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In applying this principle to the cases of encashment of high denomination notes, there is some difficulty when the assessee has books of account which are accepted and in which there is a cash balance sufficient to cover the amount of high denomination notes. Each case must depend upon its own peculiar facts. A few illustrative cases may be noticed, because they show some differences in the approach to the problem. In Chunilal Ticamchand Coal Co., Ltd., v. Commissioner of Income Tax, Bihar and Orissa (1), high denomination notes of the value of Rs. 68,000 were encashed. Evidence showed that the assessee was in the habit of keeping large sums which he kept intact for emergencies and meeting the current needs from withdrawals from the banks. This explanation was supported by receipts and disbursement in the books of account. The explanation was rejected as to a part because the accounts did not mention the high denomination notes and further because such notes were hardly needed to pay wages to labourers. The Tribunal, however, held that the explanation might be true as to a part (1) [1955] 27 I. T. R. 602.

We now come to Lalchand Bhagat's case which is strongly relied upon, particulary, as it has cited the Allahabad case, so it is said, with omplete approval. It is therefore, necessary to examine it closely to see if there is such an approval. In that case, 291 high denomination notes of the value of Rs.2,91,000 were encashed. The assessee was maintaining for a long time past two accounts:

one was known as "Almirah Account", and other, "Rokar Account". On the date the notes were encashed there was a balance of Rs.2,81,397 in the almirah account and Rs.29,284 in the rokar account. These two amounts between them were sufficient to cover the encashed notes. The explanation was that for the purposes of the business which was distributed in many branches, a large amount of ready cash was always kept at the head office, so that any emergency might be met. The business of the assessee was admittedly extensive and the almirah account had also existed for several years. Except in the previous year in which the high denomination notes were encashed, even the numbers of the high denomination notes used to be shown in the almirah account. The explanation was rejected on the ground that those were the days of emergency and the assessee, as a grain dealer, could have secretly made money by smuggling grain, and that he had once been prosecuted, though acquitted. It was also said that the area where he did his business was notorious for smuggling and also that he had speculated in the year and might easily have made profits, though he- had returned a loss from speculation. Emphasis was also laid upon the fact that in the year of account, the numbers of the high denomination notes were written subsequently. The Tribunal accepted the two books of account as genuine and also that there was a balance of Rs.3,10,681 with the assessee. Before the Tribunal it was explained that in the year of account the numbers of the high denomination notes were inserted in the almirah account out of nervousness owing to the demonetization of the notes. The Tribunal accepted the explanation with regard to Rs. 1,50,000 and rejected it with regard to Rs.1,41,000. No reasons were given for distinguishing the good part of the explanation from the bad.
"Was there any material on record which would legitimately lead the Tribunal to come to the conclusion that the nature of the source from which the appellant derived the remaining 141 high denomination notes of Rs. 1000 remained unexplained".

The Court, therefore, concluded "If the entries in the books of account in regard to the balance in the Rokar and the balance in the Almirah were held to be genuine logically enough there was no escape from the conclusion that the appellant had offered reasonable explanation as to the source of the 291 high denomination notes of Rs. 1000 each which it had encashed on January 19, 1946". The case of assessee was thus accepted in toto. This Court did not hold that the assessee need not prove anything. As we have said earlier, the burden of proof must depend on the facts of the case. One such fact may be the existence of a large floating cash balance on hand, and taken with other facts, may be sufficient to show that the high denomination notes constituted the whole or part of that balance. In the Allahabad case, such a balance was proved and was accepted as to a part by the Tribunal. The High Court held that the explanation was good for the whole of the amount of the notes. No doubt, this Court, in referring to that case, summarised the reasons, but it pointed out that it was not open to the Tribunal to make a guess as to the number of high denomination notes which could be accepted, and cited the Allahabad case and some others in that connection.

It seems to us that the correct approach to questions of this kind is this. If I here is an entry in the account books of the assessee which shows the receipt of a sum or conversion of high denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money is and to prove that it does not bear the nature of income. The Department is not at this stage required to prove anything. It can ask the assessee to bring any books of account or other documents or evidence pertinent to the explanation if one is furnished, and examine the evidence and the explanation. If the explanation shows that the receipt was not of an income nature, the Department cannot act unreasonably and reject that explanation to hold that it was income. If, however, the explanation is unconvincing and one which deserves to be rejected, the Department can reject it and draw the inference that the amount represents income either from the sources already disclosed by the assessee or from some undisclosed source. The Department does not then proceed on no evidence, because the fact that there was receipt of money, is itself evidence against the assessee. There is thus prima facie evidence against the assessee which he fails to rebut, and being unrebutted, that evidence can be used against him by holding that it was a receipt of an income nature. The very words "an undisclosed source" show that the disclosure must come from the assessee and not form the Department. In cases of high denomination notes, where the business and the state of accounts and dealings of the assessee justify a reasonable inference that he might have for convenience kept the whole or a part of a particular sum in high denomination notes, the assessee prima facie discharges his initial burden when he proves the balance and that it might reasonably have been kept in high denomination notes. Before the Department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The Department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof. It is within the range of these principles that such cases have to be decided. We do not think that the Allahabad view puts no burden upon the assessee and throws the entire burden on the Department. The case itself does not bear this out. If it does, then, it is not the right view.