1981 (9) TMI 75 - HC - Income Tax

Summary

Issues Involved:
1. Conditions precedent for initiating proceedings under section 147(a) of the I.T. Act, 1961.
2. Sufficiency of information received by the ITO to justify reopening the assessment.
3. Validity of the addition of the cash credit as undisclosed income.
4. Application of relevant case law and precedents.

Detailed Analysis:

1. Conditions Precedent for Initiating Proceedings under Section 147(a):

The primary issue was whether the conditions precedent to the initiation of proceedings under section 147(a) in respect of the cash credit were fulfilled. The assessee firm was originally assessed on a total income of Rs. 3,082 for the assessment year 1962-63. On 28th March 1966, proceedings for reassessment were initiated by notice under section 148 read with section 147. The order sheet entry indicated that the notice was issued based on information received from another ITO regarding a hundi loan from Afgan Fruit Company, which was alleged to be a ghost firm as per a declaration filed by Gulab Singh Jain, advocate.

2. Sufficiency of Information Received by the ITO:

The court examined whether the information received by the ITO was sufficient to justify the initiation of proceedings. The assessee was unable to produce evidence to support the deposit in the name of M/s. Afgan Fruit Company, leading the ITO to add Rs. 40,530 as income from undisclosed sources. The Tribunal upheld the reopening of the assessment, finding that the information received was a sufficient ground for action under section 147(a).

3. Validity of the Addition of the Cash Credit as Undisclosed Income:

In appeal, the AAC noted that some material had been considered in the original assessment proceedings, including a certificate from Girdhari Lal, the alleged sole proprietor of M/s. Afgan Fruit Company, which claimed that Rs. 40,000 had been advanced and repaid with interest. The AAC rejected the appeal, and the Tribunal remanded the case to reconsider the genuineness of the credit while upholding the reopening of the assessment.

4. Application of Relevant Case Law and Precedents:

The court considered various judgments, including:
- Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603 (SC): The Supreme Court held that vague information without prima facie grounds does not fulfill the requirements of section 151(2). The court found similarities and differences with the present case, noting that the information here included a declaration that the firm was a ghost firm, which could justify reopening the assessment.
- Dwarka Dass and Brothers v. ITO [1979] 118 ITR 958 (Delhi): The court distinguished this case, noting that the present case involved new information about the non-existence of the firm, which altered the primary facts.
- Rai Singh Deb Singh Bist v. Union of India [1970] 77 ITR 802 (Delhi): The court emphasized the distinction between primary and secondary facts, concluding that if the firm was found to be non-existent, it would justify reopening the assessment.

Conclusion:

The court held that the assessment could be reopened under section 147(a) on the assumption that M/s. Afgan Fruit Company was a ghost firm. The Tribunal's decision to remand the case for further investigation into the genuineness of the firm and the correctness of the assertion by Gulab Singh Jain was endorsed. The court answered the question referred in the affirmative, in favor of the department and against the assessee, leaving the parties to bear their own costs pending the outcome of the remanded proceedings.