KAMALA DEVI JHAWAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This reference relates to assessment year 1960-61, for which the relevant accounting year is the financial year ending on the 31st March, 1960. The assessee is the wife of Sri Banshilal Jhawar. The assessee had filed her return of income for the assessment year 1960-61 on 9th August, 1964, showing income from interest to the extent of Rs. 2,788. During the course of assessment proceedings the ITO found that the assessee had made an aggregate investment of Rs, 57,500 to the following extent: Rs. 55,000 on 31st July with Sreekant Trading Co. (P.) Ltd. and Rs. 2,500 on the I9th August, 1959, with Precision Component Makers. When the assessee was asked to explain the sources of the said investments it was stated on behalf of the assessee that the said investments were made by her out of the gifts and presents received at the time of her marriage and out of the accumulation of interest thereon. The ITO found that the assessee was married in the year 1949. The ITO further found that she never maintained any books of accounts, that she did not have any trade licence for carrying on money-lending business and according to the ITO she could not produce rent receipts in respect of her business premises or for her residence at No. 63, Ratan Sarkar Garden Lane, Calcutta. Further, according to the ITO, the statements of profit and loss account and balance-sheet filed by the assessee did not have any evidentiary value and that she had filed voluntary returns for the assessment years 1956-57 to 1959-60, showing, according to the ITO, a false address in the returns and that the said returns were filed with the intention of creating evidence, according to the ITO again, to explain the investments of Rs. 57,500. The ITO further held that the voluntary returns filed for the assessment years 1956-57 to 1959-60, were filed on the 2nd July, 1960, all together and as such were filed subsequent to the dates on which the investments had been made by the assessee. It also came to the knowledge of the ITO that the assessee did not reside or carry on business at the address as given in the returns of her income; that her husband had resided at Ahmednagar where she was expected normally to reside and that enquiries revealed that there was no such company styled as Sreekant Trading Co. (P.) Ltd. at the address furnished by the assessee. The ITO further found that the Precision Component Makers, which was a partnership concern, was started in September, 1959, with Sri Banshilal Jhawar, husband of the assessee, as one of the partners. The ITO reached the conclusion that the unexplained investments of Rs. 57,500 represented the assessee's income from undisclosed sources. He was also of the opinion that the returned income of Rs. 2,788 under the heading "Interest" actually did not represent the assessee's interest income but because the same was shown in the return, the same was assessable under the head "other sources". There was an appeal from the aforesaid order of the ITO to the AAC.

(2.) The AAC observed that the two debtors with whom the deposits were alleged to have been made by the assessee had acknowledged the respective transactions. It was urged on behalf of the assessee that the ITO could not question the findings given in the earlier years unless those findings were set aside or varied by higher authorities. The assessee also informed the AAC that her husband was assessed separately by the ITO, Burdwan-Birbhum. According to the assessee, she had an opening balance of capital of Rs. 60,034 for the year in question, out of which she had made deposits of Rs. 55,000 and Rs. 2,500 with Sreekant Trading Co. (P.) Ltd. and Precision Component Makers, respectively. The AAC found force in the said submissions and also found that she had been assessed at an aggregate income of Rs. 28,685 in the immediately preceding four assessment years and that her initial capital was Rs. 20,000 and there were accumulated interest thereon in respect of the assessments prior to 1956-57, In the view of the AAC, if the said facts were to be challenged by the departmental authorities the earlier proceedings could be reopened under the law, but for the consideration of the present facts in the assessment year 1960-61, the assessee's accumulated capital in the past should be taken to have been proved, which had been invested in the shape of two advances made by the assessee to the said two parties. The AAC, therefore, deleted the addition of Rs. 57,500 made by the ITO.

(3.) Being aggrieved by the aforesaid decision of the AAC, the revenue preferred an appeal before the Tribunal. The Tribunal considered in detail the history of the case and found that the voluntary returns for the assessment years 1956-57 to 1959-60 were filed by the assessee on the 2nd July, 1960, and the said assessments were completed on the 26th July, 1960, that is to say, after a few days of the filing of the returns. The incomes returned by the assessee in respect of the money-lending business were accepted by the ITO with small additions. With respect to the capital as at the beginning of the assessment year 1960-61, and regarding the source of investment of Rs. 57,500, the explanation of the assessee was that the original capital was Rs. 20,000 and the interest received between 1949 and 1955 was Rs. 14,779 and the amounts shown for the assessment years 1956-57 to 1959-60 were Rs. 29,555. Therefore, the total was Rs. 64,334. The assessee's case was that she had sufficient money to make the investments in question as was amply demonstrated by the assessment orders made on her for the assessment years 1956-57 to 1959-60. The Tribunal came to the conclusion that no details on interest income claimed by the assessee for the year 1956-57 were produced and there were really no books of accounts either for the years under consideration or for earlier years and therefore, the ITO's reference to the books of accounts in the assessment order for 1956-57 could not be accepted. The Tribunal also did not accept the assessee's explanation that she was residing with a relative at Calcutta and that in the view of the Tribunal the ITO was justified in coming to the conclusion that the assessee was not carrying on any money-lending business as alleged and that there was no proof that she had either Rs. 20,000 as her initial capital or that she had earned substantial amounts subsequently, out of which she could have made the investments in question. According to the Tribunal, the mere fact that the assessments had been made on the assessee for earlier years did not debar the departmental authorities from going behind the assessments. The assessee had to prove with reference to the facts in the relevant year under consideration that she had actually carried on money-lending business and, therefore, the ITO was entitled to go into the question afresh and independently to find out whether the sources of investment of Rs. 57,500 were explained or not. In the absence of evidence before him, the past assessments of the assessee could not prove the existence of the sources of investment. In the view of the Tribunal in income-tax matters the conclusions arrived at in an assessment year were valid and binding in so far as that assessment year was concerned and could be departed from in the subsequent assessment year by another ITO. Accordingly, the Tribunal upheld the ITO's finding and set aside the order of the AAC. But the Tribunal was of the opinion that it would be equitable to adjust the tax which had been received from the assessee in the prior assessment years against the demand for the present year, because it was in substance the tax on the same amounts due to the assessee's attempt, which had now proved to be infructuous, of avoiding tax on Rs. 57,500. Therefore, the Tribunal restored the sum of Rs. 57,500 in the assessment and set aside the order of the AAC. There was an application for reference which the Tribunal refused as in the view of the Tribunal no question of law arose. Thereupon there was a direction by this court under Section 256(2) of the I.T. Act, 1963, and the Tribunal has referred the following question :