The Judgment of the Court was delivered by

Sabyasachi Mukharji, J.:— This reference arises out of the assessment for the year 1962-63, the relevant previous year in respect of which ended on the 31st March, 1962. The assessee is a private limited company. It carries on business of the manufacture and sale of soap, cocoanut oil, etc. It is also a dealer in bottles, corks, etc. During the relevant assessment year the assessee claimed that it had borrowed Rs. 3,10,000 on hundies from nine different parties of diverse amounts. These parties were Seth Lalchand Ram, Lilaram Girdharam, Biharilal & Co., Arjundas Srichand, Nandlal Pareshram, Gopaldas Mohanlal, Lalchand Kishendas, Dendaram Vasudeb and Tirthadas & Sons. The Income-tax Officer went into the sources of these amounts in the course of the assessment. The assessee was required to furnish evidence to prove the genuineness of the aforesaid hundi loans. Summonses under section 131 of the Income-tax Act, 1961, were issued to the above parties requesting them to produce their books of account and bank pass books, etc., for the relevant accounting period for corroboration and verification of the transactions in question. None of these summonses could be served. The alleged lenders were found to be not traceable at the addresses given by the assessee. In the circumstances, on the 20th January, 1967, the Income-tax Officer informed the assessee that the summons could not be served on these persons and their identity, therefore, remained unverified. The assessee was given another opportunity to establish the identity of these persons and the genuineness of the transactions. The assessee was informed that if these informations were not supplied, an adverse inference would be drawn against the assessee. On the 28th January, 1967, the assessee pursuant to these summonses wrote a letter to the Income-tax Officer in which the assessee, inter alia, stated that it had filed before the Income-tax Officer various letters of the creditors confirming that they had advanced the loans in question. According to the assessee, the assessee had discharged the onus that lay upon them. The Income-tax Officer, however, was unable to accept the assessee's submission. The Income-tax Officer held that the confirmation letters regarding the said transactions did not establish the identity of the parties from whom the alleged loans were taken. The Income-tax Officer, therefore, added Rs. 3,10,000 as the assessee's income from undisclosed sources. The Income-tax Officer also disallowed a sum of Rs. 28,482 claimed as interest on the aforesaid loans.

2. The assessee appealed to the Appellate Assistant Commissioner who upheld the order of the Income-tax Officer. It has further to be borne in mind that the assessee had produced the income-tax file Nos. of these persons who were income-tax assessees. The assessee thereafter preferred an appeal before the Tribunal. In the meantime proceedings had been taken for imposition of penalty upon the assessee under section 271 read with section 274 of the Income-tax Act, 1961. Before the completion of the assessment on the 20th February, 1967, the Income-tax Officer had issued a notice on the 16th February, 1967, informing the assessee that it appeared to him that the assessee had concealed the particulars of income or had deliberately furnished inaccurate particulars thereof and as such he was referring the question of penalty to the Inspecting Assistant Commissioner under section 274(2) of the Act. Reference was also made to the Inspecting Assistant Commissioner on that day. But the Inspecting Assistant Commissioner gave the necessary opportunity to the assessee of being heard. Before the Inspecting Assistant Commissioner it was argued that in the facts and circumstances of the case it did not warrant the inclusion of the sum of Rs. 3,10,000 as income and disallowance of interest and that the company's business was carried on with borrowed capital. The hundies had been produced. Some of the borrowings were by cheques. In the premises, it was urged that the borrowings could not be treated as income of the assessee under section 68 of the Income-tax Act, 1961. The Inspecting Assistant Commissioner, however, referred to some of the statements made by some of the hundi creditors before the respective Income-tax Officers assessing them. He held that the assessee had concealed the particulars of income to the extent of the credits as well as the interests credited in the said account. The Inspecting Assistant Commissioner, therefore, levied a penalty of Rs. 78,468 under section 271(1)(c) of the Income-tax Act, 1961. The assessee, thereafter, preferred an appeal as mentioned hereinbefore both from the assessment order and from the order imposing penalty. The Tribunal took up the two appeals together and this reference has been made in respect of the order passed by the Tribunal out of the said combined order in respect of the two appeals. The Tribunal upheld the order but allowed the appeal of the assessee so far as the imposition of penalty was concerned.

3. In the circumstances above mentioned, three questions have been referred to this court under section 256(1) of the Income-tax Act, 1961. Two of these questions are at the instance of the assessee and one is at the instance of the Commissioner of Income-tax. The questions referred at the instance of the assessee are as follows:

“1. Whether, on the facts and in the circumstances of the case, the assessment order under section 143(3) is invalid because the penalty proceedings started in the course of the assessment had not been completed along with the assessment?

2. Whether, on the facts and in the circumstances of the case, the sum of Rs. 3,10,000 could be treated as income under section 68 of the Income-tax Act, 1961, even though it is not included in the concept of income under section 2(22)(e)(ii) and section 2(24) of the Income-tax Act, 1961?”

4. And the question at the instance of the Commissioner is as follows:

“Whether, on the facts and in the circumstances of the case, penalty could be levied under section 271(1)(c) of the Income-tax Act, 1961, with reference to the sum of Rs. 3,10,000 and the interest claimed thereon?”

5. In respect of the first question it was urged before us by counsel for the assessee that liability of an assessee under the Income-tax Act, 1961, was one liability—that was to pay taxes on income which included income-tax, super-tax, penalty and interest chargeable under different circumstances. It was, secondly, urged that such liability for a year should be determined in a single proceeding which, according to the counsel for the assessee, ended when a notice of demand demanding the total sum was issued to the assessee under section 156 of the Income-tax Act, 1961. It was urged that when in the course of assessment proceedings the Income-tax Officer was of the opinion that the assessee had concealed any income, that matter was incidental and subservient to the assessment and enquiry in respect thereof should also be completed before the total sum was determined as payable by the assessee. In the premises, it was contended that the assessment in cases where proceedings of penalty were initiated should be completed simultaneously. In support of this contention reliance was placed on the observations of the Judicial Committee in the case of Commissioner of Income-tax v. Khemchand Ramdas, [1938] 6 ITR 414, 416, 421. This question, whether in cases where proceedings for imposition of penalty had been taken during the course of assessment, two proceedings should be concluded simultaneously, had been argued though from slightly different point of view in the case of Nawn Estates Private Ltd. v. Commissioner of Income-tax, [1977] 106 ITR 384 (Cal), which counsel had argued before us a few days ago. It must, however, be mentioned that there the point was that after the completion of the assessment proceedings the penalty proceeding could not have continued. In this case, however, the question is urged in a slightly different form in the sense that according to counsel for the assessee the penalty proceeding must be concluded before the assessment proceedings and if the same were not so concluded, the assessment proceeding could not be completed thereafter. Really the question forms part of the larger aspect whether, in cases where a proceeding had been taken for imposition of penalty, these proceedings must terminate at the equal point of time or whether the penalty proceeding must be completed before the completion of the assessment proceedings. For the reasons which we have mentioned in our previous judgment in Income-tax Reference No. 390/69, Nawn Estates Private Ltd. v. Commissioner of Income-tax, [1977] 106 ITR 384 (Cal), we are, however, unable to accept the submissions of counsel for the assessee on this aspect of the matter. We may incidentally refer that our conclusion is strengthened by the provisions of the new Act where the special period of time is provided for completion of penalty under section 275 of the Act and in view of the provisions of section 274(2) of the Income-tax Act, 1961, the authority for imposition of the penalty is really different. Therefore, though the assessment and penalty are two different aspects emanating from the assessment proceeding, these need not be simultaneous proceedings as the authority imposing the penalty in cases where references are made to the Inspecting Assistant Commissioner is different and furthermore the period of limitation as indicated in section 275 of the Income-tax Act, 1961, is conclusive indication of the legislative intention provided in the provisions of the Act. The provision for separate appeals under the scheme of the Act is also a pointer to the conclusion that these are different proceedings. In the premises, we are unable to accept the position that the penalty proceedings should have been completed along with the assessment proceedings and not having done that in this case the assessment proceedings were bad. In the circumstances, the first question referred at the instance of the assessee is answered in the negative and in favour of the revenue.

6. The second question deals with the problems whether the addition of Rs. 3,10,000 in the facts and circumstances of the case under section 68 of the Income-tax Act, 1961, was proper or not. Counsel for the assessee contended that under the definitions provided in the Income-tax Act, 1961, specially the definition under section 2(22)(e)(ii) and section 2(24) of the Income-tax Act, 1961, these cash credit entries were not income. Counsel for the assessee submitted that it has to be borne in mind that in respect of tax on income under the provisions of the Act certain sums of money were included as income but these sums had not been so included. Therefore, these sums could not be treated as undisclosed income of the assessee. Counsel further stressed that the Income-tax Officer did not call for any statement from the bank because in this case some of the payments were by cheques. It was further urged that the presence of these creditors were not enforced by the Income-tax Officer. In the premises, it was submitted that these loans could not be treated as income of the assessee. Counsel took us through the balance-sheet of the company from where it was sought to be argued that the capital structure of the company indicated that unless the company had borrowed money, the business of the company could not have been carried on. When the assessee, it was urged, had produced confirmation letters giving the income-tax file Nos. of these persons, the burden of proof that these were undisclosed income of the assessee lay upon the revenue. In support of this contention reliance was placed on several decisions, namely, the decisions in the cases of Commissioner of Income-tax v. Best & Co. (Pvt.) Ltd., [1966] 60 ITR 11 (SC), Parimisetti Seetharamamma v. Commissioner of Income-tax, [1965] 57 ITR 532 (SC) and of Maharaja Chintamani Saran Nath Sah Deo v. Commissioner of Income-tax, [1971] 82 ITR 464 (SC), where certain sums of money were credited in the books of an assessee under what circumstances the explanation given by the assessee can be considered to be unsatisfactory by the revenue, depend upon the facts and circumstances of the particular case. section 68 of the Income-tax Act, 1961, is a statutory recognition of what was previously established by the judicial decisions under the Indian Income-tax Act, 1922, namely, that where certain sums of money were claimed by the assessee to have been borrowed from certain persons, it was for the assessee to prove by cogent and proper evidence that these were genuine loans. The reason for this can be found in section 106 of the Evidence Act which though not strictly applicable to the proceeding under the Income-tax Act, the principles behind it are applicable. These facts are exclusively within the knowledge of the assessee and it is for the assessee to bring such facts from which it could be established reasonably that these loans or transactions were genuine. The Income-tax Officer, however, was not obliged to accept any explanation given by the assessee. Reliance may be placed on the decision in the case of Sriram Jhabarmull (Kalimpong) Ltd. v. Commissioner Of Income-Tax, [1967] 64 ITR 314 (Cal) whether in a particular case after evidence was given by the assessee and brought on record and on the materials and the records the findings of the Income-tax Officer could be termed as perverse and without reason, would really depend upon the facts and circumstances of the case. In the instant case it has to be borne in mind that at the addresses given by the assessee these persons were not traceable. The assessee did not further co-operate with the department giving any further assistance or information as to whether these persons could be traced anywhere else. Therefore, no useful purpose would have been served by insisting on the income-tax department chasing those persons. Indeed, the Income-tax Officer had issued summons under section 131 of the Income-tax Act, 1961, upon these persons but these could not be served. There was no other evidence adduced by the assessee from any other source showing the position of these alleged creditors and their financial ability from which it could be established that they were genuine persons capable of lending money to the assessee or had in fact lent money to the assessee. After all, the assessee had transactions with these persons and they had lent a substantial amount to the assessee's business. Therefore, about the financial position and credibility of these persons it is not unnatural to presume that the assessee would know. Thirdly, it has to be borne in mind that some of these persons had made confessions before the respective Income-tax Officers who were assessing them. They had stated also their modus operandi in their own assessments and they had stated that they had never lent these moneys. These statements of these alleged creditors had been brought to the knowledge of the assessee and he was asked to bring any evidence to contradict or to refute these allegations. But the assessee did not bring any other evidence to refute these allegations. It is true that these allegations were not made in any proceeding in which the assessee was a party. It is also true that these allegations were not made at a time when the assessee had any opportunity to cross-examine these persons but the fact that these persons had made these statements had been brought to the notice of the assessee who was given an opportunity to contradict or bring evidence contrary thereto. This is a piece of evidence, the value and weight of which will have to be judged in conjunction with other facts. In this connection we may refer to the decision of the Supreme Court in the case of Udhavdas Kewalram v. Commissioner oj Income-tax, [1967] 66 ITR 462 at page 464 (SC) and also the decision of the Supreme Court in the case of Killick Nixon & Co. v. Commissioner oj Income-tax, [1967] 66 ITR 714 at page 719 (SC). Having regard to the facts and circumstances of the case we cannot say that the conclusion reached by the Income-tax Officer and upheld by the Tribunal was not a probable or possible conclusion. So far as the contention of the assessee that section 2(22)(e)(ii) and section 2(24) did not include these types of income, it has to be stated that section 68 is a substantive section making any sum which was found credited in the books of an assessee and the explanation of the assessee in respect thereof was unsatisfactory to be the income of the assessee. Whenever there is a receipt by the assessee, question arises as to its source and nature. The definition sections to which reference has been made by counsel for the assessee make certain receipts to bear the income character. Furthermore, section 2(24) of the Act includes the profits and gains, and section 68 makes in certain circumstances certain sums to be the profits and gains of an assessee. As mentioned hereinbefore, section 68 is only a statutory recognition of what was the state of law prior to enactment of Income-tax Act, 1961, established by several judicial decisions. So far as the assessee's contention regarding the balance-sheet is concerned, it is true that moneys, apart from the capital, had been utilised for the running of the company but that, in our opinion, does not establish that the money that was used by the assessee in his business was borrowed money and not the other money of the assessee. In the premises, we answer the second question in the affirmative and in favour of the revenue.

7. So far as the third question which has been referred at the instance of the revenue is concerned, in our opinion, the Tribunal came to the right conclusion. Apart from the failure of the assessee to prove the source of the sum, there was no other evidence to show that there was any concealment on the part of the assessee. Counsel for the revenue contended that there was evidence in view of confessions made by some alleged creditors in their own income-tax proceedings. But, as we have mentioned before, these confessions had been made in the proceedings where the assessee was not a party and where the assessee had no opportunity to cross-examine these parties. Furthermore, there is some force in the assessee's contention that the bank statements had not been called for by the Income-tax Officer. In these circumstances, it cannot be said that it has been proved that there was any concealment by the assessee. On the principles enunciated by the Supreme Court in the case of Commissioner Of Income Tax, West Bengal v. Anwar Ali , [1970] 76 ITR 696 (SC) and Commissioner Of Income-Tax, West Bengal Ii v. Satish Churn Law.*, [1969] 71 ITR 275 (Cal), we are of the opinion that the Tribunal came to the correct conclusion.

8. In the premises, the question referred at the instance of the Commissioner is answered in the negative and in favour of the assessee.

9. In the facts and circumstances of the case, each party will bear and pay his own costs.

Janah, J.:— I agree.