K.K.DESAI,J. - (1.) IN this reference made under S. 66(2) of the Indian INCOME TAX ACT, 1922, the question arising for decision is as follows : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 1,35,000 (rupees one lakh and thirty -five thousand) credited to the account of Ramsaran Pyarelal did not constitute the income of the assessee -company ?" The facts which require to be noticed are as follows :
(2.) THE assessee -company had its office and carried on business at Lokhand Jatha, Carnac Road, Bombay. It was incorporated on February 22, 1943, with a paid -up capital of Rs. 2,00,000 divided into 2,000 ordinary shares of Rs. 100 each. This reference relates to the accounting year ending March 31, 1946, the assessment year being 1946 -47. In August, 1945, the whole of the share capital of the company belonged to six shareholders, but as on March 31, 1946, two of the shareholders with a small holding had transferred their shares and the whole of the share capital belonged to four persons. Out of the 2,000 shares, one Lachhmandas Gaddarmal was the owner of 1,880 shares. Deviprasad Khandelwal was owner of 70 shares. For the first asst. year 1944 - 45, the assessee -company disclosed a loss, Rs. 16,000. For the asst. year 1945 -46, it returned the income - profit of Rs. 2,529, but was assessed for the income of Rs. 5,514. In the asst. year 1946 -47, the original assessment was only made on an income of Rs. 20,593. Prior to October 4, 1954, the ITO began inquiries in connection with the reassessment of the assessee -company under S. 34. He served the assessee -company with a letter dated October 4, 1954, containing several queries. This letter indicated that the questions raised related to the ledger account standing in the name of one Ramsaran Pyarelal of Jaipur in the books of the assessee -company in the above accounting year. Now, the facts about this account may be summarised as follows : Prior to August 22, 1945, according to the case of the assessee - company, Ramsaran Pyarelal had effected forward transactions in gold in Bombay by taking assistance of the assessee -company. These transactions continued from some time prior to August 22, 1945, till March 6, 1946. In connection with the delivery of gold that was to be taken in the account of Ramsaran Pyarelal on August 24, 1945, the assessee -company having called upon Ramsaran to make payment, received on August 22, 1945, a sum of Rs. 1,00,000 by telegraphic transfer made in favour of the assessee - company by Jaipur Finance Corporation of Jaipur through the Punjab National Bank. In a similar manner, the assessee -company received on October 3, 1945, in this account another sum of Rs. 35,000. In this account, in accordance with the instructions received from Ramsaran, delivery of gold was given and taken from time to time. The above sum of Rs. 1,35,000 was used up in connection with taking of delivery of gold. It appears that entries in respect of these forward transactions were in the first instance not made in the main books of accounts of the assessee - company. The case of the assessee -company was that in connection with the moneys received and other credits received in the account, credit notes were from time to time issued by the assessee - company to Ramsaran Pyarelal. The entries in respect of the above two sums of Rs. 1,00,000 and Rs. 35,000 and other transactions were brought into the main books of account on November 30, 1945. The transactions became squared up and closed as on March 6, 1946, by delivery of gold of the quantity of about 965 tolas by the assessee -company to a representative of Ramsaran in Bombay. The account disclosed that in the transactions in gold effected between July -August, 1945, and March, 1946, profit of Rs. 29,742 was made. The account disclosed at least four debit entries for payments debited to Ramsaran Pyarelal as follows : Rs. 60,000 by cheque drawn on December 14, 1945, on the Chartered Bank. Rs. 10,000 by hawala adjustment made on December 22, 1945, in the accounts of Ramsaran on the one hand and Khandelwal Bros. Ltd. on the other. Rs. 7,500 also by hawala adjustment made with Khandelwal Bros. Rs. 87,464 being the price and/or value of the quantity of gold mentioned above and delivered to Ramsaran Pyarelal. The ITO served reminders in respect of his above letter dated October 4, 1954, on the assessee - company, but did not receive any reply till February 28, 1955. On that day, the ITO received the letter dated February 26, 1955, from the assessee -company giving point by point reply to the questions raised by the ITO in his letter. In connection with Ramsaran Pyarelal, it was stated that he was residing at London and his London address was given. It was stated that he was an employee of Khandelwal Ltd. in London. It was further stated that tax was not deducted in respect of profits of Rs. 29,000 and odd, because, at the material time, Ramsaran was a non -resident. In this reply, the assessee -company also gave facts relating to the above ledger account of Ramsaran Pyarelal and the forward transactions in gold effected in the account of Ramsaran Pyarelal. It stated that at the relevant time the address of Ramsaran Pyarelal was Johari Bazar, Jaipur, and the same was the address of Jaipur Finance Corporation. At the end of the transaction, gold was delivered to a munim of Ramsaran Pyarelal. They promised to dig out and produce correspondence of instructions given by Ramsaran and also similarly the cash book for the relevant period. The cash book was ultimately produced. The correspondence could not be produced. In the reassessment made, by his order dated February 10, 1956, the ITO referred to the above facts and to the fact of a cable dated February 7, 1956, received from Ramsaran Pyarelal pointing out that he had sent the two amounts of Rs. 1,00,000 and Rs. 35,000 and that an affidavit made by him was being forwarded to the ITO in that connection. The ITO refused to accept the explanation given by the assessee -company of the above ledger account. In that connection, he observed that Ramsaran Pyarelal was of the age of 30 years in 1956 and that Ramsaran Pyarelal was a relation of Ramprasad, being the husband of the sister of Ramsaran's father. Ramprasad was a brother of Deviprasad who was the shareholder and these facts had not been disclosed to the ITO. In Khandelwal Ltd. of London, Ramprasad and Deviprasad were co -directors. In the Jaipur Finance Corporation Ltd., Jaipur, Ramprasad's wife was a director and she could not give any information to the ITO about the transmission of the moneys. Lachhmandas Gaddarmal who was the main shareholder of the assessee -company had not acted fair with the Department. Lachhmandas had in his affidavits filed in his own case stated facts about the huge wealth amassed by him whilst doing business in Jaipur and Indore, but had not produced any books of accounts. He also referred to the fact of wealth in the possession of Ramprasad and the fact that Ramprasad had come to Bombay from Karachi on September 8, 1947. He stated : "The money received in the name of Ramsaran Pyarelal has to be viewed in the circumstances relating to Jaipur Finance Corporation Ltd. and also relating to Lachhmandas Gaddarmal and Ramprasad Khandelwal."
(3.) HE held that the profits of Rs. 29,742 in the above account belonged to the assessee -company and the above two sums of Rs. 1,00,000 and Rs. 35,000 were income from undisclosed sources belonging to the assessee -company and reassessed the income of the assessee -company on that footing. The AAC confirmed the findings of the ITO. In the appeal of the assessee -company before it, the Tribunal, in the first instance, made a remand order dated January 6, 1958, directing that the AAC should examine Deviprasad and Ramprasad and, if possible, Ramsaran Pyarelal. The Department should also ascertain the financial position of Jaipur Finance Corporation Ltd. and Ramsaran Pyarelal by reference to the ITO, Jaipur.;