PHOOL CHAND GAJANAND Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following question has been referred to this court by the Income-tax Appellate Tribunal, Allahabad Bench, at the instance of the assessee under section 66(2) of the Income-tax Act :

(2.) THE facts are very short. THE assessee carries on business in cloth and of commission agency and money-lending. Its accounting previous year relevant to the assessment year 1955-56 was the period between November 6, 1953, and November 26, 1954. In its accounts of November 25, 1953, and November 27, 1953, there were two cash credit entries of the aggregate amount of Rs. 20,000; it did not include this amount in its return part for assessment year 1955-56. When questioned by the Income-tax Officer it stated that the amount of Rs. 20,000 was advanced to one of the partners by his mother. THE Income-tax Officer did not believe the statement and included the amount in the assessment as income from "undisclosed sources." THE assessee preferred an appeal which was dismissed by the Appellate Assistant Commissioner. "Previous year" is the period of twelve months ending on the 31st day of March next preceding the assessment year, or if the accounts of the assessee have been made up to a date within the said twelve months in respect of an assessment year ending on any date other than the said 31st day of March, then, at the option of the assessee, the year ending on the date of which its accounts have been made up; but, where in respect of a particular source of income an assessee has once been assessed, it cannot in respect of that source exercise the option so as to vary the meaning of the expression "previous year" except with the consent of the Income-tax Officer. If the assessee maintained no accounts in respect of the source concealed by him and from which the income of Rs. 20,000 was derived, the previous year in respect of the source was the financial year ending on March 31, 1955, and if it maintained accounts and they were made up to a date within the financial year 1954-55 in respect of a year ending on any date other than March 31, 1955, it had the option of selecting that year as the previous year. It had not the option, however, if it had in an earlier assessment year been assessed on income from that source and had exercised this option in respect of another previous year, except with the consent of the Income-tax Officer. THE assessees case before us it that it never maintained accounts of the undisclosed source and, consequently, there was no question of its exercising the option; accordingly, the previous year in respect of the source was the period from April 1, 1954. to March 31, 1955, and not the year from November 6, 1953, to November 26, 1954. As the cash credit entries were of November, 1953, income from the undisclosed source was derived prior to the commencement of the previous year and could not be included in the assessment for 1955-56. It had not taken this plea before the Income-tax Officer or even before the Appellate Assistant Commissioner in appeal. It filed a second appeal before the Tribunal and in the memorandum of appeal also it did not take this ground. Under rule 12 of the Appellate Tribunal it to the appellant cannot urge a ground not taken in the memorandum of appeal "except by leave of the Tribunal." On May 26, 1960, during the pendency of the appeal, it applied for leave of the Tribunal to urge the ground that the amount of Rs. 20,000 could not legally be assessed in 1955-56 as income from an undisclosed source as it was derived prior to the relevant previous year commencing on April 1, 1954. It contended that the ground urged by it was "purely legal arising out of facts already on record." THE Tribunal refused the leave, heard the appeal and dismissed it. THE reasons for refusing the leave are given in its order and they are that it was another attempt on the part of the assessee "to thwart the course of proceedings and gain time," that it was never taken before any income-tax authority, that there was no sufficient explanation for its not being taken earlier, that it was not purely a legal plea because the question whether a cash entry represents income is one of fact, and that the ground was not taken bone fide at that late stage and needed going into the facts once again. THE Tribunal dismissed the assessees application under section 66(1) and this court called for a statement under section 66(2).

(3.) THAT the ground was never urged before the Income-tax Officer, and in any case before the Appellate Assistant Commissioner, is also a fact which has some logical connection with the question whether the leave to urge it should be granted. The leave is required because the ground was not stated in the memorandum of appeal and would be required even if it had been urged before the Income-tax Officer and the Appellate Assistant Commissioner. It is relevant to consider the reason offered for the assessees failure to urge the ground earlier; its ignorance of the law is no excuse. There may be no substance in the departments contention that the assessee did not act bona fide in raising the ground at the late stage and there might be nothing in the conduct of the assessee which would justify refusal of the leave, but there are other grounds which cannot be brushed aside as irrelevant. So long as there is some logical connection between those grounds and the refusal to grant leave, it cannot be said that the Tribunal acted arbirtarily.