MURLIDHAR BHAGWANDAS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under Section 256(1) of the Income -tax Act, 1961, the Income -tax Appellate Tribunal ('the Tribunal'), has referred the following question of law to this court for opinion at the instance of the assessee :

(2.) THE assessee is a partnership firm. The proceedings relate to its assessment under the Income -tax Act, 1961 (for short 'the Act'), for the assessment years 1956 -57, 1957 -58, and 1958 -59. The assessments for these three years were originally completed under, Section 23(3) of the Indian Income -tax Act, 1922 (for short 'the 1922 Act'), accepting all the hundi loans appearing in the books of the assessee to be genuine and allowing the assessee's claim for deduction in respect of interest thereon. Subsequently, the assessments for these three years were reopened under Section 147(a) of the Income -tax Act, 1961, by issue of notices under Section 148 of the Act and reassessments (referred to by the Tribunal as 'supplementary assessments') were made under Section 143(3) read with Section 147(a) of the Act. In the reassessments, additions were made as income from undisclosed sources in respect of such hundi loans as were found from non -LBD and non -Shikhar Puri Bankers, the amount of addition having been arrived at by taking the difference between the peak of such loans on the first day and the last day of each previous year. Interest claimed in respect of such hundi loans was also disallowed on estimate as a natural corollary. The assessee preferred appeals against the reassessment orders before the Appellate Assistant Commissioner of Income -tax challenging the legality of the proceedings initiated under Section 147(a) of the Act as also the merits of the additions and disallowances. The Appellate Assistant Commissioner upheld the legality of the proceedings initiated under Section 147(a) of the Act for all the three assessment years. So far as the merits of the additions made by the Income -tax Officer were concerned, the Appellate Assistant Commissioner considered it fair and reasonable to set aside the orders of reassessment for the purpose of computing the additions and disallowances afresh after allowing the assessee a reasonable opportunity of hearing by re -examining the evidence relating to hundi loans. The Income -tax Officer took up the proceedings for fresh assessment pursuant to the above order some time in the year 1974. He directed the assessee to produce evidence in support of its claim that the hundi loans were genuine. The assessee having failed to produce any evidence, the Income -tax Officer once again completed the assessments for all the three assessment years under Section 143(3) read with Section 147(a) and Section 251 of the Act on September 30, 1974, making the same additions and disallowances as were made while completing the reassessments originally. It appears that though the assessee did not produce any evidence in support of the genuineness of the hundi loans, he sought to challenge the legality of the initiation of proceedings for reassessment under Section 147(a) of the Act before the Income -tax Officer, despite the fact that the Appellate Assistant Commissioner had rejected the said contention and held that the proceedings had been validly initiated. The Income -tax Officer also didnot reject this objection in limine, but considered and rejected the same on the merits. The assessee filed appeals against the above orders of the Income -tax Officer before the Appellate Assistant Commissioner challenging both the legality of initiation of proceedings under Section 147(a) as also the additions and disallowances on the merits. The Appellate Assistant Commissioner accepted the assessee's challenge on both the counts. He held that the proceedings initiated for reassessment under Section 147(a) were illegal. He also accepted the assessee's contention that the additions as income from undisclosed sources in respect of hundi loans were not justified and as a natural corollary, the disallowance of interest was also not justified.

(3.) WE have heard Mr. G. S. Jetley, learned counsel for the assessee. The sole controversy in this reference, is about the powers of the Income -tax Officer to go into the validity or legality of the reassessments under Section 147 of the Act in the proceedings for fresh assessment pursuant to the directions of the Appellate Assistant Commissioner for the purpose of recomputation of the income after giving proper hearing to the assessee, when the issue regarding the legality and/or validity of the proceedings had already been decided by the Appellate Assistant Commissioner while remitting the matter to the Income -tax Officer. In other words, the question before us is whether in the facts and circumstances of this case, it was open to the Income -tax Officer to examine and decide afresh the issue which had already been decided by the appellate authority while remitting the matter to him for fresh assessment.