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5. We have carefully considered the rival submissions of learned counsel for the parties and perused the order of the Tribunal as also the Commissioner (Appeals) and the Income-tax Officer. So far as the facts of the case are concerned, we find that there is no dispute about the availability of cash balance of Rs. 3,28,394 with the assessee on the date when the amount of Rs. 2 lakhs was deposited by the assessee in high denomination notes of Rs. 1,000 with the Reserve Bank of India. Moreover, after elaborate enquiries, the Income-tax Officer was also satisfied that in its usual course of his business, the assessee was required to keep sufficient amount in cash. He also found from the cash flow statement that the cash balance held by the assessee during the preceding four months fluctuated from Rs. 69,077 to Rs. 3,10,079. Thus, in the instant case, there is absolutely no dispute about the availability of sufficient cash balance with the assessee out of which the sum of Rs. 2 lakhs in Rs. 1,000 denomination notes was claimed to have been deposited. The source of the amount was, therefore, not in dispute nor the genuineness or correctness of the books of account which showed the cash balance of Rs. 3,28,000 on the material date. The assessee was asked to furnish particulars about the acquisition of Rs. 1,000 denomination notes worth Rs. 2 lakhs. The case of the assessee was that once the source of deposit of Rs. 2 lakhs by the assessee with the Reserve Bank of India was proved, no amount could be added to his income as income from undisclosed sources. It appears from the order of the Tribunal that the Tribunal itself was conscious of the fact that once the cash balance on the crucial date was sufficient to cover the value of high denomination notes tendered by the assessee for encashment on demonetisation, no further enquiry was required about the source of high denomination notes. The Tribunal, however, felt that in the instant case, the Income-tax Officer, having verified from the banks the receipt of the amount in high denomination notes by the assessee and having considered other possible sources of receipt of Rs. 1,000 denomination notes, was justified in adding the balance amount of Rs. 1,04,000 as income from undisclosed sources. The Tribunal observed that the Income-tax Officer had discharged the initial burden cast upon him by collecting specific information about the acquisition of high denomination notes by the assessee and it was for the assessee to dislodge such finding by means of appropriate evidence. Since, according to the Tribunal, the assessee failed to do so, there was no justification for interfering with the order of the Commissioner (Appeals). We find it difficult to agree with this finding of the Tribunal. In our opinion, the Tribunal took a wholly erroneous approach in the matter. What the assessee is required to prove in such cases is the source of money and once he is successful in proving the same, he cannot be put to further proof of acquisition of such amount in the currency notes of particular denomination. If the explanation shows that the receipt was not of income nature, the Revenue cannot reject the explanation of the assessee to hold that it was income. 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 cash balance and that it might 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.

7. Reference may be made in this connection to the decision of the Supreme Court in Sreelekha Banerjee v. CIT, . In that case also a question arose whether the Tribunal could make a guess as to the number of high denomination notes which could be accepted. The Supreme Court said (page 120) ;

"It seems to us that the correct approach to questions of this kind is this. If there is an entry in the account books of the assessee which shows the receipt of a sum on 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 from 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."

8. We have also perused the decision of the Supreme court in Lalchand Bhagat Ambica Ram v. CIT, [1959] 37 ITR 288. That was also a case of encashment of high denomination notes. The assessee in that case was a Hindu undivided family which carried on business in grain as merchants and commission agents. It maintained two accounts in its cash books ; (i) showing the cash balance from day-to-day ; and (ii) almirah account, wherein were kept large balances which were not required for the day-to-day working of the business, but were held to provide monies which might be required at short notice at different branches of the assessee. In the course of assessment for the year 1946-47, the Income-tax Officer noticed that the assessee had encashed high denomination notes of the value of Rs. 2,91,000 on January 19, 1946. The assessee explained that the notes formed part of its cash balances, including the cash balance in the almirah account, which, on January 12, 1946, the date on which the High Denomination Bank Notes (Demonetisation) Ordinance, 1946, was promulgated, were Rs. 29,284 in its rokar and Rs. 2,81,397 in the almirah account, and in order to prove its explanation, the assessee relied on certain entries in its accounts wherein the fact that the moneys were received in high denomination notes had been noted. Portions of these entries were found by the Income-tax Officer to be later interpolations. The Income-tax Officer rejected the assessee's contention and treated Rs. 2,91,000 as undisclosed profits from its business. The Tribunal was of the view that there was no reason to suspect the genuineness of the account books in which interpolations were made and having examined the cash books and taking into consideration all the circumstances which had been adverted to by the Income-tax Officer, held that the assessee might be expected to have possessed as a part of its business a cash balance of at least Rs. 1,50,000 in the shape of high denomination notes on January 12, 1946, when the Ordinance was promulgated and came to the conclusion that the nature of the source from which the assessee derived the remaining 141 high denomination notes of Rs. 1,000 each remained unexplained to its satisfaction. The sum of Rs. 1,41,000, therefore, was treated as undisclosed profits of the assessee from its business. The assessee went to the High Court in reference. The High Court having refused to interfere with the findings of the Tribunal, the assessee, therefore, went in appeal to the Supreme Court. The Supreme Court held that there was no material to support the findings of the Tribunal that a sum of Rs. 1,41,000 was profits liable to income-tax in the hands of the assessee. The Supreme Court also observed that the entries in the rokar and the almirah account of the assessee showed that there was an aggregate cash balance of Rs. 3,10,681 and it was highly probable that high denomination notes of the value of Rs. 2,91,000 were included therein. It was further observed that the books of the assessee having been accepted as genuine, it was not open to the Tribunal to accept the explanation of the assessee in part as to Rs. 1,50,000 and to reject the same in regard to a sum of Rs. 1,41,000.

9. The ratio of the above decision and the decision in Sreelekha Banerjee v. CIT, in our opinion squarely applies to the facts of the present case.

10. We have also perused the decision of A. Govindarojulu Mudaliar v. CIT, , on which reliance is placed by learned counsel for the Revenue. We, however, fail to understand how the above decision helps the Revenue in the instant case. In that case, certain amounts appeared in the account books of a firm of which the assessee was a partner as credits for him. The assessee was asked for an explanation as to how he came to possess this amount. His explanation in regard to the source of this amount in part was not accepted. It was in that context that the Supreme Court observed that where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature. That is not the position in the case before us. In this case, the assessee could prove satisfactorily the source and nature of the amounts. Addition was made not for that reason. The assessee was further required to prove the receipt of the amount of Rs. 2 lakhs therefrom in high denomination notes. In other words, the assessee was asked to prove as to when and from whom he received the amount in high denomination notes. The assessee gave reasonable explanation for his inability to give detailed account of receipts and disbursements of amounts from time to time in currencies of various denominations including high denomination notes. He could, however, satisfy the authorities about the fact that he was often in possession of Rs. 1,000 denomination notes and the probability of high denomination notes of the value of Rs. two lakhs being included therein. In fact, the Revenue itself was satisfied about the inclusion of 96 notes of Rs. 1,000 each therein. The amount of Rs. 1,04,000 was added as income from undisclosed sources only because, according to the Revenue, the assessee failed to discharge the onus cast on him to prove the acquisition of each and every high denomination note encashed by him. This approach, as earlier indicated, is not correct. The assessee having proved the source and shown satisfactorily the possibility of the inclusion of Rs. 1,000 high denomination notes of the value of Rs. 2 lakhs therein, the addition of Rs. 1,04,000 to his income for his failure to furnish detailed particulars of the receipt of such notes each of the 200 notes of Rs. 1,000 denomination tendered by him for encashment, is not in accordance with law.