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Issues:
Validity of the action under section 147 of the IT Act, 1961 regarding addition of income from undisclosed sources. Analysis: The appeal challenged the action of the ITO under section 147 of the IT Act, 1961, adding Rs. 20,000 as income from undisclosed sources for the assessment year 1964-65. The original assessment was completed after scrutiny of the accounts and cash credits, with the ITO accepting the genuineness of the loan in question. However, the ITO later initiated proceedings under section 147, alleging that income had escaped assessment due to a loan being bogus. The assessee contended that all relevant particulars were disclosed during the original assessment, including interest payments by cheque and evidence of the creditor's existence. The ITO's insistence on lack of disclosure led to the addition of Rs. 20,000 as undisclosed income, confirmed by the AAC on appeal. The appellant argued that all primary facts necessary for a proper assessment were disclosed to the ITO during the original assessment, and it was not the assessee's duty to draw inferences from the disclosed facts. The appellant emphasized that the ITO's failure to draw correct inferences should not result in invoking section 147(a) but rather section 147(b) if necessary. The appellant further contended that subsequent to the assessment, no new information emerged to justify reopening the case, indicating a mere change of opinion based on existing facts. The Departmental Representative maintained that the ITO's belief in income escaping assessment was reasonable, citing the necessity for the assessee to prove the genuineness of the credit beyond self-serving documents. The Representative argued that the ITO's actions were justified under section 147(a) due to alleged lack of material particulars from the assessee, supported by various legal precedents. The judgment concluded that the assessee had indeed disclosed all material facts necessary for a proper assessment during the original assessment. The ITO's failure to draw correct inferences from the disclosed facts did not warrant invoking section 147(a), but rather section 147(b if applicable. As the action was taken under section 147(a) and was time-barred, the assessment made by the ITO was set aside. The Tribunal clarified that it could not convert proceedings under section 147(a) to 147(b) to salvage the assessment. The decision was based on the principle that failure to disclose necessary particulars by the assessee was absent, rendering section 147(a) inapplicable. In conclusion, the appeal was allowed, and the assessment made by the ITO was set aside due to the absence of failure on the part of the assessee to disclose essential particulars, rendering section 147(a) inapplicable. The judgment did not delve into the cited legal cases or the merits of the case, given the finding on the disclosure issue.
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