1959 (3) TMI 68 - HC - Income Tax

Summary

Issues Involved:
1. Validity of proceedings initiated under Section 34 of the Indian Income Tax Act.
2. Material evidence for the Appellate Tribunal's determination of secret profits from undisclosed sources.
3. Material evidence for the Appellate Tribunal's determination of credits in the Andhra Bank account representing secret profits.

Detailed Analysis:

1. Validity of Proceedings Initiated Under Section 34

The first issue revolves around whether the proceedings under Section 34 of the Indian Income Tax Act were validly initiated. Section 34(1)(a) allows the Income Tax Officer (ITO) to reopen assessments if there is reason to believe that income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The Tribunal held that Section 34(1)(a) was rightly applied, emphasizing that it is sufficient that income has escaped assessment. The Court noted that the mere production of account books does not amount to full disclosure. The explanation to Sub-section (1) indicates that the production of books from which material facts could have been discovered with due diligence does not equate to disclosure. The Court concluded that the proceedings under Section 34 were validly initiated as the ITO had reason to believe that income had escaped assessment due to the assessee's failure to disclose material facts.

2. Material Evidence for Secret Profits from Undisclosed Sources

The second issue concerns whether there was any material for the Tribunal to hold that certain amounts represented the secret profits of the assessee from undisclosed sources. The ITO found that the sums were borrowed from individuals whose financial status did not justify such loans. The evidence from creditors and attestors did not establish the genuineness of the loans. For instance, in the assessment year 1944-45, the borrowing was from a person with an annual income of Rs. 4,500, which made it unlikely for him to lend Rs. 5,000. Similar discrepancies were found for the years 1946-47 and 1947-48, where the creditors' financial statuses and the circumstances of the loans were not credible. The Court found that the Tribunal had ample material to conclude that these amounts were fictitious borrowings and represented the assessee's undisclosed income.

3. Material Evidence for Credits in Andhra Bank Account

The third issue pertains to whether the credits in the Andhra Bank account represented the secret profits of the assessee. The ITO found that the deposits in the account of Prafulla Chandra Sudha Khaddar Bhandar were not recorded in the firm's books or the assessee's books. The assessee's explanation that these were accommodation cheques was not substantiated. The Tribunal held that these amounts were part of the assessee's undisclosed income. The Court agreed, noting that the ITO was justified in holding that these deposits were not disclosed and formed part of the assessee's income from undisclosed sources.

Conclusion

The Court answered all three questions in the affirmative, concluding that the proceedings under Section 34 were validly initiated, and there was ample material for the Tribunal to hold that the amounts in question represented the secret profits of the assessee from undisclosed sources. The reference was answered accordingly, with costs awarded to the department and an advocate's fee of Rs. 250.