1986 (2) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Legality and validity of proceedings initiated under section 147(a) for the assessment year 1958-59.
2. Justification of the Tribunal's conclusion that Rs. 89,000 was to be added as the assessee's income from undisclosed sources for the assessment year 1958-59.
3. Justification of the Tribunal in quashing the assessment proceedings under section 147(a) for the assessment year 1959-60.

Detailed Analysis:

1. Legality and Validity of Proceedings Initiated under Section 147(a) for the Assessment Year 1958-59:
The proceedings under section 147(a) were initiated by the Income-tax Officer on the grounds that the assessee had failed to disclose fully and truly all material facts necessary for the assessment, leading to the escapement of income chargeable to tax. The specific credits in question were:
- Rs. 29,000 on January 2, 1958
- Rs. 31,000 on February 5, 1958
- Rs. 29,000 on February 24, 1958

The Appellate Assistant Commissioner and the Tribunal both found that the initiation of proceedings was based on specific information regarding fictitious creditors, corroborated by the statement of Shri Gulabchand Jain, who admitted to creating ghost firms for accommodating concealed incomes. The Tribunal held that the Income-tax Officer had a reasonable belief based on specific information, thus justifying the initiation of proceedings under section 147(a).

2. Justification of the Tribunal's Conclusion that Rs. 89,000 was to be Added as the Assessee's Income from Undisclosed Sources for the Assessment Year 1958-59:
The Tribunal found that the credits appeared in the financial year 1957-58, relevant to the assessment year 1958-59. The Tribunal rejected the plea that the amounts could only be assessed in the assessment year 1959-60. The Tribunal confirmed the addition of Rs. 89,000 as income from undisclosed sources, noting that the assessee failed to prove the genuineness of the credits despite adequate opportunities. The Tribunal emphasized that the mere issuance of cheques did not establish the genuineness of the transactions, especially when the creditors were found to be non-existent.

3. Justification of the Tribunal in Quashing the Assessment Proceedings under Section 147(a) for the Assessment Year 1959-60:
The Tribunal quashed the reassessment for the assessment year 1959-60 on the grounds that the Income-tax Officer had mentioned only the three credits totaling Rs. 89,000 as the reason for reopening the assessment, without mentioning the interest claim or other credits. The Tribunal held that the initiation of proceedings was not valid as the reasons recorded did not justify the reopening of the assessment for the year 1959-60.

However, the High Court found that the Income-tax Officer was justified in reopening the assessment for the assessment year 1959-60 as well, based on the same grounds of fictitious credits. The High Court held that once proceedings under section 147(a) are validly initiated, the Income-tax Officer is entitled to assess the entire income that had escaped assessment, including the interest on the credits and other cash credits. The Tribunal's decision to quash the reassessment for the assessment year 1959-60 was thus overturned.

Conclusion:
- For the assessment year 1958-59, the proceedings initiated under section 147(a) were legal and valid, and the addition of Rs. 89,000 as income from undisclosed sources was justified.
- For the assessment year 1959-60, the Tribunal was not justified in quashing the reassessment proceedings under section 147(a), and the reassessment was validly initiated.

The questions referred were answered in favor of the Revenue and against the assessee, with both parties bearing their own costs.