MESSRS MEHTA PARIKH & CO. versus THE COMMISSIONER OF INCOME-TAX, BOMBAY.

Citation: [1956] 1 S.C.R. 626 · Decided: 10-05-1956 · Supreme Court of India · Bench: SUDHI RANJAN DAS · Disposal: Appeal(s) allowed

Judgment (excerpt)

1956 
May 10 
626 
SUPREME COURT REPORTS 
(1956] 
MESSRS MEHTA PARIKH & CO. 
v. 
THE COMMISSIONER OF INCOME-TAX, 
BOMBAY. 
(S. R. DAS C.J., BHAGWATI a.nd VENKATARAMA 
AYYAR JJ.] 
Income-tax-I nconie jroni undisclosed so11,rces-Assessment-
Assessee' s explanation based on accounts supported by offidavits-
Accounts accepted as genuine and statements in affidavits not con-
troverted-Finding based on no evidence-Inference front. proved or 
iidmitted facts-If questions of law-Principle of interferencc-
Indian Income-tax Act (XI of 1922), ss. 62(2), 23(3), 26·A. 
The appellants, a partnership firm assessed under ss. 23(3) and 
26· A of the Income·tax Act, were called upon by the Income·tax 
Officer during the assessment year 1947-48 to explain how and when 
they came to possess 61 thousand·rupee currency notes which they 
had encashed on the 18th January, 1946, after the promulgation of 
the High Denomination Bank Notes (Demonetisation) Ordinance 
of 1946, under which such notes ceased to be legal tender on the 
expiry of the 12th of January, 1946. The assessees produced their 
cash-book entries from the 20th December, 1945, to the 18th Janu-
ary, 1946, which were accepted as correct by the Income-tax Officer, 
who, however, made no further scrutiny of the accounts, and the 
entries showed that on the 12th of January, 1946, the cash balance 
in hand was Rs. 69,891·2-6. The case of the appellants was that 
the said notes were a part of the cash balance and in further sup-
port of their case they filed before the Appellate Assistant Com-
missioner three a1,Edavits by persons actually making the payments, 
..._ 
in respect of certain entries in the cash-book to prove that Rs. 20,000 
on the 28th December, 1945, Rs. 15,000 on the 6th of January, 
1946, and Rs. 8,000,, out of a sum of Rs. 8,500, on the 8th of Janu-
ary, 1946, were paid in thousand-rupee notes. 
The Income-tax 
Officer and the Appellate Assistant Commissioner in appeal, on a. 
ca.!culation of their own, held that the possession by the appellants 
of so many thousand-rupee notes was an impossibility and that 
these notes must represent income from undisclosed sources and as 
such be added to the assessable income of the appellants. Neither 
the Appellate Assistant Commissioner nor the Income-tax Officer, 
who was present at the hearing of the appeal, called for the de-
ponents in order to cross-examine them with reference to their 
statement in the affidavits. The Appellate Tribunal Ql1 appeal 
accepted the explanation of the assessees in respect of 31 of the 
notes but not with regard to the rest and rejected their application 
for a reference of the matter to the High Court. The assessees moved 
the High Court and the Tribunal was directed under s. 66(2) to state 
S.C.R. 
SUPREME COURT REPORTS 
627 
a case for its decision. In answering the main question, the High 
7956 
Court was of the opinion that the finding of the Tribunal was a find-
ing of fact or an inferencB based on such finding and it was not 
Messrs M, hta 
possible to say that such finding or inference was unreasonable or 
Parikh and Co. 
arbitrary. 
v. 
The Commissioner 
Held (per curiam), that the High Court was in error in refusing 
of Income.tax 
to interfere with the finding of the Tribunal which was based on no 
Bombay ' 
evidence and the appeal must succeed. 
Per C.J. and BHAGWATI J.-Conclusions based on facts proved 
or admitted may be conclusions of fact but whether a particular inf-
erence can legitimately be drawn from such conclusions may be a 
question of law. 
Where, however, the fact finding authority has 
acted without any evidence or upon a view of the facts which could 
not reasonably be entertained or the facts found were such that no 
person acting judicially and propel'!y instructed as to the relevant 
law could have found, the court is entitled to interfere. 
Chitnilal Ticamchancl Coal Co. Ltd. v. Commissioner of Income-
tax, Bihar and Orissa, ([1955]) 27 I.T.R. 602), applied. 
Cameron v. Prendergast (Inspector of Taxes), ([1940] 8 I.T.R. 
(Suppl.) 75), Bamford v. Osborne (H. M. Inspector of Taxes), ([1942] 
10 I.T.R. (Suppl.) 27) and Edwards (Inspector of Taxes) v. Bairstow 
and Another, ([1955] 28 I.T.R. 579), referred to. 
The High Court was in error in treating the finding of the Tri-
bunal as a finding of fact and failed to apply the true principles of 
interference applicable to such cases. 
The entries in cash-book and the statements made in the affi· 
davits in support

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