COMMISSIONER OF INCOME TAX Vs. ADAMKHAN

JUDGEMENT

(1.) AS per the directions of this Court in TCP No. 28 of 1978, the Tribunal referred the following question for the opinion of this Court under S. 256(2) of the IT Act, 1961:

(2.) THE assessment year involved in this tax case is 1970 -71. The assessee is an individual doing moneylending business. One Shri Abdul Gafoor Khan had executed a general power of attorney to the assessee. There was a search in the premises of the assessee on 27th July, 1970. Various pronotes standing in the name of the assessee as well as Abdul Gafoor Khan were seized. On 3rd Oct., 1970, the assessee filed a return admitting an income of Rs. 10,000. The ITO examined some of the debtors and elicited that the assessee was charging exorbitant interest ranging from 72 per cent to 120 per cent. The assessee was also given an opportunity to cross -examine the debtors. The ITO considering all these seized materials and other evidence came to the conclusion that the assessee was charging exorbitant interest on the monies advanced by him. He also found that most of the bonds were executed by the debtors for double the amount of the loan actually advanced. He arrived at a peak credit of the loan at Rs. 1,27,385 and estimated the interest income at 50 per cent of the peak credit at Rs. 63,693. The assessment was thus made on a total income of Rs. 63,693 under S. 144 as a best judgment assessment since the assessee did not comply with various notices issued by the ITO. During the course of the assessment proceedings, the assessee sent a letter to the ITO dt. 7th Jan., 1972. In the said letter, the assessee has stated that without prejudice to his rights he made the following proposals regarding settlement:

(3.) WE have heard learned senior standing counsel appearing for the Department and perused the records carefully. One Shri Abdul Gafoor Khan executed a general power of attorney in favour of the assessee herein. Pronotes in the name of Abdul Gafoor Khan were seized from the locker which was under the possession of the assessee. The assessee agreed for the assessment of the income belonging to the said Sri Abdul Gafoor Khan. However, the assessee also wrote a letter to the ITO dt. 7th Jan., 1972, stating that without prejudice to his rights he is agreeable for the addition of the income of Abdul Gafoor Khan in his hands provided the Department spread over the income for the asst. yrs. 1964 -65 to 1971 -72 estimating the interest between 25 per cent to 36 per cent allowing the assessee to pay the taxes in instalments, no penalty and prosecution proceedings should be initiated, evidences adduced for credits should be accepted and the credits should be allowed and the bad debts should also be taken into consideration.