Ramaswami, J. - (1.) This appeal is brought, by special leave, from the judgment of the Calcutta High Court dated March M, 1964 in Income-tax Reference No. 29 of 1961.
(2.) The respondent (hereinafter called the 'assessee') is an individual carrying on business in Jute, Cloth and Films. The assessment year is 1952-53, the corresponding accounting year being the calendar year 1951 for all business except Katihar Cloth Importing Co. and the Jute Mills for which the accounting year is financial year ending March 31, 1952. During the year of account the assessee claimed that he had borrowed three sums of Rs. 2,50,000, Rs. 1,50,000 and Rs. 30,000 from three parties from Nepal, Kharag Bahadur Nepali, Jiwanmal Santockchand and Sohanlal Subhkaran respectively. The Income-tax Officer added these amount' to the total income of the assessee on the ground that the assessee had inflated the purchase of raw jute. The Income-tax Officer was not satisfied that these three were genuine loans but considered that they represented secret profits made by the assessee by inflating the purchase of raw jute. The income-tax Officer noted that the assessee had withdrawn at Calcutta on March 31, 1952, a sum of Rs. 5,30,000 from a Calcutta bank and had sent a sum of Rs. 5,85,000 to his Forbesganj branch on the same day to enable that branch to make payments including the repayment of Rs. 2,50,000 to Sri Kharag Bahadur one of the alleged creditors noted above. The Income-tax Officer discussed the impossibility of the amount having reached Forbesganj branch in Bihar on the very same day in order to enable discharge of the creditors there on March 31, 1952. In regard to this amount of Rupees 5,85,000 the Income-tax Officer observed as follows: "On 31-3-52 the Calcutta Office has withdrawn Rs. 5,30,000 from the Bank and has sent Rs. 5,85,000 to Forbesganj. How the cash has reached Forbesganj (in remote corner in North Bihar) on the same day to enable the branch to make payments (including the sum of Rs. 2,50,000 to Kharag Bahadur is something difficult to understand even in these days of fast travel. Lloyds Bank in Calcutta would not have obliged the assessee by paying out cash before 10 A. M. on 31-3-52 and the only available train leaves in the night. The journey including the ferry trip over the broad gauges takes over 24 hours. Hence the entries in the book cannot be taken to be genuine." The assessee took the matter in appeal to the Appellate Assistant Commissioner and contended that the Income-tax Officer should not have added the three items of Rs. 2,50,000, Rs. 1,50,000 and Rs. 30,000, to the total assessable income. The Appellate Commissioner did not agree with this contention and confirmed the addition of Rs. 4,30,000. At the same time, the Appellate Assistant Commissioner noticed the fact of the alleged transfer of Rs. 5,85,000 from Calcutta to Forbesganj on March 31, 1952 and its credit in the accounts books of the latter branch on the same date. The Appellate Commissioner considered that the amount of Rupees 5,85,000 should also be included in the total income of the assessee, but before doing so he gave the assessee a deduction of Rupees 1,80,000 being the amount withdrawn earlier from the accounts of the two creditors, namely, Jiwanmal Santokchand and Sohanlal Subkharan and added the balance of Rupees 4,05,000. This addition by the Appellate Assistant Commissioner amounted to an enhancement of the income which the Incometax Officer had assessed. The assessee tools the matter in further appeal to the Appellate Tribunal which held that the Appellate Assistant Commissioner was justified in coming to the conclusion that the cash credits in the accounts were not explained satisfactorily and some of the payments made at Forbesganj branch on March 31, 1952 were not made from the remittance from Calcutta but from secret funds. The Appellate Tribunal pointed out that out of the payments claimed to have been made at Forbesganj payments to Kharag Bahadur Nepali amounting to Rs. 2,50,000 must also be excluded because it had been held by the Income-tax Officer and the Appellate Assistant Commissioner that the loan was not genuine; and since the loan was not genuine it was not logical to say that it required repayment from secret funds. The Appellate Tribunal accordingly reduced the enhancement to Rs. 1,55,000. In doing so the Appellate Tribunal rejected the contention of the assessee that the Appellate Assistant Commissioner had no authority to enhance the income on the ground that it was not the subject-matter of the assessment made by the Income-tax Officer. The Appellate Tribunal took the view that the subject matter in respect of which the enhancement was made was, in fact, considered by the Income-tax Officer and accordingly the Appellate Assistant Commissioner had jurisdiction to make the enhancement. At the instance of the assessee the Appellate Tribunal referred the following question of law for the opinion of the High Court under Section 66(1) of the Income-tax Act, 1922 (hereinafter called the 'Act') : "Whether on the facts and in the circumstances of the case the Appellate Assistant Commissioner was within his authority in enhancing the assessment of the assessee by Rs. 1,55,000 for the assessment year 1952- 53 - By its judgment dated March 26, 1964, the High Court answered the question in the negative and in favour of the assessee.
(3.) Section 31 of the Act is to the following effect: "31 (1) The Appellate Assistant Commissioner shall fix a day and place for the hearing of the appeal, and may from time to time adjourn the hearing. (2) The Appellate Assistant Commissioner may, before disposing of any appeal, make such further inquiry as he thinks fit, or cause further inquiry to be made by the Incometax Officer (3) In disposing of an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment,- (a) confirm, reduce, enhance or annul the assessment, or (b) set aside the assessment and direct the Income-tax Officer to make a fresh assessment after making such further inquiry as the Income-tax Office thinks fit or the Appellate Assistant Commissioner may direct and the Income-tax Officer shall thereupon proceed to make such fresh assessment and determine where necessary the amount of tax payable on the basis of such fresh assessment,......." ;