MESSRS. LALCHAND BHAGAT AMBICAL RAM vs. THE COMMISSIONER OF INCOME-TAX, BIHAR & ORISSA
What did the Supreme Court hold?
The Supreme Court held that the Tribunal had been influenced by the suspicions, conjectures, and surmises indulged in by the Income-tax Officer. The Tribunal arrived at its conclusion, as it were, by a rule of thumb, without sufficient proper materials before it, and therefore, its finding could not be sustained. Having accepted the appellant's books of account, it was not open to the Tribunal to accept the explanation of the appellant in part regarding Rs. 1,50,000 and reject it for the remaining Rs. 1,41,000. The Court reiterated that where a Tribunal acts without evidence, or upon a view of facts that cannot reasonably be entertained, or the facts found are such that no person acting judicially could have found them, the court is entitled to interfere. The appeals were allowed, the High Court's judgment was set aside, and the referred question was answered in the negative. The operative direction was to set aside the High Court's judgment and answer the referred question in the negative, allowing the appeals.
What were the facts?
The assessee, a Hindu undivided family (HUF) engaged in the grain business, reported a loss of Rs. 46,415 for assessment year 1946-47. The Income-tax Officer (ITO) noted the assessee encashed high denomination bank notes worth Rs. 2,91,000 on January 19, 1946, shortly after the High Denomination Bank Notes (Demonetisation) Ordinance, 1946. The assessee explained these notes were part of its cash balances, including an 'Almirah account' holding Rs. 2,81,397. The ITO rejected this, citing the cancellation of the assessee's food grains license, a prior prosecution under Defence of India Rules, the assessee's speculative nature, consistent losses despite large capital, and Sahibganj's notoriety for smuggling. The ITO treated Rs. 2,91,000 as secreted profits. The Appellate Tribunal accepted the books but, considering the circumstances, estimated Rs. 1,50,000 as a plausible cash balance in high denomination notes, deeming the remaining Rs. 1,41,000 unexplained.
What were the issues?
1. Whether the Tribunal's finding that Rs. 1,41,000 of the encashed high denomination notes represented secreted profits from business, despite accepting the assessee's books of account, was vitiated by conjecture and surmise, and lacked proper evidence, making it a perverse finding. Assessee's contentions: - The finding of the Tribunal, though a question of fact, was based on conjectures, suspicions, and surmises without any supporting material. - The finding was perverse, as no reasonable body of men could have arrived at it based on the available record. - The Tribunal erred in accepting the assessee's explanation in part (Rs. 1,50,000) and rejecting it for the remainder (Rs. 1,41,000) after accepting the books of account. - Relied on cases like Dhirajlal Girdharilal v. Commissioner of Income-tax, Bombay and Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax, West Bengal. Revenue's contentions: - The judgment records no specific contentions for the revenue, but implicitly supported the Tribunal's decision by challenging the assessee's appeal.
Which sections of the Income-tax Act were involved?
High Denomination Bank Notes (Demonetisation) Ordinance, 1946
AI-generated summary — verify with the full judgment below
S.C.R. SUPREME COURT REPORTS 301 MESSRS. LALCHAND BHAGAT AMBICAL RAM v. THE COMMISSIONER OF INCOME-TAX, BIHAR & ORISSA (S. R. DAs, C.J., N. H. BHAGWATI, and M. HIDAYATULLAH, JJ.)
Income-ta.<t-Assessment based on conjectures-Fact finding authority acting without evidenc~-Power of court to interfere-High Denomination Bank Notes (Demonetisation)
Ordinance, z946 (Ordinance III of z946).
The appellant a Hindu undivided family carryii:ig on business in grain kept its books of account according to the mercantile system and maintained in its cash books two accounts : one showing the cash balances from day to day and the other known as" Almirah account" wherein were kept large balances which were not required for the day-to-day working of the business.
On January 12, 1946, on which date the High Denomination Bank Notes (Demonetisation) Ordinance, 1946, was promulgated, the cash balances of the appellant were Rs. 29,284 in its Rokar and Rs. 2,81,397 in the Almirah account. For the assessment year 1946-47 the appellant filed its Income-tax Return showing a loss of Rs. 46,415 in the business. The Income-tax Officer, in the course of the assessment, noticed that the a
The order continues below.
Read the full judgment
A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.
The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.
Recent GST High Court judgments
Search GST case law →- Giri Paints vs. The Assistant Commissioner (St)Madras · 15 Oct 2026
- Rahul Radheshyam Chauhan vs. Union Of INDIA Thru The Sec. Ministry Of Law And Justice And OrsBombay · 15 Oct 2026
- S.Murugesan vs. The Deputy Commercial Tax OfficerMadras · 15 Oct 2026
- Tvl. Annai Garden vs. The Commercial Tax Officer / The State Tax OfficerMadras · 15 Oct 2026
- Yadeshwar Mallekedi vs. The State Of TelanganaTelangana · 15 Oct 2026
