Nazir Ahmad, J.:— A consolidated statement of the case has been submitted by the Income-tax Appellate Tribunal, Patna Bench “A”, Patna (hereinafter referred to as the Tribunal), under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), referring the following two questions of law for the assessment year 1958–59 at the instance of the assessee:

“1. Whether, on the facts and in the circumstances of the case, the proceedings initiated under section 147(a) were legal and valid?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in coming to the conclusion that Rs. 89,000 was to be added as the assessee's income from undisclosed sources?”

2. For the assessment year 1959–60, the following question of law has been referred at the instance of the Commissioner of Income-tax:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in quashing the assessment proceedings under section 147(a) of the Income-tax Act, 1961, for the assessment year 1959–60?”

3. It is thus evident that Taxation Case No. 203 of 1976 is at the instance Of the Commissioner of Income-tax, whereas Taxation Case No. 204 of 1976 is at the instance of the assessee, M/s. Bihar Cotton Mills Limited, Patna. From the facts as found from the statement of the case, it is evident that for the assessment year 1958–59, the original assessment was made under section 23(3) of the Indian Income-tax Act, 1922 (hereinafter referred as the “old Act”), on February 19, 1959. Subsequently, the Income-tax Officer initiated proceedings under section 147(a) of the Act, as according to him, he had reason to believe that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of the company for the assessment year 1958–59, the income chargeable to tax had escaped assessment for that year. The initiation of proceedings under section 147(a) was in respect of three credits in certain accounts as under:

Date Name Amount Rs. 2-1-1958 M/s. Shrikrishna Ghanshyamdas, Calcutta 29,000 5-2-1958 M/s. Ramkrishna Shyamsunder, Calcutta 31,000 24-2-1958 M/s. Ramkrishna Shyamsunder, Calcutta 29,000 ________ 89,000 ________

4. After giving an opportunity to the assessee for establishing the genuineness of these credits, the Income-tax Officer added these amounts as the assessee's income from undisclosed sources. The order of the Income-tax Officer under section 147(a) of the Act for the assessment year 1958–59 has been annexed and marked as annexure A forming part of the statement of the case.

5. The aforesaid order of the Income-tax Officer was challenged before the Appellate Assistant Commissioner on the ground that the initiation of the proceedings was illegal and there was no material on record on the basis of which the Income-tax Officer could have reason to believe that any income had escaped assessment. According to the assessee, the loans in question had originally been considered and accepted on the basis of evidence furnished. It was contended on behalf of the assessee that the action by the Income-tax Officer was the result of a mere change of opinion and a suspicion could not take the place of a reasonable belief. It was also submitted that as the assessment proceedings had been initiated under the provisions of the Act, the amounts in question could not be considered as the undisclosed income of the assessment year 1958–59 and if at all it could be assessed, it could be only in the year 1959–60. The Appellate Assistant Commissioner did not accept the plea of the assessee and he found that in so far as the assessment year 1958–59 was concerned, no copies of accounts of the two creditors had been filed and it was also not correct that confirmatory letters were filed during the course of the original proceedings before the Income-tax Officer. The Appellate Assistant Commissioner found that the accounting year for the business carried on by the assessee was the calendar year and these credits had appeared in the calendar year ending December 31, 1958, which was relevant to the assessment year 1959–60. According to the Appellate Assistant Commissioner, when the Income-tax Officer completed the assessment for the assessment year 1958–59, he had absolutely no occasion to look into the accounts of these creditors and could, therefore, not make any enquiry relating to the genuineness of these credits. As according to the Appellate Assistant Commissioner, these credits have been considered as income from undisclosed sources, they had to be considered only in the assessment year 1958–59 and the Income-tax Officer completed the original assessment without considering at all these credits or their genuineness.

6. The Appellate Assistant Commissioner rejected the plea of the assessee that the Income-tax Officer had no reason to believe that income had escaped assessment as a result of any omission on the part of the assessee. He found that in this case, one Gulabchand Jain, an income-tax advocate, had adopted a device for helping assessees to introduce their own secreted profits in their books of account in the names of fictitious persons. For this purpose, certain books of account were got prepared and some assessments were also got framed by filing imaginary returns. In these books of account, moneys were shown to have been advanced by such parties to the needy persons. The persons did not need the money as such because they had in their possession sufficient cash of their own but all that was undisclosed money which could not be brought into the books without inviting the attention of the tax authorities. Thus, those parties introduced their own undisclosed money in the names of these fictitious parties and in support of these book entries, confirmatory letters were issued on the letter-head of these fictitious parties. Ultimately, all the facts regarding these manoeuvres came to the knowledge of the Revenue Department and Shri Gulabchand Jain was confronted with those facts. Shri Gulabchand Jain admitted that the entries made in the names of a large number of parties were fictitious and, in fact, no money had passed from any of the parties, fictitious or real, to the debtors shown in the books of those parties. In the present case, the Income-tax Officer got the information that the assessee also resorted to the device of introducing money in the names of such parties with the aid of Shri Gulabchand Jain. On getting this information, the Income-tax Officer recorded the reasons and sent proposals to the Commissioner for taking action under section 147(a) of the Act. In these proposals, it was mentioned that these loans had been introduced through ghost firms created by Shri Gulabchand Jain. On these proposals, the Commissioner recorded his satisfaction and proceedings were initiated. On these facts, the Appellate Assistant Commissioner was of the view that the Income-tax Officer had not only reason to believe that income had escaped assessment but had come to a prima facie conclusion on the facts of the case that it was so. The plea of the assessee that the provisions of section 147(a) were not attracted was rejected. The Appellate Assistant Commissioner further found that the assessee had been called upon to prove the genuineness of these cash credits. The Income-tax Officer had once again written a detailed letter to the assessee stating that the entries made in the names of those parties were merely hawala entries and he, therefore, wanted to examine the two parties in whose names the deposits appeared. It was clarified in this letter that mere confirmatory letters would not suffice as a piece of evidence. To this letter, the assessee replied that the parties were genuine and the credits had been accepted originally after proper verification. It was also submitted on behalf of the assessee that the parties were not ghost parties but real parties. The Income-tax Officer issued notices in the names of these parties to the addresses given by the assessee and these letters were sent by registered post and they came back with the remarks that there was no such person by that name and thus the notices could not be served. None of the parties had either appeared or were caused to be produced before the Income-tax Officer on the date fixed for that purpose.

7. On the aforesaid facts, the Appellate Assistant Commissioner held that adequate opportunities had been given to the assessee but except for stating that the credits were genuine, the assessee had not adduced any evidence to prove their genuineness. The Appellate Assistant Commissioner also found that there was no question of these credits having been accepted in the original assessment for the assessment year 1958–59, as no such facts were given by the assessee in that year. The addition of Rs. 89,000 was, therefore, confirmed by him. The Appellate Assistant Commissioner also rejected the plea of the assessee that the amount in question could not be assessed in the assessment year 1958–59. As these credits had appeared on the dates falling in the financial year 1957–58 and the amounts were to be treated as income from undisclosed sources, the proper year for their assessment, according to the Appellate Assistant Commissioner, was the assessment year 1958–59 and it could not be considered in the assessment year 1959–60. The order of the Appellate Assistant Commissioner for the assessment year 1958–59 has been annexed and marked as annexure B forming part of the statement of the case.

8. It was submitted before the Tribunal that the provisions of section 147(a) were not applicable to this case and the Income-tax Officer had not recorded any reason for initiating the proceedings. It was also submitted that this was a case of a mere change of opinion. It was pointed out that the details about these credits had been submitted in the original assessment for the assessment year 1959–60 when confirmatory letters from the parties had been filed and interest claimed in these accounts was allowed. It was further argued that any general information received by the Income-tax Officer could not form the basis for the initiation of the proceedings and the information for this purpose should have been specific. It was submitted that action, if any, could have been taken under section 147(a) of the Act. It was also submitted that for the assessment year 1958–59, the assessee was not bound to give any information as these credits appeared only In the accounting period relevant to the assessment year 1959–60. It was also argued that once action was taken under section 147(a) of the Act, the provisions of section 68 of the Act could be applicable. Regarding merits, it was pointed out that the confirmatory letters were furnished at the time of the original assessment and it was not possible for the assessee to trace out the creditors after a lapse of 8 or 10 years. It was also pointed out that the return of the amount was by cheque which showed that there was a bank account to which these amounts must have gone.

9. On behalf of the Department, it was submitted that the assessee had claimed interest only in the assessment year 1959–60 and no information had been given in the assessment year 1958–59. It was also pointed out that the information given at the time of the original assessment was shown to be false as a result of the information received by the Income-tax Officer about these creditors. It was argued on behalf of the Department that the set of facts had changed and, therefore, the Income-tax Officer could also change his conclusion. It was also pointed out that the Income-tax Officer had clearly recorded reasons and it was not necessary to show these recorded reasons to the assessee as it was not required by law. The information received by the Department was specific and it related to the credits in the names of these two parties and the information clearly indicated that these two parties were ghost parties and had, in fact, not given any money to any party. Reference was made to the letter received from the Directorate of Investigation which gave details of the racket and also the fact regarding the non-existence of these two parties. The relevant files were placed before the Tribunal.

10. The Tribunal looked into the records and the files produced and found that the Income-tax Officer had clearly recorded the reasons and these reasons made reference to the information received by the Income-tax Officer about the nature of the credits in the names of these two parties. The Tribunal found from the communication received from the Directorate of Investigation that there was an all India racket of ghost firms which were used for accommodating the concealed incomes of many parties in the form of loans to such parties. As a result of raids conducted, the facts regarding this racket were found out and Shri Gulabchand Jain surrendered with the books and documents and also issued circular letters to his client regarding these ghost firms. The names of M/s. Ramkrishna Shyamsundar, Calcutta, and Shrikrishna Ghanshyamdas, Calcutta, were mentioned among the ghost firms and it was stated that their names were merely used for showing certain credits in the books of different parties. On the basis of this information, the Commissioner of Income-tax informed the Income-tax Officer concerned about the specific assessees in whose accounts credits in the names of these ghost firms appeared. In the case of the assessee also, such specific information was extracted and given to the Income-tax Officer and on the basis of the information received, the Income-tax Officer initiated proceedings and submitted proposal to the Commissioner in which a specific observation was made that the assessee had introduced concealed profits through ghost firms created by Shri Gulabchand Jain. The Income-tax Officer had also stated that the income of the assessee had escaped assessment by suppression of material facts on its part. On the basis of these materials, the Tribunal came to the conclusion that these proceedings had not been initiated for making fresh enquiry and the reason to believe that income had escaped assessment was based on specific information received by the Income-tax Officer. The information received was specific regarding these two parties and, therefore, the Tribunal held that the reasons had properly been recorded and the Income-tax Officer had reason to believe for initiation of proceedings under section 147(a) of the Act.

11. The Tribunal rejected the plea of the assessee that they had disclosed all the relevant information in the original proceedings. The Tribunal held that strictly under the law, in so far as the assessment year 1958–59 was concerned, no materials had been furnished about these credits and, therefore, there was no question of any change of opinion. The Tribunal considered the materials given in the case of the assessment year 1959–60 and found that they were in the shape of confirmatory letters from the above two parties. In view of the information given to the Income-tax Officer, the Tribunal held that the Income-tax Officer had not merely changed his opinion on the same set of facts but in view of the fact that the information furnished earlier was false. The Tribunal, therefore, held that action under section 147(a) was justified. The Tribunal further rejected the plea of the assessee that the amount was taxable (only) in the assessment year 1959–60 as provisions of section 68 of the Act were applicable. The Tribunal held that for any assessment year prior to the assessment year 1962–63, the previous year for assessing any income from undisclosed sources had to be the financial year. The Tribunal further held that when action under section 147 is taken, the substantive law applicable is the law which was in force in respect of the assessment year and only the procedural law of the Act could be applied. According to the Tribunal, any other view would create an anomalous position and would not be in keeping with the rule of harmonious construction. In this view of the matter, the Tribunal held that the amount in question could be considered as income from undisclosed sources only for the assessment year 1958–59 and not for the assessment year 1959–60.

12. On merits, the Tribunal considered the letters written by the Income-tax Officer to the assessee and also the fact that the assessee did not do anything to prove the genuineness of the credit and merely stated that the confirmatory letters had already been furnished, copies of which were filed again. It was submitted before the Tribunal that it was not possible for the assessee to establish the genuineness of these credits or these parties after several years of the transactions. The Tribunal held that the assessee had not been able to discharge the onus which lay on him by establishing the genuineness of the credits and the proof of their sources. The Tribunal held that when the existence of the parties was disputed by the Department, any letter from such non-existent parties could not go to any extent in establishing the fact that the assessee did genuinely receive any money from any outside sources. The Tribunal further found that the assessee had merely chosen to rely on the legal aspect of the matter and there was hardly anything of substance in the assessee's case in so far as the merits are concerned. The Tribunal further held that where books of account were manufactured, bank accounts were opened and other necessary formalities were gone through, the mere issue of cheque did not prove anything and could not establish the genuineness of the receipt of the amount. The Tribunal, therefore, held that the addition of the amount as income from undisclosed sources in the assessment year 1958–59 was justified and so the addition was confirmed. This order of the Tribunal has been annexed and marked as annexure-C forming part of the statement of the case.

13. In the assessment year 1959–60, the Income-tax Officer had assessed an amount of Rs. 4,12,646 as income from undisclosed sources and this was represented by several credits in the accounts of several parties. This included the amount of Rs. 89,000 also, the facts regarding which have already been discussed in the statement of the case for the assessment year 1958–59 and these additions were made on the ground that the credits in various names had not been proved to be genuine and the accounts of these parties had not been authenticated by those parties. The assessment order for the assessment year 1959–60 has been annexed and marked as annexure-D forming part of the statement of the case.

14. The Appellate Assistant Commissioner found that the assessee had filed confirmatory letters from M/s. Shrikrishna Ghanshyamdas and M/s. Ramkrishna Shyamsundar in the original proceedings. However, he held that in view of the letter and information received by the Income-tax Officer, the confirmatory letters had no value. He further held that though the amount itself could not be assessed in the assessment year 1959–60, the amount of interest of Rs. 5,096 credited in these accounts on December 31, 1958, was a wrong claim because the credit itself was not genuine. The Appellate Assistant Commissioner, therefore, upheld the action of the reopening of the assessment. Regarding the other addition of Rs. 3,18,549, the Appellate Assistant Commissioner set aside the assessment for further enquiry. This order of the Appellate Assistant Commissioner has been annexed and marked as annexure-B forming part of the statement of the case.

15. In respect of the assessment year 1959–60, it was submitted before the Tribunal that the Income-tax Officer could not have reason to believe that income had escaped assessment for the assessment year 1958–59 as well as for the year 1959–60. It was further argued that the provision of section 147(a) of the Act had no application in this case and only section 147(b) of the Act could apply. It was further argued that the claim of interest by the assessee was not one of the reasons for initiating the proceedings under section 147(a) of the Act and there was no reason recorded relating to escapement of Rs. 3,18,549.

16. The Tribunal looked into the reasons recorded and found that the Income-tax Officer had mentioned only those three credits totalling Rs. 89,000 as the reason for reopening the assessment and there was no mention of the claim of interest on the credits as reason for reopening the assessment. It was also mentioned in the proposal of the Income-tax Officer that the reopening was being made as a protective measure as the assessee was challenging the assessment of the amount for the assessment year 1958–59. Considering these facts, the Tribunal held that it could not be held that the Income-tax Officer had reason to believe that the income of Rs. 89,000 had escaped assessment for the assessment year 1959–60. As the claim of interest was not one of the reasons for reopening the assessment, the initiation itself was not valid. The assessment made in the assessment year 1959–60 was, therefore, quashed by the Tribunal. This order of the Tribunal is annexure-C as already pointed out earlier. On these facts, various questions for the assessment years 1958–59 and 1959–60 have been referred as mentioned above.

17. On the aforesaid facts, it has to be first seen whether the amount of Rs. 89,000 was income from undisclosed sources for the assessment year 1958–59 or for the assessment year 1959–60. It cannot be doubted that in the original assessment for the assessment year 1958–59 which was made on February 19, 1959, the amount of Rs. 89,000 was not shown by the assessee nor was any addition made in this connection. In the assessment year 1959–60, the amount of Rs. 89,000 relating to the various cash credits was shown by the assessee and when the original assessment was made on December 11, 1959, this amount was not added. However, when the assessments were reopened under section 147(a) of the Act, then both in the assessment years 1958–59 as well as 1959–60, the amounts were added by the Income-tax Officer. The reassessment order for the assessment year 1958–59 is annexure-A and the reassessment order for the assessment year 1959–60 under section 147(a) of the Act is annexure-D before us;

18. I have already mentioned the details of credits of Rs. 89,000 in paragraph 2 of my judgment and it shows that the cash credits of Rs. 89,000 were shown on January 2, 1958, February 5, 1958, and February 24, 1958. Thus these credits related to the financial year 1957–58. It cannot be doubted that the original assessment for the assessment year 1958–59 was made under section 23(3) of the old Act for calendar year 1957 on February 19, 1959, and the original assessment for the assessment year 1959–60 was made for calendar year 1958 under section 23(3) of the old Act on February 11, 1959. Mr. B.P Rajgarhia has filed copies of the original assessment orders for the assessment years 1958–59 and 1959–60. The original assessment orders show that the accounting period of the assessee is calendar year and on this basis the assessee showed cash credits of Rs. 89,000 on January 2, 1958, February 5, 1958, and February 24, 1958, in the assessment year 1959–60 for the calendar year 1958 and the Income-tax Officer considered these cash eredits in the assessment year 1959–60 and accepted the cash credits as genuine as no addition relating to the cash credits was made in the assessment year 1959–60.

19. Now, it cannot be doubted that under the old Act cash credits were to be added according to the financial year. The cash credits were shown in the financial year 1957–58 and so the amount should have been shown in the assessment year 1958–59. The Tribunal has also taken the same view and I am supported in my view by the various decisions on which Mr. B.P Rajgarhia, senior standing counsel for the Revenue, has relied.

20. It has been held in the case of Bhogilal Virchand v. CIT, [1981] 127 ITR 591, by the Bombay High Court that before the Income-tax Act, 1961, came into force, the position under the Indian Income-tax Act, 1922, in respect of income from undisclosed sources was that such income from an undisclosed source could be assessed or reassessed by making an assessment on the basis that the previous year for such an income would be the financial year. It has also been held in this decision that the effect of section 68 of the 1961 Act is that statutorily a sum which is found credited in the books of the assessee maintained for any previous year in 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 and, therefore, section 68 is a charging provision in so far as the particular sum, which is a subject of legislation, is concerned. It has also been held in this decision that the words “all the provisions of this Act shall apply accordingly” in section 297(2)(d)(ii) of the 1961 Act referred only to the machinery provided in that Act for assessment of escaped income and they do not apply to the substantive provisions of the new Act which create rights or liabilities and 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.

21. It has also been held in the case of CIT v. Dharamchand Anandkumar, [1981] 128 ITR 219, by the Madhya Pradesh High Court that the settled law under the 1922 Act was that the only possible way in which income from an undisclosed source could be assessed or reassessed was to make the assessment on the basis that the previous year for such income was the ordinary financial year and that section 68 of the 1961 Act makes a departure on this point in respect of amounts found credited in the books of the assessee. It has also been held in this decision that the section provides that where any sum is found credited in the books of an assessee for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year and that the section has application where any sum is found credited in the books of an assessee maintained for any previous year. It has also been held in this decision that if the amount is credited in the books of the assessee maintained for any previous year is not the business income of the assessee but is held to be income from undisclosed sources, the income so discovered will, under section 68, be deemed to be the income of that previous year for which accounts were maintained and that the position in this respect under the 1922 Act was different, as such income from undisclosed sources under that Act could be assessed only on the basis that the previous year lor such income was the relevant financial year. It has also been held in this decision that the scheme of the charging provisions of the 1922 Act and the 1961 Act is the same and that the charging provisions were contained in sections 3 and 4 of the 1922 Act and the corresponding provisions of the 1961 Act are sections 4 and 5 and that income-tax is charged for any assessment year in respect of the total income of the previous year and the previous year of an assessee, which, in substance, means the accounting year, is intimately connected with the charging provisions of the Act and that 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. It has also been held in this decision that the words “all the provisions of this Act shall apply accordingly” occurring in section 297(2)(d)(ii) of the Income-tax Act, 1961, merely 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 and 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. Similar view has been taken in the case of CIT v. N.L Satyanarayan Setty, [1981] 129 ITR 226 (Kar).

22. Thus it is evident that the cash credits of Rs. 89,000 relating to January 2, 1958, and February 5, 1958, February 24, 1958, as mentioned in paragraph 2 of my judgment, are liable to be assessed in the assessment year 1958–59, as these cash credits were covered by the old Act and section 68 of the Act was not applicable to these cash credits, and so the cash credits of Rs. 89,000 have to be added in the assessment year 1958–59, as they relate to the financial year 1957–58.

23. Mr. K.N Jain, for the assessee, fairly conceded that if the financial year is taken to be the basis, then the amount of Rs. 89,000 relating to the credits have to be added in the assessment year 1958–59.

24. Once it is held that the cash credits of Rs. 89,000 have to be added in the assessment year 1958–59, then the entire finding of the Tribunal relating to the assessment year 1958–59 has to be accepted. It has to be held that the Income-tax Officer came to know on the basis of the statement of Shri Gulabchand Jain, Income-tax Advocate, that he had resorted to a device for helping the assessee to introduce his own secreted profits in his account books in the names of fictitious persons and for this purpose certain books of account were got prepared and some assessments were also got framed by filing fictitious returns. In view of the statement of Shri Gulabchand Jain, the Tribunal rightly came to the finding that these proceedings had not been initiated for making a fishing enquiry and the reason to believe that the income had escaped assessment was based on specific information received by the Income-tax Officer and that the information received was specific regarding these two parties and so the Tribunal held that the Income-tax Officer had reason to believe that initiation of proceedings under section 147(a) of the Act was justified. I also hold that the Tribunal was right in rejecting the plea of the assessee that they had disclosed all the relevant information in the original proceedings. The Tribunal rightly held that strictly under the law in so far as the assessment year 1958–59 was concerned, no information had been furnished about these credits and, therefore, there was no question of any change of opinion. The Tribunal also came to a finding that it was not a case of mere change of opinion in the assessment year 1959–60. The Tribunal also rightly did not accept the plea of the assessee that the amount was taxable in the assessment year 1959–60, as the provisions of section 68 of the Act were not applicable. The Tribunal also rightly held that on merits also the assessee had no case. The Tribunal has given detailed reasons for coming to this finding as has been mentioned in paragraph 11 of my judgment. Under such circumstances, I agree with the reasons given by the Tribunal for holding that the initiation of proceeding under section 147(a) of the Act for the assessment year 1958–59 was valid and the addition of Rs. 89,000 relating to the cash credits was also justified.

25. The assessee's plea that the confirmatory letters had been filed in the assessment year 1959–60 and so the proceeding for the assessment year 1959–60 could not be reopened under section 147(a) of the Act, as in the original assessment, the cash credits and the interest paid relating to the cash credits of Rs. 89,000 have been accepted, in that connection, Mr. B.P Rajgariha has relied on various decisions.

26. It has been held in the case of Bhimmj Panna Lal v. CIT, [1957] 32 ITR 289, by the Patna High Court that in the ordinary course, an order of assessment made after investigation by a particular officer should not at his sweet will and pleasure be allowed to be revised and there must exist something, either suppressed by the assessee, or a fact or a point of law which was inadvertently or otherwise omitted to be considered by the Income-tax Officer before he can proceed to act under section 34 and that a mere change of opinion on the same facts and law is not covered by that section and that action can be taken with reference to the events which happened subsequently, these events having relation to the facts on which the original assessment had been made. It has also been held in this decision by the Patna High Court that under section 34(1) of the old Act, the belief of the Income-tax Officer that income has escaped assessment or has been underassessed must be that of an honest and reasonable person, based upon reasonable grounds; the Income-tax Officer may act under this section on direct or circumstantial evidence, but not on mere suspicion, gossip or rumour. It is evident from this decision that if no new facts have come to light after the original assessment, the Income-tax Officer has power to reopen the assessment.

27. Mr. B.P Rajgarhia, for the Revenue, has also relied on the case of Sujir Ganesh Nayak and Co. v. ITO, [1974] 97 ITR 372 (Ker), where it has been held that on the assurance given by the petitioner during the assessment proceedings, the officer was apparently content to act and made the assessment and that it was only subsequently on receipt of the information from the income-tax authorities in Bombay that the officer had “reason to believe” that the petitioner had not made a full and true disclosure of the material facts and that the officer was not precluded from taking action under section 147(a) read with section 148. Thus it is evident that if a full and true disclosure is not made of a material fact, then the Income-tax Officer has a right to initiate proceeding for reassessment under section 147(a).

28. Mr. B.P Rajgarhia has also relied on the case of M. Varadarajulu v. ITO, [1974] 97 ITR 476 (Mad). In this case, on the basis of certain investigations conducted by the Income-tax Department in respect of hundi transactions, it came to light that the “creditors” who had advanced monies on hundis to various businessmen were merely name-lenders who had no means for making the advances and the amounts shown were the assessee's own monies brought into the account in the banker's names. In pursuance of this information, the petitioner's assessments for 1960–61 and 1961–62 were sought to be reopened under section 147(a) and notice therefor was issued under section 148. In those circumstances, the Madras High Court held that the case fell under section 147(a) and the Department had some material for reopening the assessment and hence the reopening was valid.

29. Mr. B.P Rajgarhia has also relied on the case of ITO v. Mahadeo Lal Tulsian, [1977] 110 ITR 786, which is a decision of the Calcutta High Court. In this decision, it was held that the Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Act only where he arrives at a positive conclusion that he has reason to believe that by reason of the omission or failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment, any part of his income, profits or gains chargeable to income-tax has escaped assessment and that the belief being that of the Income-tax Officer, it is not open to the assessee to dispute the propriety thereof by disputing the sufficiency of the reasons, though it is always open to the assessee to claim that there exists no belief or that the belief is not at all a bona fide one. It has also been held in this decision that to the limited extent as aforesaid, the conclusion of the Income-tax Officer is open to challenge in a court of law and in considering whether the belief is a bona fide one or not, the court can examine whether there exists any material for the belief to be formed with reference thereto and whether such materials have any rational connection or a relevant bearing on the formation of the belief and are not extraneous or irrelevant to the particular belief specified in the section. It was also held in this decision by the Calcutta High Court that though it was clear from the materials on record that the assessee did disclose the hundi loans in the original assessment proceedings, this fact by itself did not lead to the conclusion that the escapement of assessment, if any, was merely the result of a different view taken by the successor Income-tax Officer, and that the assessee was required not only to make full disclosure of all facts relevant to the assessment but also, a true disclosure thereof and that it is wholly immaterial whether the Income-tax Officer making the original assessment could or could not have found the same to be faked or not. It has also been held in this decision that when the successor Income-tax Officer arrived at a conclusion that the assessee concealed a part of his income by falsely representing the same as loan at the time of the original assessment, he was certainly not proceeding merely on the change of his opinion or view and that, on the other hand, he was proceeding on actual facts as subsequently found out, leading to the conclusion that a part of the income has escaped assessment due to untrue disclosure of material facts and that it was not a case where the assessee, having made a full and true disclosure of facts, the two Income-tax Officers were arriving at two different conclusions, taking either two different views of law or facts fully and truly disclosed or making two different inferences there from. Thus it is evident that if true facts are not disclosed at the time of the original assessment, then the assessment can be reopened under section 147(a) of the Act. Similar view has been taken by the Calcutta High Court in the Appendix judgment ITO v. Textile Mills Agents P. Ltd., [1981] 130 ITR 733 (Cal).

30. It has been held in the case of CIT v. Ess Ess Kay Engineering Co. Pvt. Ltd., [1982] 137 ITR 446, by the Punjab and Haryana High Court that it is well settled that though the assessee may have disclosed fully the facts at the time of the original assessment, if they are found to be untrue on the basis of material discovered later on by the assessing authority, the assessment can be reopened under section 147(a) of the Act, because in 292

31. Such a case the assessee had failed to disclose truly all material facts necessary for assessment and it could not be a case of a mere change of opinion. It was held in this decision that, in the instant case, the assessing authority had formed an opinion from the facts disclosed later and the primary facts disclosed were untrue and so the reassessment proceedings under section 147(a) of the Act were valid.

32. It has been held in the case of CIT v. Nathuram Gokulka, [1983] 141 ITR 791, by the Calcutta High Court that if at the time of the original assessment, true materials or facts had not been disclosed, the initiation of reassessment proceedings was valid.

33. It has been held in the case of Basti Sugar Mills Co. Ltd. v. CIT, [1983] 142 ITR 487, by the Delhi High Court that in the original assessment, the Income-tax Officer had merely assumed that what was true about one company belonging to the same group was true with regard to other companies as well and it was subsequently found that the alleged selling agents had rendered no service and, consequently, it was rightly held by the Tribunal that the assessee had failed to disclose truly the primary facts necessary for assessment and so the reassessment proceedings were valid.

34. In the case of A. Shanmugham Chetty v. CIT, [1985] 154 ITR 331 (Mad), subsequent to the original assessment, there was investigation and that investigation revealed that the assessee had undertaken the reconstruction of two buildings at a cost of Rs. 87,300 and had not effected mere repairs for Rs. 21,235 as claimed by him. Under such circumstances, the Madras High Court held that though the assessee had returned the cost of improvements made to the building and had furnished at the time of the original assessment, account books and other details, those materials which were straightaway accepted by the Income-tax Officer were found to be not true and hence the assessee could not be taken to have disclosed materials fully or truly and this would attract section 147(a) and that the Tribunal was, accordingly, right in its view that the assessee had not furnished all the materials necessary for assessment and hence reopening of the assessment under section 147(a) of the Act was justified.

35. Thus, from the various decisions relied on by Mr. B.P Rajgarhia for the Revenue, it is evident that even if materials are placed at the time of the original assessment, but subsequently it is found that the assessee had not disclosed full and true facts, then reassessment can be made under section 147(a) of the Act. In the present case before us, the assessee had furnished confirmatory letters and had disclosed cash credits but subsequently on the basis of the statement of Shri Gulabchand Jain, it was found that the assessee had not disclosed true facts and had claimed falsely that the cash credits were genuine and so the reassessment even for the assessment year 1959–60 can be rightly reopened by the Income-tax Officer in the present case. However, it cannot be doubted that no assessment was made in the assessment year 1958–59 and so when the materials came to the knowledge of the Income-tax Officer that cash credits were bogus and not genuine, he could initiate reassessment proceedings under section 147(a) of the Act for the assessment year 1958–59 as well as for the assessment year 1959–60 and so it has to be held that the proceedings under section 147(a) of the Act for the assessment year 1958–59 as well as for the assessment year 1959–60 were valid.

36. Now, Mr. K.N Jain, on behalf of the assessee, has submitted that the assessee had shown cash credits relating to the amount of Rs. 89,000 in the assessment year 1959–60 on the basis of the calendar year as the credits were found in January and February, 1958, and confirmatory letters were also filed and so it was for the Income-tax Officer to make investigation and if the Income-tax Officer failed to make necessary investigation, he could not have reopened the assessment for the assessment year 1956–60 and could not have made addition in the assessment year 1958–59. For this purpose, he has relied on various decisions.

37. Mr. K.N Jain, for the assessee, has relied on the case of ITO v. Madnani Engineering Works Ltd., [1979] 118 ITR 1, which is a decision of their Lordships of the Supreme Court. Of course, in this decision it was held that the respondent had produced in the original assessment proceedings all the hundis on the strength of which it had obtained loans from the creditors as also entries in the books of account showing payment of interest and it was for the Income-tax Officer to investigate and determine whether these documents were genuine or not; the respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the Income-tax Officer that the hundis and the entries in the books of account produced by it were bogus. However, their Lordships of the Supreme Court have also pointed out that, as the Income-tax Officer had in the second affidavit merely stated his belief but did not set out any material on the basis of which he had arrived at such belief, there was nothing on the basis of which the court could be satisfied on the affidavit that he had reason to believe that a part of the income of the respondent had escaped assessment by reason of its failure to make a true and full disclosure of the material facts. Thus, it is evident that if there are materials to show that the disclosure is not true, then the reassessment proceeding would be valid In this case, the appeal had been filed against the writ petition which had been filed immediately after issue of notice of reassessment. In the case of before us, the assessment had already been made on the materials available to show that the assessee had not made a true disclosure relating to the cash credits in the assessment year 1959–60 and so the reassessment could be made even in view of this decision of their Lordships of the Supreme Court.

38. Mr. B.P Rajgarhia, against the aforesaid decision of the Supreme Court, relied on the decision of their Lordships of the Supreme Court in the case of Kantamani Venkata Narayana and Sons v. First Addl. ITO, [1967] 63 ITR 638, where it has been held that the assessee does not discharge his duty to disclose fully and truly material facts necessary for the assessment of the relevant year by merely producing the books of account or other evidence. He has to bring to the notice of the Income-tax Officer particular items in the books of account or portions of documents which are relevant and that even if it be assumed that, from the books produced, the Income-tax Officer, if he had been circumspect, could have found out the truth, he is not on that account precluded from exercising the power to assess income which had escaped assessment. It was also held in this decision that the Income-tax Officer had, prima facie, reason to believe that the assessee had omitted to disclose fully and truly all material facts and that in consequence of such non-disclosure, income had escaped assessment and he had, therefore, jurisdiction to issue the notice. It has also been held in this decision that in proceedings under article 226 of the Constitution of India challenging the jurisdiction of the Income-tax Officer to issue a notice under section 34(1)(a) of the old Act, the High Court is only concerned to decide whether the conditions which invested the Income-tax-Officer with power to reopen the assessment did exist, it is not within the province of the High Court to record a final decision about the failure to disclose fully and truly all material facts bearing on the assessment and consequent escapement of income from assessment and tax.

39. Mr. B.P Rajgarhia has also relied on the case of S. Narayanappa v. CIT, [1967] 63 ITR 219 (SC), where it has been held that there is no requirement in any of the provisions of the old Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under section 34 must also be communicated to the assessee and that the Income-tax Officer need not communicate to the assessee the reasons which led him to initiate the proceedings under section 34 of the old Act. Thus, the Supreme Court decision relied on by the assessee is not helpful to the assessee.

40. Mr. K.N Jain has also relied on the case of Dwarka Dass and Brothers v. ITO, [1979] 118 ITR 958 (Delhi). This is a decision of the Delhi High Court by a single judge in a writ petition under article 226 of the Constitution. Moreover, in that case, it was held that this was a case of suspected untruthful disclosure where the primary facts to arrive at the reason to believe did not exist and, therefore, the notice issued under section 147(a) was held to be bad. I have already pointed out that the Delhi High Court in the decision in Basti Sugar Mills Co. Ltd. v. CIT, [1983] 142 ITR 487, has already clearly held that if there is no true disclosure, then assessment can be reopened. Under such circumstances, this decision also is not helpful to the assessee.

41. Mr. K.N Jain has also relied on the case of Asa John Devanathan v. Addl. CIT, [1980] 126 ITR 270 (Mad). In this case, in the course of the original assessments for the years 1957–58 to 1963–64, the assessee produced the books of account and also gave a list of various creditors from whom borrowings had been effected on the security of hundis. Interest paid to these parties as well as their full addresses were furnished. The discharged hundis were also produced. The original assessments were completed by making certain additions for cash credits with no addition on account of any hundis. Reassessment proceedings under section 147(a) of the Act were initiated on the basis of a general circular of the Commissioner which indicated that many of the bankers who were supposed to have lent monies were purely name-lenders. It was in those circumstances that it was held that as the circular of the Commissioner and the statement available with the Department did not refer to the assessee specifically but were general in nature, it could not be held that there was information available to the Income-tax Officer which detracted from the, truth of the assessee's disclosure made originally. In the present case before us, Shri Gulabchand Jain stated that the creditors of the assessee were bogus. Under such circumstances, this decision also will not be applicable to the facts of the present case before us.

42. Mr. K.N Jain has also relied on the case of Sujir Ganesh Nayak and Co. v. ITO, [1976] 104 ITR 524 (Ker). This case related to a writ matter where issue of notice was quashed. It this decision, it was held that once primary facts have been disclosed and assessments have been made on that basis, then no action under section 147(a) of the Act can be taken as it will be a mere change of opinion. However, in the present case before us, entire evidence has been led which shows that true facts were not disclosed by the assessee and so it cannot be said to be a case of mere change of opinion.

43. Mr. K.N Jain has also relied on the case of Calcutta Credit Corporation Ltd. v. ITO, [1971] 79 ITR 483 (Cal). In this case also, a single judge of the Calcutta High Court held that it was impossible to accept the view that by failing to disclose the alleged fact that no services were rendered by P.C & Co. during the relevant years, the petitioner had failed to disclose fully and truly all material facts within the meaning of section 147(a) of the Act and that it was for the Income-tax Officer to investigate that claim and find out whether the amount was actually spent for the purpose of the assessee's business in order to qualify for allowance under the provisions of the Act and that having made a claim for deduction it cannot possibly be the assessee's duty to disclose at the same time that the deduction was not permissible and that the impugned notices under section 147(a) were not sanctioned by the provisions of that section and should be quashed. I have already referred to the decisions of the Calcutta High Court in ITO v. Mahadeo Lal Tulsian, [1977] 110 ITR 786, ITO v. Textile Mills Agents P. Ltd., [1981] 130 ITR 733 and CIT v. Nathuram Gokulka, [1983] 141 ITR 791, which have laid down that if the facts are not disclosed and there is misrepresentation of facts, then reassessment proceedings can be initiated under section 147(a) of the Act. In view of the latter Calcutta decisions, it is difficult to follow the decision in Calcutta Credit Corporation Ltd. v. ITO, [1971] 79 ITR 483.

44. Mr. K.N Jain has also relied on the case of CIT v. Hemchandra Kar, [1970] 77 ITR 1, which is a decision of their Lordships of the Supreme Court. In this case, it was held that because the primary facts were within the knowledge of the Income-tax Officer when he completed the first reassessment, the escapement of income took place by reason of the failure of the Income-tax Officer to include the sum of Rs. 1,10,000 in the assessment of the Hindu undivided family when he was in full possession of all the necessary and material facts and in those circumstances, it was held that the requirements of section 34(1)(a) of the old Act were not satisfied. The facts of this case are not helpful to the assessee. In the present case before us, it has to be held that in the asssssment year 1959–60, the assessee had not disclosed true facts to the Income-tax Officer and so the Income-tax Officer accepted cash credits of Rs. 89,000 and interest paid thereon and so it cannot be doubted that he could reopen the assessment for the assessment year 1959–60. However, I have already held above that after reopening the assessment for the assessment year 1959–60, the Income-tax Officer found that the assessments relating to cash credits of Rs. 89,000 were to be made in the assessment year 1958–59. I have already agreed With the finding of the Tribunal that the cash credits of Rs. 89,000 were to be added on the financial year basis in the assessment year 1958–59 as the cash credits related to January and February, 1958, and that the creditors were fictitious and not genuine, as in spite of the service of notices, none of the creditors appeared nor were they produced before the Income-tax Officer and the assessee failed to prove the genuineness of the cash credits in the reassessment proceeding for the assessment year 1958–59. Thus, it has to be held that the additions relating to cash credits of Rs. 89,000 were validly made in the assessment year 1958–59 after reopening the assessment under section 147(a) of the Act.

45. In view of my findings above, I hold, relating to the assessment year 1958–59, that the proceedings initiated under section 147(a) were legal and valid and the Tribunal was justified in coming to the conclusion that Rs. 89,000 was to be added as the assessee's income from undisclosed sources. Questions Nos. 1 and 2 referred at the instance of the assessee for the assessment year 1958–59 are accordingly answered in favour of the Revenue and against the assessee.

46. Now the question is whether the Tribunal was justified in law in quashing the assessment proceeding under section 147(a) of the Act for the assessment year 1959–60. In the assessment year 1959–60, the Income-tax Officer reopened the assessment under section 147(a) on the ground that the cash credits of Rs. 89,000 were not truly disclosed by the assessee. It cannot be doubted that on this ground the Income-tax Officer was also justified in reopening the assessment for the assessment year 1959–60 for the reasons I have already discussed in respect of the assessment year 1958–59. The Appellate Assistant Commissioner held that the Income-tax Officer was justified in reopening assessment as the cash credits of Rs. 89,000 had been accepted in the assessment year 1959–60 on disclosure of untrue facts. The Appellate Assistant Commissioner found that the assessee filed confirmatory letters from the creditors in the orginal proceedings, but in view of the findings of the Income-tax Offier, the confirmatory letters had no value. It cannot be doubted that unless the reassessment proceeding for the assessment year 1959–60 was initiated, it cannot be found whether this amount should be added in the assessment year 1959–60 or in the assessment year 1958–59. It was only after the initiation of section 147 proceeding in the assessment year 1959–60 that the Income-tax Officer made assessment of the cash credits of Rs. 89,000 both in the assessment year 1959–60 as well as in the assessment year 1958–59. However, once it is held that cash credits of Rs. 89,000 has to be added in the assessment year 1958–59, the addition had to be deleted for the assessment year 1959–60 and so the Appellate Assistant Commissioner rightly held that the amount of Rs. 89,000 could not be added in the assessment year 1959–60 and so it cannot be doubted that the amount of Rs. 89,000 cannot be held to be rightly added by the Income-tax Officer in the reassessment proceeding under section 147(a) for the assessment year 1959–60.

47. The Appellate Assistant Commissioner upheld the action of reopening of the assessment for the assessment year 1959–60 on the ground that the amount of interest of Rs. 5,096 which was allowed in the assessment year 1959–60 could not be allowed as the cash credits of Rs. 89,000 were found to be not genuine and which have been added in the assessment year 1958–59. As regards the other cash credits which were added in the assessment year 1959–60 after reopening of the assessment under section 147(a) of the Act, the Appellate Assistant Commissioner set aside the reassessment for further enquiry. The Tribunal in the assessment year 1959–60 took the view that the Income-tax Officer had mentioned only these three credits totalling Rs. 89,000 as the reason for reopening the assessment and there was no mention of claim of interest on the credits as the reason for reopening the assessment. It was also mentioned in the proposal of the Income-tax Officer that the reopening was made as a protective measure as the assessee was challenging the assessment of the amount for the assessment year 1958–59. The Tribunal held that the Income-tax Officer had no reason to believe that the income of Rs. 89,000 had escaped assessment for the assessment year 1959–60 and the claim of interest was not one of the reasons for reopening the assessment and so the initiation itself was not valid and so the Tribunal quashed the reassessment made for the assessment year 1959–60.

48. It cannot be doubted that the Income-tax Officer had reopened the assessment for the assessment year 1959–60 as well on the ground that the cash credits of Rs. 89,000 related to ghost parties and the facts were not truly disclosed by the assessee. Under such circumstances, the Income-tax Officer was justified in reopening the assessment for the assessment year 1959–60 relating to the amount of Rs. 89,000. However, he subsequently found that this amount should be added in the assessment year 1958–59 and so he reopened the assessment for the assessment year 1958–59 also and added these cash credits. Thus, reopening in the assessment year 1959–60 was also justified. Of course, it has to be held that the amount of Rs. 89,000 to be added was rightly added in the assessment year 1958–59 and so the Appellate Assistant Commissioner rightly deleted the addition of Rs. 89,000 for the assessment year 1959–60. However, it has to be held that the Income-tax Officer was justified in reopening the assessment for the assessment year 1959–60 as originally the cash credits were shown by the assessee in the assessment year 1959–60.

49. Mr. B.P Rajgarhia has relied on the case of V. Jaganmohan Rao v. CIT EPT, [1970] 75 ITR 373, where their Lordships of the Supreme Court have held that once proceedings under section 34 are validly initiated, the jurisdiction of the Income-tax Officer is not restricted to the portion of the income that had escaped assessment and that section 34 in terms says that once the Income-tax Officer decides to reopen the assessment, he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains and, therefore, once assessment is reopened by issuing a notice under sub-section (2) of section 22, the previous underassessment is set aside and the whole assessment proceedings start afresh. It has also been held in this decision that once valid proceedings are started under section 34(1)(b) of the old Act, the Income-tax Officer not only had the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year.

50. Mr. B.P Rajgarhia has also relied on the case of New Kaiser-I-Hind Spinning and Weaving Co. Ltd. v. CIT, [1977] 107 ITR 760, where their Lordships of the Bombay High Court have held that if a notice is specifically given under clause (a) or clause (b) of section 34 in respect of a particular item covered by that clause, all other items covered by the same clause which have escaped assessment can also be reassessed. Thus it is evident that once it is held that the Income-tax Officer was justified in initiating proceedings under section 147(a) for the assessment year 1959–60, then he is entitled to look for other items also and then the interest amount of Rs. 5,096 paid relating to cash credits of Rs. 89,000 which had been allowed as deduction in the assessment year 1959–60 and the other 13 cash credits which were added by the Income-tax Officer could also be looked into and although the addition of Rs. 89,000 relating to cash credits could not be upheld in the assessment year 1959–60, once assessment is reopened, the Income-tax Officer is entitled to add the amount of interest relating to cash credits of Rs. 89,000 and he is also entitled to consider 13 other cash credits which he added in the assessment year 1959–60. Under such circumstances, the Appellate Assistant Commissioner was justified in setting aside the assessment for the assessment year 1959–60 for considering other cash credits for further enquiry relating to other cash credits and the Tribunal was not justified in quashing the reassessment proceeding for the assessment year 1959–60. Once it is held that cash credits of Rs. 89,000 were not genuine and their addition as income from undisclosed sources in the assessment year 1958–59 is upheld, then the interest allowed on these cash credits in the assessment year 1959–60 has to be disallowed and the other cash credits which are not proved to be genuine can also be added in the reassessment proceeding under section 147(a) of the Act for the assessment year 1959–60.

51. In view of my findings above, I hold that for the assessment year 1959–60, the Tribunal was not justified in law in quashing the reassessment proceedings under section 147(a) of the Act and so the question referred at the instance of the Commissioner of Income-tax for the assessment year 1959–60 is answered accordingly in favour of the Revenue and against the assessee and questions Nos. 1 and 2 for the assessment year 1958–59 as referred at the instance of the assessee are answered in favour of the Revenue and against the assessee. However, in view of the peculiar circumstances of the case, the parties will bear their own costs.

Uday Sinha, J.:— I agree.