P M SHAH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under s. 256(1) of the IT Act, 1961, the Tribunal has referred the following question of law to this Court for opinion at the instance of the assessee :

(2.) THE assessee is an individual. THE controversy in this case pertains to asst. yrs. 1965-66 and 1966-67. THE original assessment for the asst. yr. 1965-66 was made under s. 143(3) of the IT Act, 1961 (the Act) and the income of the assessee was determined at Rs. 55,760. It appears from the statement of the case that the income as assessed by the ITO was enhanced by the AAC. THE enhancement was confirmed by the Tribunal. It was, however, deleted in consequence to the opinion of the High Court in reference. As a result, the income, as originally assessed by the ITO, stood final. THE fact of enhancement of the income of the assessee by the AAC and ultimate deletion of the enhancement has been mentioned only to complete the narration of facts though it is not relevant in view of the admitted position that none of the amounts for which the proceedings had been initiated under s. 147(a) of the Act was subject-matter of the enhancement by the AAC. Similarly, the assessment for the asst. yr. 1966-67 was also completed under s. 143(3) of the Act and the income of the assessee was determined at Rs. 2,73,150. Later, in course of assessment proceedings for the asst. yr. 1967-68, one of the partners of a firm M/s Madhusudan Gordhandas in whose name some loans stood in the books of account of the assessee was examined by the ITO. In his examination, the said partner deposed before the ITO, inter alia, that the loans to the extent of Rs. 4,50,000 in S.Y. 2020 relevant to the asst. yr. 1965-66 shown to have been advanced by the said firm to the assessee were bogus and that the entries showing such loans in the said year were only `havala' transactions and made to aid the assessee for introducing his own undisclosed income. On the basis of the above deposition of the partner of the firm M/s Madhusudan Gordhandas, the ITO was satisfied that in the original assessments for the asst. yrs. 1965-66 and 1966-67 the assessee had not fully and truly disclosed all material particulars which resulted in escapement of his income. THE ITO, therefore, initiated proceedings under s. 147(a) of the Act. In what followed, he held the following credit entries in the name of Madhusudan Gordhandas in the assessee's books, which were accepted as genuine originally, to be bogus: In the original assessment for the year 1966-67, the ITO had allowed a sum of Rs. 26,834 claimed by the assessee as interest on the above amounts as deduction in computation of his income. . Rs.

(3.) WE have carefully considered the above submissions of the learned counsel for the assessee.