COMMISSIONER OF INCOME TAX Vs. NIRBHERAM DALURAM

JUDGEMENT

(1.) THIS is a reference made by the Income-tax Appellate Tribunal on the direction of the High Court in Misc. Civil Case No. 302 of 1971, decided on 2nd November, 1972, referring for our answer the following questions of law :

(2.) THE reference relates to the assessment year 1956-57. THE ITO completed the assessment by his order dated 11th March, 1957. During the assessment proceedings for the succeeding year, the ITO noticed certain entries relating to hundi loans which were not genuine and which could be considered as income from undisclosed sources for the assessment year 1956-57. Reassessment proceedings were then started. In these proceedings, the ITO considered twelve bogus entries ostensibly relating to hundi loans and he assessed the amount of undisclosed income at Rs. 2,45,000 by working out the " peak credit ". In the appeal preferred by the assessee, the AAC, on a scrutiny of the cash book, discovered ten more bogus entries totalling Rs. 2,30,000 and added the same as income from undisclosed sources. THEse entries were not at all considered by the ITO and were neither mentioned in the return nor in the order of assessment. In the second appeal preferred by the assessee, the Tribunal held that the AAC had no jurisdiction to add Rs. 2,30,000 as income from undisclosed sources when these sources were not considered at all by the ITO.

(3.) ON the principles laid down in the aforesaid cases, it is clear to us that the AAC had no jurisdiction to consider the new entries which were not considered at all by the ITO and to add the amount of Rs. 2,30,000 to the total income of the assessee. The items totalling that amount constituted new sources of income which were not the subject-matter of assessment before the ITO and, therefore, it was not open in appeal to consider these sources and to assess them. The learned standing counsel does not dispute the position that this would be the result if the interpretation put upon Section 31(3) of the 1922 Act is followed in interpreting Section 251 of the 1961 Act. He, however, submits that Section 251 contains an Explanation which was not present in Section 31(3) of the 1922 Act and that this Explanation gives a wider power to the AAC in disposing of an appeal. The Explanation reads as follows :