The judgment of the court was delivered by

BHAGWATI, J.---This appeal with special leave is directed against the order of the Income-tax Appellate Tribunal, Madras "A" Bench, dated August 8, 1952, made in I. T. A. No. 3254 of 1951-52 allowing the appeal and reversing the order of the Appellate Assistant Commissioner in I. T. A. No. 130 of 1949-50 for the assessment year 1948-49 dated June 23, 1951, whereby the Appellate Assistant Commissioner had allowed the appellant's claim for a reduction of his total income by Rs. 1,59,240.

The appellant is a cloth merchant dealing in cloth, piece-goods and yarn both on wholesale and retail basis at Madurai. The appellant and his brother Abdulla Salay Mohammed were originally carrying on the business in partnership. But the partnership was dissolved during the year 1947-48 and the appellant took over the entire business and became the sole proprietor thereof. For the assessment year 1948-49 (the accounting year being the year ending March 31, 1948), he submitted a return on September 7, 1948, in which he showed a net loss of Rs. 7,224 in his business under the head "business, profession or vocation."

In the course of the investigation the Income-tax Officer, Madurai, found two cash credits in the books of account produced by the appellant showing a sum of Rs. 1,05,000 under date March 1, 1948, representing a draft from the Imperial Bank of India Ltd., Porbandar, and a sum of Rs. 53,199-12-6 under date March 15, 1948, representing a draft from the Porbandar State Bank through the Central Bank of India Ltd., Bombay, credited to the account of Yamna Bai Ahamed, the maternal grandmother of Kathija Bai Habib, wife of the appellant. The appellant was called upon to explain these entries and he made his statement on January 26, 1949, before the Income-tax Officer who recorded the same. His explanation was that the said two sums represented the sale proceeds of gold, jewellery and sovereigns which belonged to Yamnabai who was a native of Ranavav near Porbandar in Saurashtra. His case was that she was living in Ranavav but had come away to Madurai some time in 1947, that she decided not to return to Ranavav owing to the communal disturbances which broke out in August, 1947, and empowered the appellant to sell the jewellery, gold and sovereigns situate in her house in Ranavav and bring over the sale proceeds to Madurai and invest the same there, that thereupon he proceeded to Ranavav, took the gold, jewellery and sovereigns from the house to Porbandar and got the same sold through Messrs. Shariff Hassan and Brothers and remitted the sale proceeds through bank drafts to Madurai, Rs. 1,05,000 on March 1, 1948, and Rs. 53,200 on March 15, 1948, and that these amounts were credited in her name as deposits in the books of account of the appellant. In proof thereof the appellant produced before the Income-tax Officer the original invoice relating to the sale of jewels and gold, furnished by Messrs. Shariff Hassan& Bros., Shroff Merchants, Porbandar, through whom the sales were effected along with a copy of their accounts. The letters received from the Imperial Bank of India and the Central Bank of India evidencing the transmission of funds were also produced.

After his statement was recorded as aforesaid, the Income-tax Officer on January 29, 1949, addressed a letter to the appellant calling upon him to obtain from Yamnabai an affidavit to the effect that she really possessed jewels, gold and sovereigns worth nearly Rs. 1,60,000 and that these were given to him by her for being sold and deposited with him. He also wanted to ascertain from her as to when these jewels and sovereigns were purchased and what was the value of cash, jewellery and other valuables owned by her at that time which information he desired should also be included in that affidavit. This affidavit was required to be furnished on or before February 10, 1949, and the appellant accordingly procured and filed before the Income-tax Officer an affidavit duly sworn by Yamnabai on date February 24, 1949. That affidavit showed that she had been residing in Ranavav till March, 1947, and thereafter she came away to Madurai in the last week of that month along with her granddaughter, Kathija Bai Habib, that on account of communal troubles which broke out subsequently in the neighbourhood of her residence at Ranavav, she decided to settle down in Madurai permanently, that she was then staying with her granddaughter Kathija Bai Habib and her husband, the appellant, that besides the jewels given to her daughter and after her death to her granddaughter and the sum of Rs. 73,000 gifted to the said granddaughter in or about the year 1935, she had also with her jewels and sovereigns which were her own, gifted to her on various occasions, that when she had come to Madurai, which was with the intention of going back, she had left the jewels and sovereigns behind in her house at Ranavav, that as she had settled down there she wanted the jewels to be disposed of and invested in the business of her granddaughter's husband, that she accordingly gave a power of attorney to Omar Salay Mohamed, i.e., the appellant, on January 30, 1948, and instructed him to sell the same at Ranavav and bring down the cash to Madurai, that he went there personally, sold the same and brought the sale proceeds through bank drafts, that on account of the prevailing high prices he was able to get by sale Rs. 1,58,452-4-3, that these jewels and sovereigns belonged to her entirely and exclusively being gifts given to her on various occasions by her parents, her husband and other relations, that these monies had been invested in two instalments with her granddaughter's husband carrying on business in the name of Hajee Moosa Sait & Bros., that she was drawing from the deposit an amount of Rs. 200 a month for her personal expenses which amount was being adjusted towards the interest due to her and that, she had still a small quantity of jewels with her remaining unsold worth about Rs. 10,000 at the then market price.

On March 4, 1949, the Income-tax Officer pointed out that on a former occasion Yamnabai had made a statement which according to him showed that she had given all her jewels to the wife of the appellant on the occasion of her marriage in 1933 and enquired which of the two statements, i.e., one made on the previous occasion on November 18, 1941, or that made in her affidavit dated February 14, 1949, was correct. He further asked the appellant whether he had any evidence to prove that she actually possessed considerable jewels and sovereigns.

The appellant replied on March 14, 1949, stating that her affidavit filed on November 11, 1941, referred to jewels which her daughter, i.e., the appellant's mother-in-law, had at the time of her death and which were taken back by her then, and were subsequently given to the appellant's wife at the time of her marriage in 1933, that she did not give her own jewels and sovereigns at the time of the appellant's marriage but only his mother-in-law's jewels, that she retained her own jewels and sovereigns and those were sold recently, that it was this subsequent sale that had been referred to in the affidavit dated February 24, 1949, and that neither of the statements made by her, one made on November 18, 1941, and the other made on February 24, 1949. was incorrect. He also stated that she did not have documentary evidence in her possession to prove ownership of the jewels and gold, that she was 72 years old and many of her relations who knew her intimately were then dead and it was not therefore possible to produce any oral evidence from persons who knew her intimately, as the existence of any such persons was doubtful, she having come away to Madurai two years ago.

These materials were considered by the Income-tax Officer who rejected the explanation of the appellant mainly on two grounds, viz., (1) that Yamnabai had on November 18, 1941, made an affidavit wherein she had stated that " all the jewels " had been given by her to Khatija Bai at the time of her marriage with the appellant, a statement which was allegedly inconsistent with the statement contained in her affidavit dated February 24, 1949, and (2) that the jewellery and gold ornaments were very heavy in weight, an almost impossible burden for any woman to wear even if she be madly in love with jewels and there were Har Kanthas as many as eight in number which again was not easy to understand. Having thus rejected the explanation of the appellant on these grounds the Income-tax Officer proceeded to observe that besides the trade in piecegoods on a considerable scale the appellant also carried on speculation in shares and securities, that he had also got a yarn trade, that though the piecegoods business was carried on on a very large scale, no quantative particulars were kept, and that with his connections all over India and with innumerable businesses carried on by him either directly or indirectly it was nothing improbable for the appellant to have earned nearly Rs. 1,60,000 in the course of a year. Accordingly, he made the assessment order on date March 31, 1949, adding the sum of Rs. 1,58,200 which represented the cash credits in the account of Yamnabai and Rs. 1,040 being the interest credited to her account, as profit earned by the appellant in his business. He also issued a notice under section 28(1)(c) of the Income-tax Act (two days before the assessment order was signed by him as aforesaid) and called upon the appellant to show cause in writing or in person at his office at Madurai on April 30, 1949, why a penalty should not be imposed upon him.

When this notice under section 28(1)(c) was served on the appellant, he obtained three affidavits from three respectable residents of Ranavav who knew Yamnabai intimately and who could speak about her status and wealth. These affidavits were dated April 18, 1949, and were sworn by (1) Dadamiah, son of Omarmiah, Town Kazi of Ranavav, aged go, (2) Jusub son of Abubucker of Ranavav, aged 35, who was a neighbour and a resident in the same compound with Yamnabai, and (3) Ebrahim Jan Mohamed, son of Jan Mohamed, aged 80 residing at Porbandar, and son-in-law of her uncle. He also obtained the affidavit of Kassam Shariff which was sworn on the same date, i.e., April 18, 1949, showing the sale of the jewellery, gold and sovereigns by the appellant, through his firm Messrs. Shariff Hassan & Bros., merchants, residing at Porbandar, Kathiawar District. These affidavits were submitted by the appellant along with his reply to the penalty notice dated April 25, 1949, which recounted all the facts which supported the contentions of the appellant and pointed out that there was no discrepancy between the statements made in the affidavit dated November 18, 1941, and that dated February. 24, 1949, and the affidavits dated April 18, 1949, which had been obtained by him from the parties at Ranavav above-mentioned showed that Yamnabai was possessed of plenty of jewels, gold and sovereigns which were sold by the appellant as aforesaid at Porbandar, having been armed with the power of attorney granted in his favour by her. It may be noted that in the affidavit filed by Kassam Shariff on April 18, 1949, the deponent besides giving the information in regard to the sale of the jewellery, gold and sovereigns through his firm and the transmission of the sale proceeds thereof to Madurai had also stated that on account of Viramgam Customs at the border of the Kathiawar State and British India, during the British rule in India, gold was not allowed to pass through the said customs, outside the State, and hence all the jewels, gold and sovereigns were held only within the State and those who wished to leave the State and go to British India used to come to him for disposing of their jewellery, gold and sovereigns and take cash from him, that he used to sell them on their behalf on commission basis and that he had sold lots of jewels, gold bars and sovereigns on commission basis.

On the very same day, i.e., April 25, 1949, the appellant filed an appeal before the Appellate Assistant Commissioner against the order of the Income-tax Officer dated March 31, 1949, being I. T. A. No. 130 of 1949-50. During the pendency of this appeal the notice under section 28(1)(c) of the Income-tax Act was heard before the Income-tax Officer and the appellant appeared before him on May 7, 1949, through his advocate and showed cause against that notice. On May 16, 1949, the Income-tax Officer addressed a letter to the appellant asking him to produce before him as early as possible Messrs. Dadamiali, Jusub, Ebrahim and Kassam Shariff with all the account books and other evidence documentary or otherwise, on which they relied in support of the statements made by them in the affidavits as he wished to examine those witnesses. The appellant replied by his letter dated May 30, 1949, pointing out that the deponents were residents of Ranavav in Porbandar which was more than 200 miles from Madurai, that Dadamiah was aged go and Ebrahim was aged 75 and it would not be reasonable to compel them to undertake the journey to Madurai as it might well cost their lives, that the affidavits themselves gave full particulars about the deponents, that the reasonable course to be adopted was either to administer interrogatories to the said persons on the matters referred to in the affidavits, or to send a letter of request to the District Court of Porbandar to examine the said persons on commission for the purpose of verifying the correctness of the contents of the affidavits. The appellant further pointed out that Kassam Shariff had already been addressed by the Income-tax Officer and the information received from him an a direct enquiry by the Income-tax Officer might be used to check the correctness of the facts disclosed in his affidavit. (This statement obviously had reference to the letter dated May 24, 1949, which had been sent by Shariff Hassan & Bros., in reply to the letter dated December 14, 1948, addressed to them by the Income-tax Officer. Therein the Income-tax Officer had asked the firm to let him know what were the jewels that were sold, their approximate weight, their value and the names and addresses of the parties to whom the jewels were sold by them and the date of such sales. He had also asked them to send along with their reply a copy of the account of the appellant as found in their books for the year 1948. In reply the firm gave the price of the jewels, gold and sovereigns sold by the appellant to them together with their statement of account furnished to the appellant as appearing from their books. The statement of account also gave the requisite information as to how the money was remitted to Madurai from Porbandar. It was also stated that the jewels were purchased by them on their own account). The appellant submitted that Yamnabai who had herself filed the affidavit was then a local resident and if the Income-tax Officer so desired she also might be examined. The appellant further submitted that all the courses suggested above would help the Income-tax Officer to verify the correctness of the facts disclosed in their affidavits and expressed his willingness to render every assistance and carry out the directions of the Income-tax Officer in all matters within his power.

Nothing further transpired after May 30, 1949, till December 16, 1950, when the Additional Income-tax Officer, Madurai, addressed a letter to the Additional Income-tax Officer, Porbandar, asking him to make detailed enquiries in the matter and let him know at a very early date regarding the genuineness of the sale as also whether Yamnabai was sufficiently rich or owned those jewels and such other material particulars as the latter could gather to strengthen the case for penalty. He also referred to the affidavits made by Dadamiah, Jusub and Ebrahim who had stated in general terms that she belonged to a rich family, that her father carried on lucrative business in South Africa and that she had a lot of jewellery, gold etc. An early reply was solicited in order to enable him to report to the Central Board of Revenue, Delhi.

We find on the record a reply dated January 9, 1951, addressed by the Income-tax officer, Ward B, Junagad, to the Additional Income-tax Officer, Madurai, which reported that Yamnabai's father and husband were said to have done very good business in Africa and as she was the only surviving issue of her father it came about that she inherited a good amount by way of gold valuables, bullion and cash, that on that side of the country wealthy Muslims invested their finances in purchase of ornaments and bullion, that four or five persons who had been interviewed by his Inspector had in general terms confirmed the well-to-do condition of both the father and the husband to whom she had inherited on the death of both of them about 25 to 30 years ago, that the sale of gold and sovereigns and ornaments appeared to be quite genuine so far as the transaction between Messrs. Shariff Hassan & Bros., and the appellant was concerned, that this transaction was not a solitary one, but Messrs. Shariff Hassan & Bros., had done similar transactions which were also found in their books, that under his instructions the Inspector had interviewed Harjivan Trikamji, the head munim of Messrs. Shariff Hassan & Bros., who had also confirmed the transaction as having been effected during 1948 and stated that actual delivery of gold and bullion stock took place in his presence, and that his Inspector had also interviewed Messrs. Jusub Abubacker and Dadamiah who had confirmed their affidavits filed before the Income-tax Officer, Madurai. By his letter dated February 22, 1951, the Additional Income-tax Officer, Madurai, wrote back to say that there were suspicions about the transaction inasmuch as it was likely that the appellant could have earned a large income during the control and had subsequently not brought the same to account, the inference being that he had invested these unaccounted profits in purchase of gold and jewellery and had later sold the same and brought the sale proceeds to Madurai. The question moreover was whether the appellant would have allowed such a large amount to lie idle for 25 to 30 years with Yamnabai and that too in the not very secure precincts of the house at Ranavav. He therefore asked the Income-tax Officer, Junagad, to make detailed enquiries of cloth merchants and others known to the appellant who might give useful information in the matter. Pursuant to this letter from the Additional Income-tax Officer, Madurai, Harjivan Trikamji Mehtaji of Messrs. Shariff Hassan and Brothers, Jusub Abubucker and one Haji Dada Abdul kassim were examined before the Income-tax Officer, Junagad, on March 15, 1951. Harjivan Trikamji confirmed that the appellant had gone to his firm to sell ornaments and he remembered that the appellant had said at that time that those ornaments belonged to his mother-in-law, and he had also possessed the power of attorney. He distinctly remembered that such a talk had taken place between the appellant and his proprietor because it was a transaction of a big amount and all these things were clarified with the appellant. When he was asked to say what the ornaments were like, he replied that the ornaments were of old time and were of old model which he knew very well. Jusub Abubucker stated that he had been asked by Yamnabai to keep watch over her house and household things during her absence from Ranavav as she went to Madurai for a short period, that she thereafter changed her mind about coming back to Ranavav on account of communal troubles and sent the appellant who was the son-in-law of her daughter to dispose of all the furniture and valuables lying in the house, that he was present at the time of the removal of valuables from an " old treasure " which was in the house, that he also witnessed the removal of the ornaments and the sovereigns, that he did ask for the authority which she had given to the appellant for the removal of valuables as while going to Madurai she had particularly asked him to keep a watch as a good amount by way of gold, jewellery and sovereigns was lying in the house and that the ornaments which she had inherited from her father and husband whose only heir she was, were of old type. Haji Dada Abdul Kassim stated that and it was well known in their community that she was a rich lady possessing a good amount of money and valuables. The Income-tax Officer, Junagad, enclosed these statements along with his letter dated March 17, 1951, addressed to the Additional Income-tax Officer, Madurai, wherein he stated that he had taken an opportunity of visiting Ranavav which was 8 miles away from Porbandar, that he had seen the house belonging to her which was a pacca building but of old style and if put in market would not fetch more than Rs. 10,000 to Rs. 15,000 and that the house was at that time occupied by Jusub Abubucker whom he again cross-examined in a casual way. He further stated that there were few cloth dealers in Ranavav and they were mostly Hindus who did not know her but there was one Mohammadan cloth dealer who knew her and who was also cross-examined by him and his answers were also sent by him along with the letter. He also stated that he had cross-examined the head munim of Messrs. Shariff Hassan & Bros. and tried to get from him something to prove whether the ornaments in question were newly purchased or not but the result was in the negative. He therefore suggested that if the latter wanted his suspicions to be confirmed, the jewellery, gold and sovereigns in which the unaccounted profits were suspected to have been concealed must have been purchased somewhere in Bombay or Madurai and the enquiries in that behalf should be pursued there.

This letter appears to have put an end to further enquiries in the matter of the said transaction in connection with the penalty notice and on December 30, 1954, a letter was addressed by the Additional Income-tax Officer, Madurai, to the appellant intimating that the penalty proceedings under section 28(1)(c) instituted for the assessment year 1948-49 had been dropped.

The appeal which had been filed by the appellant before the Appellate Assistant Commissioner being I.T.A. No. 130 of 1949-50 came up for hearing in about June, 1951. All the materials which had been collected by the Income-tax Officer and the Additional Income-tax Officer, Madurai, including the correspondence which had passed between the Additional Income-tax Officer, Madurai, and the Income-tax Officer, Ward B, Junagad, and the enclosures thereto were in the file of the appellant and on June 23, 1951, the Appellate Assistant Commissioner after hearing the parties and perusing all the documents allowed the appellant's appeal in regard to the said sum of Rs. 1,59,240 and reversed the order of the Income-tax Officer passed oh March 31, 1949. The appellant was in the result declared not liable to be taxed for 1948-49 and the tax, if paid, was ordered to be refunded.

In his order dated June 23, 1951, the Appellate Assistant Commissioner set out all the facts leading to the assessment order and mooted the question whether the jewels etc., did really belong to Yamnabai, if not, whether the circumstances reasonably supported the Income-tax Officer's presumption that the appellant had converted his secret profits into jewellery, gold and sovereigns, with a view to camouflage his transactions and brought such profits in his accounts by re-sale of such jewellery etc., and remittances through bank drafts. In regard to the affidavits made by Yamnabai, one on November 18, 1941, and the other on February 24, 1949, the alleged discrepancy in which was particularly stressed by the Income-tax Officer as negativing the contention that she was possessed of large jewellery, gold and sovereigns of the aggregate value of Rs. 1,60,000 in 1948, the Appellate Assistant Commissioner reproduced the whole of the affidavit dated November 18, 1941, which read as under :

" 1. I am the maternal grandmother of Kathija Bai Habib, wife of Omar Salay Mohammed Sait.

2. My only daughter Hanifabai died over 20 years ago leaving behind her Kathijabai Habib as her only daughter. She left no son. I had given her considerable jewels. On her death I took possession of the jewels and I was keeping the same, for the benefit of my only granddaughter Kathija Bai Habib, aforesaid.

3. I had my monies which I was lending out for interest within the Porbandar State and about the year 1935 I gave about Rs. 73,000 to my granddaughter as I have no son or grandson and she is the only person to whom I could bequeath my properties after my daughter's demise.

4. I had given her all the jewels on the occasion of her marriage in 1933."

The Appellate Assistant Commissioner interpreted this affidavit to mean that "all the jewels" which she had referred in paragraph 4 of that affidavit and which she stated she had given to Kathija Bai Habib, the wife of the appellant, on the occasion of her marriage in 1933 had reference only to " considerable jewels " which she had given to her daughter Hanifabai, which she had taken possession of on the latter's death and which she was keeping with her for the benefit of her only granddaughter Katbija Bai Habib. These jewels were according to the Appellate Assistant Commissioner given by her to the appellant's wife in 1933 and had nothing to do with her own jewels etc., which she had been in possession of long prior to 1933 and which she continued to possess even thereafter, having been inherited by her on the death of her father and husband. The Appellate Assistant Commissioner therefore came to the conclusion that the assumption of the Income-tax Officer that she gave away all her jewels and also money and therefore could not have any more jewellery, gold and sovereigns available for sale in 1948 could not derive any support from the statements contained in that affidavit. The Appellate Assistant Commissioner further referred to the result of the subsequent enquiries made by the Income-tax Officer, Ward B, Junagadh, and observed that the departmental enquiries made at the other end substantially supported the appellant's claim that she was possessed of valuable jewellery etc., and such jewellery etc., were sold through the Porbandar Shroff merchants in 1948 by her duly authorised attorney (the appellant) and the sale proceeds transmitted to Madurai for credit to her account in the appellant's books. The Appellate Assistant Commissioner further observed that no defects (or any other suspicious feature) had been found by the Income-tax Officer in the accounts, that the past history of the appellant was good and, therefore, the suspicion of the Income-tax Officer was not based on any material. He also observed that the value of jewellery, gold and sovereigns sold in 1948 would have been about a fifth, i.e., about Rs. 30,000 or so in 1933 when she gifted her deceased daughter's jewels of considerable value to her granddaughter at the time of the latter's marriage, and that having regard to the fact that she chose to gift away valuable jewels and cash, she should have been in fairly good financial position, as she had been spoken of as one who was spending freely on charities. This information having been gathered by the Income-tax Officer by independent enquiries at the other end could not according to the Appellate Assistant Commissioner be discounted. As regards the suspicion which the Income-tax Officer had entertained due to the weight of these jewels, and ornaments, the Appellate Assistant Commissioner observed that Honi Dad Patle was not a jewel but really represented gold bars and the Income-tax Officer's impression was also partly due to his applying the poor South Indian standards of weight of jewellery worn by women. The Appellate Assistant Commissioner accordingly held that in the face of such overwhelming evidence there was no justification at all for disputing the appellant's claim that the credits did really represent Yamnabai's monies and on no account could they be treated as profits camouflaged and both the items aggregating to Rs. 1,59,240 were therefore liable to be deleted.

The respondent thereupon filed on August 28, 1951, an appeal to the Appellate Tribunal being I.T.A. No. 3254 of 1951-52. This appeal was disposed of by an order made by the Appellate Tribunal on August 8, 1952, whereby the Tribunal allowed the respondent's appeal and vacated the order passed by the Appellate Assistant Commissioner to the extent of Rs. 1,50,240 mentioned above.

The Tribunal, in the first instance, set out the background of the transaction which it considered to be essential in appreciating a question of this size. The first thing which it pointed out was that the business carried on by the appellant was of a large magnitude consisting of wholesale and retail business in mill piecegoods, handloom cloth, silk and fancy goods showing a turnover of Rs. 13.03 lakhs and the gross profit of 6% therein, that there was also yarn trade the gross profit of which was only 1.9 per cent on a turnover of 2.37 lakhs, that no stock tally was furnished and only a trial balance-sheet had been filed, and that the income-tax authorities had not examined the veracity of accounts which was by far more important than tracing the cash credits. It was also pointed out that a trader carrying on business on such a large scale would be expected to have a comfortable capital and that the available trading capital was not more than Rs. 40,000 out of which tangible and intangible assets took away a good portion leaving a small sum towards floating capital, though it was true that the appellant's wife's account showed a credit balance of over Rs. 1,33,000.

This was the background against which the Tribunal stated that the transaction in question had to be considered and the most important point to see and find out was whether in the circumstances of the case, Yamnabai could have in her possession jewellery, etc., to the tune of Rs. 1,60,000. In this behalf the Tribunal laid stress on the statements made by her in her affidavit dated November 18, 1941, and interpreted the same to mean that she had given all her jewels and cash of Rs. 73,000 to the appellant's wife in 1933 and 1935 respectively and that therefore she could not have any other jewellery, gold and sovereigns in her possession in 1948. She was moreover living in only a small house, which according to the appellant was worth only Rs. 5,000 ; she did not have any money-lending business or investments or other immoveable properties in Porbandar State and it would be strange to think of "an old lady of 70 years living in Kathiawar, far away from her only near and dear one who was at Madurai, keeping gold worth Rs. 1,70,000 tucked away in her house costing about Rs. 5,000 just not knowing when she would flicker away with the possibility of anybody claiming the moveable property which was said to be with her." The Tribunal, therefore, discounted the story put forward by her and the appellant and commented further that it would be "too tall a story to believe that during the war period when the appellant was running an admittedly one of the most important cloth shops in Madurai, the business would be suffering loss with a Pandora's box of gold lying at his disposal in the distant Kathiawar State beyond the reach of the then British Indian taxing authorities." The absence of a reply from M/s. Shariff Hassan and Bros., to the letter addressed to them by the Income-tax Officer, Madurai, dated December 14, 1948, till after the issue of the notice under section 28(1)(c) on the appellant was also adversely commented upon and it was observed that the old lady in her declining years gave away all she had including gold and cash, excepting jewellery etc., worth Rs. 12,000 which was said to be with her, to her only grandchild Khathija Bai and continued to live in a small house at Kathiawar counting her days. The conclusion reached on the above premises by the Tribunal was that the appellant had in his possession this much money and he managed to remit it from Porbandar to Madurai, to give a colouring of reality and that all the other circumstances had been nicely woven so as to paint the picture in as real colours as possible.

The Tribunal then commented upon the Appellate Assistant Commissioner's looking at the information gathered subsequently by the Income-tax Officer at Junagad and after observing that the Income-tax Officer had mentioned in his grounds of appeal that he was not a party to the Appellate Assistant Commissioner's looking at the information gathered subsequently the Tribunal stated that such a procedure would not have been so much objectionable, if the sale had been traced. It was further observed that " to look at things partially at the appellate stage is not safe. If the Appellate Assistant Commissioner felt that the case was not investigated properly he could have remanded it for such further and fuller information which he considered necessary. The Department would have then tried to trace the sale, the actual remittance from two banks, the persons who remitted the money and would have also cross-examined the purchasers regarding the disposal of such a vast wealth and other connected matters. It is improper to look at the evidence partially and arrive at a conclusion." Although it was agreed by the parties before the Appellate Assistant Commissioner that the material which has been collected by the Income-tax Officer at Junagad be treated as evidence in the assessment proceedings, it was not considered by the Tribunal.

The Tribunal also pointed out the following other loopholes, viz., (1) that there was no proof or evidence as to how Yamnabai kept this vast wealth and in whose safe custody it was kept ; (2) that the handwritten Patti given by M/s. Shariff Hassan & Bros., showed that the gold was given on two different dates, on February 21, 1948, 1,222 tolas and on February 25, 1948, 750 sovereigns and it was not explained why it was necessary to give gold ornaments, bars and sovereigns in two different instalments ; (3) that there was no specific entry in the appellant's books regarding his travel to Porbandar and return and that there was a consolidated entry on March 2, 1948, in his books showing expenses of journeys made to Madras, Bombay, Porbandar, etc., and that clearly showed that the appellant returned sometimes prior to March 2, 1948, and as such it was inconceivable for the appellant to put his gold in the hands of a firm at Porbandar, which had not even the decency to reply to the querry of the Income-tax Officer and to have come away without receiving the sums due to him ; and (4) that the different modes of remitting, one for the sum of Rs. 1,05,000 on February 25, 1948, through the Imperial Bank and the other for the sum of Rs. 53,200 through the Porbandar State Bank was also subject to comment.

On all these considerations the Tribunal appeared to be satisfied that these sums represented unaccounted for money in the hands of the appellant which he managed to remit to Madurai and accordingly treated that as sums whose nature and source had not been properly explained and that they had been correctly treated by the Income-tax Officer as income of the appellant. The Appellate Assistant Commissioner's order was accordingly vacated to the extent of Rs. 1,59,240 as mentioned above.