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Issues Involved:
1. Whether the Tribunal was legally correct in holding that there was no failure on the part of the assessee to disclose fully and truly all the material necessary for the completion of the assessment for the assessment year 1960-61. 2. Whether the Tribunal was legally correct in holding that the income, if addable at all, could have been added for the assessment year 1961-62 but not for the assessment year 1960-61. Issue-wise Detailed Analysis: 1. Disclosure of Material Facts: The Tribunal concluded that there was no failure on the part of the assessee to disclose fully and truly all material necessary for the completion of the assessment for the assessment year 1960-61. The Tribunal found that the assessee had disclosed the names and addresses of the creditors during the assessment proceedings for the year 1961-62. However, the High Court disagreed, stating that the obligation to disclose material facts pertains to the relevant assessment year in which the income is chargeable to tax. The High Court emphasized that the assessee was required to disclose the hundi loans during the assessment proceedings for the year 1960-61, as the amounts were of a revenue nature and liable to be assessed as income from an undisclosed source. The fact that the sums were entered in the account books disguised as hundi credits did not absolve the assessee from its obligation to make a full and true disclosure of its income for the relevant year. 2. Assessment Year for Adding Income: The Tribunal held that the income, if addable at all, could only be assessed in the assessment year 1961-62, based on the provisions of section 297(2)(d)(ii) of the Income-tax Act, 1961. The Tribunal interpreted the phrase "all the provisions of this Act shall apply accordingly" to mean that the substantive provisions of the 1961 Act should apply. However, the High Court referred to the Supreme Court's decision in Govinddas v. ITO, which clarified that the phrase refers only to the procedural provisions of the new Act for the assessment of escaped income. The substantive law applicable for determining the liability to tax must be the law under the old Act (Act of 1922) as it applied during the relevant assessment years. Therefore, the High Court held that the Tribunal was wrong in concluding that the two impugned deposits could be assessed in the assessment year 1961-62. The High Court emphasized that under the Act of 1922, income from an undisclosed source would normally be assessed in any assessment year taking the financial year as its previous year, and the previous year adopted by the assessee for its business income had no relevance. Material Possession and Reason to Believe: The High Court also addressed the Tribunal's finding that the Income-tax Officer had no material in his possession to entertain the belief that any part of the assessee's income had escaped assessment. The High Court referred to the Supreme Court's observations in Sheo Nath Singh v. AAC of I.T. and Chhugamal Rajpal v. S. P. Chaliha, which clarified that the belief must be that of an honest and reasonable person based on reasonable grounds, and the Income-tax Officer must have some prima facie grounds for taking action under section 148. The High Court found that the Income-tax Officer had adequate material, including statements on oath from the creditors confessing that the transactions were not genuine, to entertain a belief to initiate action under section 148. The High Court concluded that the Tribunal was not right in recording a finding that there was no material before the Income-tax Officer to initiate the proceedings under section 148. Conclusion: The High Court answered both the questions referred to it in the negative, in favor of the Department and against the assessee. The Commissioner of Income-tax was entitled to costs assessed at Rs. 250.
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