COMMISSIONER OF INCOME TAX Vs. BHAGWAN LTD

JUDGEMENT

(1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court:

(2.) The Commissioner recorded his satisfaction or sanction to the initiation of these proceedings. The ITO noticed that the assessee had taken a number of loans on hundies and that these hundi credits represented the concealed income of the assessee. He found that the peak credit of the hundi loans reached Rs. 10 lakhs on 17th January, 1962, and that an amount of Rs. 2 lakhs was introduced between July, 1958, and December, 1958. He was of the opinion that these loans were of the same nature as loans surrendered by the shareholders of the assessee-company under the Voluntary Disclosure Schemes. He called upon the assessee to explain the true source and nature of these credits and when the assessee did not reply to the query letter, he had proceeded to add back the amount of Rs. 2 lakhs as income from other sources along with the interest thereon. The Appellate Assistant Commissioner noticed that the transaction impugned by the Income-tax Officer had practically been transacted in cash as, even where the cheques had been issued, they were only bearer cheques. As the transactions in respect of these loans had taken place in cash and as no evidence was led by the assessee to prove the genuineness of these loans, the Appellate Assistant Commissioner confirmed the addition. He also upheld the validity of the reassessment proceedings. The assessee's representative vehemently contended before the Tribunal that the ITO could have had no prima facie reason to believe at the time of reopening the assessment that there was any concealment of income on account of the assessee's failure to furnish the material particulars at the time of the original assessment proceedings. He stated that the necessary particulars regarding the creditors had been furnished to the Income-tax Officer during the original assessment proceedings and that, if so advised, the Income-tax Officer could have made further enquiries and satisfied himself about the genuineness of these loans. It was not open to him to embark upon the provisions of Section 147(a) and make the additions which he sought to do. He also argued that the Commissioner had apparently not applied his mind since he gave his sanction without testing the material on record. He relied upon the Supreme Court decision reported in in the case of Chhugamal Rajpal. As for merits, he stated that the Income-tax Officer was wrong in making the additions without making further enquiries. The departmental representative stated before the Tribunal that the assessee had failed to make a complete and true disclosure of the material facts necessary for the assessment and in this connection he stated that a mere furnishing of the addresses or the copies of accounts of the creditors was not enough and, for this purpose, he relied upon an unreported Calcutta High Court decision in the case of Shri Lakhmani Mewal Das dated 13th January, 1972 (reported in [FB]. He pointed out that, in that case also, necessary particulars about the creditors had been filed in the course of the original proceedings and yet the court held that there was not a full, true and complete disclosure of the material facts. As for merits, he argued that the transactions were in cash and that though cheques had been issued they were bearer cheques and apparently the cheques had been cleared by the assessee itself at the time of the repayment of the loans. He, therefore, argued that the reassessment proceedings were valid and that the additions had been rightly made. He also tried to distinguish the Supreme Court decision relied upon by the assessee from the facts obtaining before us."

(3.) After noting the aforesaid contentions, the Tribunal, observed, inter alia, as follows: