S.K Jha and Ashwini Kumar Sinha, JJ.:— In a reference under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) the Income Tax Appellate Tribunal, Patna Branch has referred the following question of law for the opinion of this Court:—
“Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provisions of section 68 of the Income-tax Act, 1961 did not apply to this case and in deleting the addition of Rs. 15,521/- added by the Income-tax Officer as the assessee's income from undisclosed source.”
2. The facts are not at all in controversy on the statement of the case submitted by the Tribunal. The matter relates to the assessment year 1959-1960 for which the relevant accounting period was Diwali year ending Sambat 2015.
3. The assessee is the Karta of the Hindu undivided family (for short, H.U.F) which carries on business in cloth. The assesment in the instant case was completed under Section 147(a)/143(3) of the Act. The assessment, inter alia, included a sum of Rs. 24,621/- added back as the assessee's income from undisclosed sources. The total income computed was Rs. 26,501/-. A copy of the assessment order has been marked Annexure A forming part of the statement of the case.
4. The assessee went up in appeal to the Appellate Assisstant Commissioner of Income Tax. It was submitted that a sum of Rs. 15,521/- was introduced as capital in the cloth business called Choudhary Vastralaya on the 23rd of October, 1957 in the books of account of the firm. The said amount appeared as credit in the name of Smt. Rukmini Devi, mother of Sri Hari Prasad Choudhary who was the Karta of H.U.F on the first of the previous year, i.e 23rd October, 1957 when the assessee started his business. A further sum of Rs. 9,100/- was also invested in the purchase of land in the name of Smt. Rukmini Devi, mother of Sri Hari Prasad Choudhary, the Karta of H.U.F on the 15th of December, 1957.
5. The Appellate Assistant Commissioner deleted the amount in regard to the investment of the second item of Rs. 9,100/- on the ground that the said amount does not fall within the relevant accounting period. The assessee's accounting period for cloth business is Diwali year, and for the income from other sources, for which no accounts were either maintained or kept, the financial year should be taken to be the basis. As such, in his opinion, the sum of Rs. 9,100/- could not be included in the assessment for the assessment year 1959-1960. He, accordingly deleted the same and did not agree with the assessee's contention that the sum of Rs. 15,521/- should also he excluded. A copy of the appellate order of the Assistant Commissioner has been appended to the statement of the case as Annexure B. The assessee then went up in further appeal before the Tribunal. It was submitted before the Tribunal that the said amount of Rs. 15,521/- could not also have been included in the proceedings for the assessment year 1959-1960 more or less on the same reasoning, on the basis of which the Appellate Assistant Commissioner had excluded the sum of Rs. 9,100/-. It was further urged on behalf of the assessee that the credit being on the first day of the accounting period could not, by any stretch of imagination, be treated as the income of that year.
6. On behalf of the Revenue it was contended before the Tribunal that the proceedings being related to the assessment year 1959-1960 which were commenced after the new Act (1961 Act) had come into force, the terms of Section 297(2)(d)(ii) of the Act would apply. It was argued that the case would be covered by Section 68 of the Act, inasmuch as, the credit appeared in the business books of the assessee and the explanation offered for the same were rejected as being not satisfactory. The Tribunal agreed with the submission of the representative. In this connection it placed reliance on the case of Commissioner of Income-Tax, Bombay v. Scindia Steam Navigation Co. Ltd. (42 I.T.R 589). According to it Section 68 of the Act which had made vital change in the incidence of taxation cannot be said to be purely procedural. (There seems to be a clerical or printing error in the statement of the case as submitted with regard to the procedural nature of Section 68 of the Act as it clearly appears from paragraph 7 of the appellate order of the Tribunal that Section 68 of the Act can not be said to be purely procedural). The Tribunal was further of the opinion that the provisions of Section 68 were not mandatory, and the same gave the Income tax Officer a discretion to treat such a credit as the income of the assessee of the year in which it is entered in the books of account. It further went on to held that since the assessee's income for the whole year had been Rs. 1,057/- only and the Income Tax Officer had not made any addition by way of extra profit though certain disallowances out of expenses had been made, the assessee could not possibly have earned a sum of Rs. 15,521/- in the course of one day. The Tribunal accordingly deleted the addition of Rs. 15,521/-. A copy of the appellate order of the Tribunal dated the 12th of November, 1972 has been marked Annexure ‘C’. On thee admitted facts this reference has been made.
7. Before embarking upon the question as to whether the provision of Section 68 of the Act is merely a machinery by way of procedure or effects substantive rights/liabilities of an assessee, we shall advert to later. The first question which we propose to deal with is as to whether the Tribunal was right in its approach in saying that since the assessee's income for the whole year had teen Rs. 1,057/- only and the Income Tax Officer had not made any addition by way of extra profit though certain disallowances out of expenses had been made, the assessee could not possibly have earned a sum of Rs. 15,521/- in the course of one day and that whether the Tribunal was justified in deleting the addition of the aforesaid amount. While discussing this aspect of law it may be pertinent to note that there was no provision in the 1922 Act corresponding to Section 68 of the Act. Nonetheless this section gives statutory recognition to the principle that the cash credits which were not satisfactorily explained may be assessed as the income. But it has now been well settled that in two respects this section has changed the law which prevailed in the 1922 Act. One of the committed changes which is significant is that under the 1922 Act it was held that where a large amount of cash was credited on the very first day of the accounting year, and considering the extent on the business it is not possible that the assessee earned such an amount in the course of one day, the amount cannot be assessed as the income of the assessee on the first day on which he had credit in the books of account. But in the present section even in the case of unexplained cash credit for the accounting year for which the books of account are maintained, the matter of inconvenience therefore, has to give a go by to this statutory change and the finding of the Tribunal in this regard cannot be held to be tenable in the eye of law in view of Section 68 of the Act.
8. Nonetheless the more important question that arises in this case is as to whether Section 297(2)(d)(ii) of the Act can be said to save the operation of Section 68 of the Act although introduced for the first time by the Act by holding that it was a matter of mere procedure or the machinery for the purpose of assessment and not a substantive right or liability either conferred on or chargeable against the assessee. Cases in this regard are unanimous and no decision has struck any discordant note. In this connection reliance has been placed on the case of Bhogilal Virchand v. The Commissioner of Income-Tex, Poona (127 I.T.R 591) wherein it was held by a Bench of he Bombay High Court that the effect of Section 68 of the Act is that statutorily a sum which is found credited in the books of the assessee maintained for any previous year in it respect of which either the assessee offers no explanation or the explanation offered by him is not accepted by the Income-Tax Officer, is to be charged to income-tax as the income of the assessee of that previous year. Therefore, section 61 is a charging provision in so far as the particular sum, which is a subject of legislation, is concerned. As a necessary corollary it has further been held that the word “all the provisions of this Act shall apply accordingly” occuring in Section 297(2)(d)(ii) of the Act refer only to the machinery provided in that Act for the assessment of escaped income, and that they do not apply to substantive provisions of the new Act which create rights or liabilities. It has been further held that Section 68 of the Act being a substantive charging section, it cannot be applied to a case of reassessment governed by the 1922 Act. So also in the case of Commissioner of Income-Tax v. Dharamchand Anand Kumar (128 I.T.R 219) the same principle was reiterated and it was held by the Madhya Pradesh High Court a change in the previous year by Section 68 of the new Act is a change in the substantive law and not merely a change in the machinery or procedural provision. As a necessary corollary it has to follow, as has been held by the Madhya Pradesh High Court, that Section 297(2)(d)(ii) of the Act has to be so read as to refer to the machinery provided in the new Act for the assessment of escaped income and they do not import any substantive provisions of the new Act which create rights or liabilities. It further goes to say that the word “accordingly” in the context means nothing more than “for the purpose of assessment” and it suggests that the provisions of the new Act which are made applicable are those relating to the machinery of assessment only. When an identical question raised for consideration before a Bench of the Karnataka High Court, it was held in the case of Commissioner of Income-Tax v. N.L Satyanarayan Setty (129 I.T.R 226) that Section 68 could not be invoked with a view to include the income from undisclosed sources which arose in August, 1953 in the assessment year 1960-1961 and the logic proceeded upon the same line that Section 68 was in the nature of the substantive provision in the Act. In the case of Govinddas v. Income-Tax Officer (103 I.T.R 123) it was held by the Supreme Court that the words “all the provisions of this Act shall apply accordingly” in clause (ii) of Section 297(2)(d) of the Act, merely refer to the machinery provided in the new Act for the assessment of escaped income, and that they do not import any substantive provisions of the new Act which create rights or liabilities. In this decision it has been further held that the word “accordingly” in the context means nothing more than “for the purpose of assessment” and it clearly suggests that the provisions of the new Act which are made applicable are those relating to the machinery of assessment.
9. It is true that the Supreme Court was not seized with the question of construction of Section 68 of the Act but it did held that Section 297(2)(d)(ii) of the Act merely applies to the machinery part or procedural part of the assessment proceedings and cannot be said to effect any substantive right or liabilities. That being the settled position in law and the three High Courts having taken a similar view with regard to the nature of the provisions engrated in Section 68 of the Act this view we respectfully endorse as nothing was shown to us to the contrary. Therefore, the ultimate decision of this case must be in favour of the assessee.
10. In the result, therefore, we answer the question referred to this Court in affirmative in favour of the assessee and against the Revenue anil we hold, on the facts and in the circumstances of the case, that the Tribunal was correct in holding that the provisions of Section 68 of the Act did not apply to this case and was also correct in deleting the addition of Rs. 15,521/- added by the Income-Tax Officer as the assessee's income from undisclosed sources. The assessee will be entitled for costs. Hearing fee Rs. 250/-.