COMMISSIONER OF INCOME TAX Vs. RAJARAM PANNALAL

JUDGEMENT

(1.) In this reference under Section 256(1) of the I.T. Act, 1961, we are concerned with two assessment years, namely, the assessment years 1957-58 and 1961-62 for which the corresponding accounting periods were 2012-13 and 2016-17, Dewali years, respectively. The assessee is a registered firm with four partners who are all brothers having equal shares. The original assessment for the year 1957-58 was completed on 28th October, 1957. At the time of assessment, the assessee had shown certain cash credits in the name of different hundiwallas, as they have come to be known in income-tax jargon in this country. The ITO accepted the credits as genuine while making the original assessment for the year 1957-58. On the 3rd of February, 1966, the assessee filed a disclosure petition. In the said disclosure petition, the assessee had stated, inter alia, as follows :

(2.) The assessee had also prior to these averments stated as follows :

(3.) In the statement of case, however, it was mentioned that subsequent to the making of the original assessment the ITO had reason to believe that due to the omission or failure on the part of the assessee to disclose fully or truly the particulars of his income the amount representing the cash credit had escaped assessment. It was stated, further, accordingly, that he had reopened the said assessment under Section 147(a) of the I.T. Act, 1961. But it appears that the notice under Section 148 of the I.T. Act, 1961, on the basis of Section 147(a) of the I.T. Act, 1961, was issued on 15th March, 1966, that is to say, subsequent to the filing of the disclosure petition. No return was filed pursuant to the notice issued after the return for the assessment in question, namely, assessment year 1957-58, and after the notice under Section 148 of the I.T. Act, 1961. The assessee also did not produce the books of account and other evidence in response to the notice under Section 142(1) of the I.T. Act, 1961. The ITO, thereupon, completed the assessment for the year 1957-58 under Section 144 read with Section 147(a) of the I.T. Act, 1961, ex parte on the basis of the materials included in the petition. He found cash credits to the tune of Rs. 1,80,000 in the accounts of six parties on different dates. No attempt had been made to prove the loans. The assessee's case was as mentioned in the disclosure petition that the amounts represented the earnings of the firm for the prior years and the procedure for introduction of the cash in the shape of loans in the names of different hundiwallas in the books of account of the petitioner was started in the assessment year 1957-58 and continued up to the assessment year 1966-67. These were according to the assessee income earned during the period 1949 to 1955, According to the assessee these incomes were earned during the period 1949 to 1955 when due to the Second World War the price of scrap iron and hardware materials went up very high and these profits were kept outside the books of account as cash in hand and were subsequently introduced in the books of account in the shape of hundi loan in the names of different individuals. The ITO, therefore, treated the cash credit amounting to Rs. 1,80,000 as assessee's income from undisclosed sources. He also disallowed a sum of Rs. 4,154 as alleged interest paid to different hundiwallas because these were interests on those fictitious hundi loans. The ITO before completion of the assessment initiated proceedings under Section 271(1)(c) of the I.T. Act, 1961.