J.M.SHELAT,C.J. - (1.) THIS reference arises out of reassessment proceedings under S. 34(1)(a) of the IT Act, 1922, of an HUF carrying on business in motor spare parts and cigarettes. The proceedings were in respect of the asst. year 1953 1954 of which the corresponding year of account was Samvat year 2008.
(2.) THE original assessment for the asst. year 1953 54 was completed on 2nd Aug., 1957, the total income then assessed being Rs. 14,868 consisting of profits and income from business, interest and property. On an appeal by the assessee, the AAC by his order dt. 31st Jan., 1958, reduced it to Rs. 14,420. It is an admitted fact that the assessee had produced the books of account pertaining to both the businesses, but had not produced along with those books the balance sheets. At a later date, which is not quite clear from the statement of the case, the ITO learnt that an amount of Rs. 21,352 was lying deposited with the Morvi Mercantile Bank Ltd., Morvi, in the name of the assessee. The ITO, therefore, decided to initiate proceedings under S. 34(1)(a) and sought permission therefor from the CIT. The permission was sought for on the ground that : "The assessee deposited the amount of Rs. 21,352 in Morvi Mercantile Bank Ltd., Morvi, in Samvat year 2008. The assessee has not been able to prove satisfactorily the source of this deposit. Hence, action under S. 34(1)(a) is proposed to tax this amount which has escaped assessment. " It is clear according to the ITO that the deposit of Rs. 21,352 was made in Samvat year 2008, the relevant account year, that amount had escaped assessment, and that the case fell under cl. (a) of S. 34(1). It would also seem from the application by the ITO that he asked for an explanation but that the explanation given by the assessee was not satisfactory to the ITO. On these averments, the CIT granted permission by his order dt. 20th Feb., 1962, and thereupon the ITO issued a notice on 22nd Feb., 1962, which was served on the assessee on that very day. The assessment was completed on 26th Oct., 1962, on the total amount of Rs. 27,720. During these reassessment proceedings, the assessee could satisfy the ITO that the deposit of Rs. 21,352 was not made during Samvat year 2008 but that amount was carried forward from an earlier year and, therefore, was not assessable income for the relevant asst. year 1953 54. This is clear from the account of the Morvi Bank for Samvat year 2008 in the books of account maintained by the assessee and admittedly produced during the original assessment proceedings and which is part of the statement of the case. This account shows that the entry for Rs. 21,352 represented the credit balance brought forward from the earlier year and at the end of Samvat year 2008 was again carried forward to the next year's account, i.e., of Samvat year 2009. Clearly, therefore, the amount of Rs. 21,352 was not deposited during the relevant year of account, namely, Samvat year 2008, and, therefore, the statement of the ITO in his application for the CIT's permission that this amount was deposited in Samvat year 2008 and had escaped assessment was not correct. On these facts, the ITO did not add this amount to the assessment but added another amount of Rs. 13,300 being the total of cash credits standing to the credit of one Navalben Purshottam, a member of the assessee HUF and brought in the assessee's books of account during the period between 2nd Dec., 1952, to 20th March, 1953. The ITO, finding the explanation given by the assessee unsatisfactory, treated the various cash credits aggregating Rs. 13,300 as income from undisclosed sources. Since he treated this amount as escaped income from undisclosed sources, the amount would fall within the financial year 1952 53, that being the year of account relevant to the asst. year 1953 54. But he added the amount of Rs. 13,300 in the assessment for the asst. yr. 1954 55 which he had reopened earlier. During the reassessment proceedings in question, i.e., for the asst. year 1953 54, he presumably noticed this mistake and, therefore, added this amount in the assessment and that was how he assessed tax on a total income of Rs. 27,720 comprised of the original assessed income of Rs. 14,420 and Rs. 13,300. The amount of Rs. 13,300 was thus added for both the asst. yrs. 1953 54 and 1954 55.
(3.) THE assessee filed appeals against both these orders before the AAC. The AAC deleted the amount of Rs. 13,300 from the assessment for the asst. year 1954 55 but retained the addition of this amount in the assessment for the asst. year 1953 54. Before the AAC, the assessee raised four contentions : (1) that the reason given by the ITO for reopening was that the assessee had deposited in Samvat year 2008 the said amount of Rs. 21,352 and that amount had escaped assessment. That reason having been found to be incorrect the very basis and purpose for which notice under S. 34 was issued stood extinguished, that, therefore, the notice itself stood cancelled and consequently another item of income, namely, Rs. 13,300, could not be added : (2) that the assessee having disclosed the books of account at the time of the original assessment which showed the said cash credits, no new information can be said to have come into the possession of the ITO and therefore he had no power to act under S. 34 ; (3) that the ITO having already assessed the amount of Rs. 13,300 in the reopening proceedings for the asst. year 1954 55 by his order dt. 21st Oct., 1961, he had no power to add that amount once again in the assessment for the asst. year 1953 54 ; and (4) that the amount of Rs. 13,300 stood in the name of Navalben Purshottam and belonged to her and the assessee HUF had no concern with it and, therefore, should not have been added to the assessment. These contentions were rejected by the AAC but, as aforesaid, he deleted the amount of Rs. 13,300 from the assessment for the year 1954 55 and retained it in the assessment for the year 1953 54. We are not concerned in this reference with the merits of the question as to the amount of Rs. 13,300 as that is not the subject matter of the question referred to us. We are concerned only with the question whether the ITO validly invoked S. 34(1)(a) and initiated proceedings thereunder. On that question, the view of the AAC was as follows : "The first question that has to be decided is, therefore, whether the notice issued under S. 34 was valid or not. I do not know how the appellant came to know as for what particular item the satisfaction of the CIT was obtained for the issue of the notice under S. 34. Be that as it may and taking for granted that the satisfaction of the CIT was obtained to assess only one item of escaped income, namely, the deposit of Rs. 21,352 . . . the ITO who submitted the proposals to the CIT was under a bona fide and genuine belief that it was this amount of Rs. 21,352 that had escaped assessment." He stated that as the assessee had not filed the balance sheet at the time of the original assessment, the ITO had no information that this amount was a credit balance brought forward from the preceding year and was not a deposit made in the year of account. "Thus, the action under S. 34 when it was initiated was perfectly legal and the notice issued under S. 34 and the proceedings in pursuance thereof were perfectly valid." Before the Tribunal, the contention urged was that the proceedings under S. 34(1)(a) were not validly initiated and that, since it was found in the course of the reassessment proceedings that the sum of Rs. 21,352 which was the basis of the initiation of the action under S. 34(1)(a) was not the amount which had escaped assessment, it was not open to the ITO to include Rs. 13,300, which sum was not the basis for the initiation of proceedings under S. 34(1)(a). The Tribunal rejected that contention and held that the proceedings were validly initiated because at the time when the ITO initiated them he had in the circumstances of the case reason to believe that the assessee had made deposit with the Morvi Bank which had not been disclosed in the course of the original assessment. ;