SURAJMAL GANESHRAM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This reference arises out of the income-tax assessment of Surajmal Ganeshram, an unregistered firm, the assessee, for the assessment year 1947-48, for which the relevant previous year in respect of income from business ended on Rathajatra of Samvat year 2003 and in respect of income from other sources on the 31st March, 1947. The facts are shortly as follows : One Mukhalal Khaitan carried on business under the name and style of Surajmal Ganeshram as its sole proprietor up to the assessment year 1947-48. By a deed dated the 2nd July, 1946, the said proprietary business was converted from the 1st July, 1946, into a partnership firm with the same name with Mukhalal Khaitan, Bhudarmal Khaitan, Ramkaran Khaitan alias Hargobind Khaitan and Dedraj Khaitan as its partners. The said firm was first assessed to income-tax, as a registered firm, in the assess- ment year 1948-49, the relevant previous year being the one ended on Rathajatra, Samvat year 2004. Long thereafter, the ITO discovered that there were several deposits in the United Commercial Bank aggregating to Rs. 1,96,000 in the names of Bhudarmal Khaitan, Mukhalal Khaitan, Durgadutt Agarwalla and Ramkaran Khaitan which had been furnished as security against an overdraft account of the firm with the said bank and he called upon the assessee to explain the source of the said deposits. The explanation furnished having been found unsatisfactory and unacceptable, the ITO, with the prior approval of the CBDT, initiated proceedings against the assessee under Section 147(a) of the I.T. Act, 1961 (hereinafter referred to as "the 1961 Act"), for the assessment year 1947-48, and issued a notice under Section 148 thereof. The said notice and subsequent notices under Section 142(1) of the 1961 Act were not complied with. The ITO, accordingly, made the assessment under Section 144 of the 1961 Act to the best of his judgment. The said sum of Rs. 1,96,000 with interest and the capital contribution of Rs. 3,00,000 by the three partners in the said firm were held to be income of the assessee from undisclosed sources and added to its total income.

(2.) In its appeal to the AAC the assessee contended that the ITO was not justified in passing any order under Section 144 of the 1961 Act as the assessee denied its liability to be assessed. It was also contended that the assessee's accounts were closed for the first time in June, 1947, and its first assessment was made for the assessment year 1948-49. The assessee prior thereto was allowed registration and capital contribution of Rs. 1 lakh each by its partners were duly explained to and accepted by the ITO concerned. The ITO, therefore, could have no reason to believe that the assessee had not disclosed fully and truly all material facts necessary for its assessment or any part of its income had escaped assessment. The initiation of the proceedings under Section 147(a) of the 1961 Act was illegal and ab initio void as the same was based on the information that certain persons deposited moneys in the United Commercial Bank and not that the same were deposited by the assessee or were credited in its books. The AAC rejected such contentions of the assessee and upheld the assessment.

(3.) The assessee went up on a further appeal to the Income-tax Appellate Tribunal and contended that in the assessment for the assessment year 1948-49, the ITO had accepted the capital contribution of the partners. The amounts deposited in the United Commercial Bank could not be added to the income of the assessee as the same had already been assessed in the hands of the partners. The assessee also denied its liability to be assessed for the said deposits and contended that Section 147(a) of the 1961 Act had no application on the facts. It was urged on behalf of the revenue that in view of the decisions of this court in Naba Kumar Singh Dudhuria v. CIT [1944] 12 ITR 327 and of the Andhra Pradesh High Court in Sundermul & Co. v. CIT [1967] 66 1TR 277, the assessment involved being a best judgment assessment, the assessee could not deny its liability to be assessed or urge non-applicability of Section 147(a) of the 1961 Act. Following the decision in Naba, Kumar Singh Dudhuria [1944] 12 1TR 327, the Tribunal accepted the contention of the revenue and dismissed the appeal but allowed deletion of a portion of the interest on the said deposits.