COMMISSIONER OF INCOME TAX Vs. HARI PRASAD CHAUDHARY

JUDGEMENT

(1.) IN a reference under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), the INcome-tax Appellate Tribunal, Patna Bench, has referred the following question of law for the opinion of this court:

(2.) THE facts are not at all in controversy on the statement of the case submitted by the Tribunal. THE matter relates to the assessment year 1959-60, for which the relevant accounting period was Diwali year ending Sambat 2015. THE assessee is the karta of a Hindu undivided family (for short, "HUF") which carries on business in cloth. THE assessment in the instant case was completed under Section 147(a)/143(3) of the Act. THE assessment, inter alia, included a sum of Rs. 24,621 added back as the assessee's income from undisclosed sources. THE total income computed was Rs. 26,501. A copy of the assessment order has been marked annex. A forming part of the statement of the case.

(3.) NONE the less the more important question that arises in this case is as to whether Section 297(2)(d)(ii) of the Act can be said to save the operation of Section 68 of the Act although introduced for the first time by the Act by holding that it was a matter of mere procedure or the machinery for the purpose of assessment and not a substantive right or liability either conferred on or chargeable against the assessee. Cases in this regard are unanimous and no decision has struck any discordant note. In this connection, reliance has been placed in the case of Bhogilal Virchand v. CIT [1981] 127 ITR 591 (Bom), wherein it was held by a Bench of the Bombay High Court that the effect of Section 68 of the Act is that statutorily a sum which is found credited in the books of the assessee maintained for any previous year in respect of which either the assessee offers no explanation or the explanation offered by him is not accepted by the ITO, is to be charged to income-tax as the income of the assessee of that previous year. Therefore, Section 68 is a charging provision in so far as the particular sum, which is a subject of legislation, is concerned. As a necessary corollary it has further been held that the words "all the provisions of this Act shall apply accordingly" occurring in Section 297(2)(d)(ii) of the Act refer only to the machinery provided in that Act for the assessment of escaped income, and that they do not apply to substantive provisions of the new Act which create rights or liabilities. It has been further held that Section 68 of the Act being a substantive charging section, cannot be applied to a case of reassessment governed by the 1922 Act. So also in the case of CIT v. Dharamchand Anandkumar [1981] 128 ITR 219 (MP), the same principle was reiterated and it was held by the Madhya Pradesh High Court that a change in the previous year by Section 68 of the new Act is a change in the substantive law and not merely a change in the machinery or procedural provision. As a necessary corollary it has to follow, as has been held by the Madhya Pradesh High Court, that Section 297(2)(d)(ii) of the Act has to be so read as to refer to the machinery provided in the new Act for the assessment of escaped income and they do not import any substantive provisions of the new Act which create rights or liabilities. It further goes to say that the word "accordingly" in the context means nothing more than "for the purpose of assessment" and it suggests that the provisions of the new Act which are made applicable are those relating to the machinery of assessment only. When an identical question was raised for consideration before a Bench of the Karnataka High Court, it was held in the case of CIT v. L.N. Satyanarayan Setty [1981]129 ITR 226 (Kar), that Section 68 could not be invoked with a view to include the income from undisclosed sources which arose in August, 1958, in the assessment year 1960-61 and the logic proceeded upon the same lines that Section 68 was in the nature of a substantive provision in the Act. In the case of Govinddas v. ITO [1976] 103 ITR 123 (SC), it was held by the Supreme Court that the words "all the provisions of this Act shall apply accordingly" in Clause (ii) of Section 297(2)(d) of the Act merely refer to the machinery provided in the new Act for the assessment of escaped income, and that they do not import any substantive provisions of the new Act which create rights or liabilities. In this decision, it has been further held that the word "accordingly" in the context means nothing more than "for the purpose of assessment" and it clearly suggests that the provisions of the new Act which are made applicable are those relating to the machinery of assessment.