S P MOHAN SINGH Vs. INCOME-TAX OFFICER

JUDGEMENT

(1.) IN these two petitions (No. 2540 and 2541 of 1975) two notices issued to the petitioner on May 5, 1975, under Section 148 of the I. T. Act, 1961 (for short 'the Act"), for the assessment years 1964-65 and 1965-66 are impugned on identical grounds and thus the same are being disposed of through this common order. Learned counsel for the parties are agreed that for purposes of this judgment a reference to the facts enumerated in the first petition only is enough.

(2.) THE petitioner-concern filed its return under Section 139 (1) of the Act for the assessment year 1964-65, on October 1, 1964, declaring an assessable income of Rs. 75,727. Along with the return it claims to have filed the statement of accounts, copies of personal accounts of the partners, details of sales, interest paid and discount account. In response to notice dated January 6, 1966, under Section 143 (2) of the Act, the petitioner was required to file a copy of the cash credits and squared up accounts along with confirmatory letters from the creditors showing specifically the districts in which those creditors were being assessed. It was also required to supply the information of sales and purchases above Rs. 20,000 and the details of closing stock and basic valuation of the same. The petitioner claims to have supplied this information, which, according to it, was scrutinised by the ITO and at the time of partial discussion of the case on April 21, 1966, the latter tick-marked the balance-sheet in red ink giving reference to the pages on which the relevant documents (confirmation slips and copy of the accounts of each particular creditor) were to be found. Similarly, the copy of the balance-sheet was tick-marked by the ITO and is Ex. P-1. The case, however, was adjourned to May 21, 1966. On that day, the petitioner agreed to the addition of, an amount of Rs. 1,500 to his income though that amount had been shown as credit in the account books of the petitioner. The petitioner claims to have filed some more confirmation letters relating to some of its creditors on August 31, 1966. Finding no reliable evidence regarding the genuineness of certain sums totalling Rs. 6,000 in all, penalty proceedings under Section 271 (1) (c) of the Act were initiated against the petitioner and as a result thereof, a penalty of Rs. 1,724 was imposed. Thus, according to the petitioner, the ITO after satisfying himself about the genuineness of each and every credit entry and squared up account in the books of the petitioner duly supported by the confirmation letters, copies of the account, the discharged hundis and the information with respect to the wards, in which the respective creditors were being assessed, assessed the petitioner-firm to an income of Rs. 82,581, vide his order dated November 16, 1966 (annex. P-2 ). A footnote (annex. P-3) was also added to this order specifying that credit balance in the name of certain persons mentioned therein had been accepted by him. Some time in October, 1971, the ITO, however, initiated proceedings for reopening the assessment of the petitioner-firm on the basis that the parties in whose names cash credits appeared in its books were established to be bogus hundi and hawala dealers. According to him, these cash credits represented the petitioner's own income and on that account he had reason to believe that an amount of Rs. 66,220 had escaped assessment. He also formed the opinion that it amounted to a failure on the part of the assessee to disclose fully and truly all material facts necessary for a proper assessment. He obtained the approval of the Commissioner, respondent No. 2, under Section 151 (2) and issued the impugned notice. The grounds for seeking the approval are contained in annex. P-4. It was served on the petitioner on January 17, 1972. Before filing the return, in response to this notice, the petitioner has preferred this petition under Article 226 of the Constitution of India primarily on the ground that the petitioner having disclosed all the facts truly and fully at the time of its original assessment, the ITO has no jurisdiction to proceed against it on the basis of a mere change of opinion, or information he may have received otherwise, after a period of four years from the original assessment.

(3.) AS against this, the case of the respondent-authorities is that facts and material presented by the assessee on the basis of his documents accompanying the return or later were accepted by the ITO without making any enquiries into the individual items even though the case had been discussed with the assessee on April 21, 1966, and again on May 21, 1966. Apart from the letters of confirmation, there was no other evidence before the ITO regarding these cash credits supporting the book version of the assessee. The total income of the assessee was fixed at Rs. 82,581 mainly on the basis of the return and without holding any enquiry into the genuineness of cash credits and these entries were accepted only on their face value. In support of this stand, reliance is placed on a confidential note recorded by the ITO for further action by the Department and the relevant part of the same reads as follows : "there were credit balances in the names of the following parties which have been accepted because all the creditors have been income-tax payers and the confirmation letters have been filed. Send their copies of account to the ITOs concerned for necessary verification at their end. "