the banker's statement, which, while not strictly evidence under the Evidence Act, could be considered in tax proceedings. - Even if Tilok Chand and Nathirmal were employees, the remittance by one employee to another could be considered on behalf of the assessee.

Which sections of the Income-tax Act were involved?

Section 34

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720 .' A B c D E F G KISHINCHAND CHELLARAM v. THE COMMR. OF INCOME-TAX BOMBAY CITY II, BOMBAY September 16, 1980 [P. N. BHAGWATI AND E. S. VENKATARAMIAH, JJ.] Re-opening of assessment-Re-opening made on a letter of the Bank Mana- ger addressed to the Income Tax Officer-Income-tax Act, 1922, section 34- Evidence Act applicability of tax cases-Burden of proof on whom lies in cases of re-opening of assessment.

The appellant firm M / s. Kishinchand Chellaram was assessed to tax for the assessment year 1947-48, the relevant accounting year being .the year ending 6th April, 1947. The concerned Income Tax Officer on an information that a sum. of Rs. 1,07,350 purported to have been sent by the assessee by a telegraphic transfer through the Punjab National Bank Ltd., Madras, to its Bombay .Branch favouring one Nathirmal on 16-10-1946, has escaped assess- ment, called upon the assessee, through his letters dated 24th February, 1955 and 4th March, 1955 to explain the same.

The Income Tax Officer did not refer to the letters dated 14th January, 1955 and 10th February, 1955 addressed by him to the Bank Manager nor the reply of the Manager dated 18th February, 1955 in t

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