P S VEERAPPA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) .

(2.) THE assessment of the assessee, a cine actor, for the assessment year 1960-61 was reopened under s. 147(a) of the I.T. Act, 1961. During the previous year ending December 31, 1959, relevant for the assessment year 1960-61, the assessee had shown as having raised the following hundi loans :Rs.1. From Dwarkadas Chaithram 20, 0002. From Seth Jethanand Moolchand 20, 0003. From Seth Paleraj Govindram 15, 000THE interest paid on these loans was Rs. 3, 484. THE original assessment was completed on April 29, 1961, accepting the returns and treating the loans as genuine borrowings. On the ground that the ITO came to know that the borrowings from hundi bankers were not genuine, he reopened the assessment and assessed the entire loan amount of Rs. 55, 000 and interest of Rs. 3, 484 paid thereon as the income of the assessee from undisclosed sources.

(3.) TO the extent that even in a case where there was a general statement it should have specific reference to the assessee's credits and the year of assessment in order to enable the ITO to reopen the assessment under s. 147 , it is an extension of the principle in M. Varadarajulu v. ITO These two judgments were noticed by this court in M. Varadarajulu Naidu v. CIT as not conflicting with each other, but requiring that in order to constitute as "material", the statement by a hundi banker should have a relation to the particular credit of the assessee. But, in a later judgment in Asa John Devinathan v. Addl. CIT another Division Bench had observed that in view of the decision in ITO v. Lakhmani Mewal Das the decision in M. Varadarajulu v. ITO to the extent it stated that in a case where a general statement was made by the creditor that he had never advanced any loan, may be taken as having a reference to the loan given to the assessee also, was held no longer good law. But we are inclined to think that the principle that the statement must have reference to the assessee's credit, is the basis of the decision in both M. Varadarajulu v. ITO and ITO v. Lakhmani Mewal Das the only difference between the two judgments being, while in the earlier judgment of this court, it was taken that a general statement may be taken as a reference to the credit in the assessee's books, the Supreme Court required a direct reference to the credit and the year in which it appeared in order to enable the ITO to reopen the assessment. Thus, the principle is the same, but the difference is only in the applicability of the rule of evidence.Coming to the facts of the present case, we find that neither the fact that the name of Seth Paleraj Govindram who is alleged to have given a hundi loan to the assessee found a place in the list of bankers who did havala business as well, nor the statement of third party assessees that some of their transactions shown as borrowings from Dwarkadas Chaitram were not genuine transactions, would in any way connect the assessee's credit with those bankers as not genuine. If we eschew those facts, there are no other materials on which the ITO could have entertained any belief that the income had escaped assessment by reason of non-disclosure of any material fact.In the result, we have to hold that the reopening of the assessment was not justified. We, accordingly, answer the reference in the negative and in favour of the assessee.