Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(1) of the I.T. Act, 1961, we are concerned with two assessment years, namely, the assessment years 1957-58 and 1961-62 for which the corresponding accounting periods were 2012-13 and 2016-17, Dewali years, respectively. The assessee is a registered firm with four partners who are all brothers having equal shares. The original assessment for the year 1957-58 was completed on 28th October, 1957. At the time of assessment, the assessee had shown certain cash credits in the name of different hundiwallas, as they have come to be known in income-tax jargon in this country. The ITO accepted the credits as genuine while making the original assessment for the year 1957-58. On the 3rd of February, 1966, the assessee filed a disclosure petition. In the said disclosure petition, the assessee had stated, inter alia, as follows : "That your petitioner-firm and its partners as already said have earned these incomes during the period 1949 to 1955 but no accounts or documentary evidence in support of the earning and the amount thereof year-wise is available or can be produced. That your petitioner-firm and its partners humbly submit that your goodself may be pleased to spread over and distribute equally the peak credit amounting to Rs. 4,31,972 for a period of eight years commencing from 2009 Dewali corresponding to I.T. assessment year 1953-54 to 2016 Dewali corresponding to I.T. assessment year 1960-61 and direct the ITO to complete the assessments accordingly by adding each year's amount to the total income previously assessed of your petitioner firm and its partners."
(2.) The assessee had also prior to these averments stated as follows : " That your petitioner firm started introducing cash in the shape of loan in the names of different hundiwallas in the books of account from 2013 Dewali year corresponding to the I.T. assessment year 1957-58. The said procedure of introduction of cash in the shape of loan in the names of different hundiwallas in the books of account of your petitioner-firm has continued up to 2022 Dewali corresponding to the I.T. assessment year 1966-67. That prior to 2013 Dewali, your petitioner-firm and its partners had unaccounted cash in hand exceeding Rs. 3,00,000 earned by it during the period 1949 to 1955 when due to the Second World War the price of scrap iron and hardware materials went up very high. All these profits were kept outside the books of account as cash in hand and were subsequently introduced in the books of account in the shape of hundi loans in the names of different individuals. A detailed list of such hundi loan transactions is under preparation and your petitioner undertakes to file the same within a fortnight's time."
(3.) In the statement of case, however, it was mentioned that subsequent to the making of the original assessment the ITO had reason to believe that due to the omission or failure on the part of the assessee to disclose fully or truly the particulars of his income the amount representing the cash credit had escaped assessment. It was stated, further, accordingly, that he had reopened the said assessment under Section 147(a) of the I.T. Act, 1961. But it appears that the notice under Section 148 of the I.T. Act, 1961, on the basis of Section 147(a) of the I.T. Act, 1961, was issued on 15th March, 1966, that is to say, subsequent to the filing of the disclosure petition. No return was filed pursuant to the notice issued after the return for the assessment in question, namely, assessment year 1957-58, and after the notice under Section 148 of the I.T. Act, 1961. The assessee also did not produce the books of account and other evidence in response to the notice under Section 142(1) of the I.T. Act, 1961. The ITO, thereupon, completed the assessment for the year 1957-58 under Section 144 read with Section 147(a) of the I.T. Act, 1961, ex parte on the basis of the materials included in the petition. He found cash credits to the tune of Rs. 1,80,000 in the accounts of six parties on different dates. No attempt had been made to prove the loans. The assessee's case was as mentioned in the disclosure petition that the amounts represented the earnings of the firm for the prior years and the procedure for introduction of the cash in the shape of loans in the names of different hundiwallas in the books of account of the petitioner was started in the assessment year 1957-58 and continued up to the assessment year 1966-67. These were according to the assessee income earned during the period 1949 to 1955, According to the assessee these incomes were earned during the period 1949 to 1955 when due to the Second World War the price of scrap iron and hardware materials went up very high and these profits were kept outside the books of account as cash in hand and were subsequently introduced in the books of account in the shape of hundi loan in the names of different individuals. The ITO, therefore, treated the cash credit amounting to Rs. 1,80,000 as assessee's income from undisclosed sources. He also disallowed a sum of Rs. 4,154 as alleged interest paid to different hundiwallas because these were interests on those fictitious hundi loans. The ITO before completion of the assessment initiated proceedings under Section 271(1)(c) of the I.T. Act, 1961.;