SEN, J. - (1.) : In this reference under s. 66(1) of the IT Act, 1922, the following question has been raised for decision by this Court : "On the facts admitted or found, was the ITO entitled to reopen the assessment of the assessee under s. 34(1)(a) of the IT Act ?"
(2.) THE assessee, Anil Kumar Kundu of Midnapore, is one of the partners of the firm of Hrishikesh Madan Mohan Kundu, a firm registered under s. 26A of the IT Act, 1922. Few days after the commencement of the accounting year, each of the partners contributed some capital to the said firm. According to his share the assessee, Anil Kumar Kundu, contributed a sum of Rs. 3,500 towards capital of the firm. In the assessment proceeding against the firm, it was called upon by the ITO to explain the source and genuineness of this cash credit. The explanation was disbelieved by the Department and the total sum of Rs. 32,000 contributed by the partners was included in the assessment of the firm, as income from other sources. When the matter went up to the Tribunal, it came to the conclusion that the amount of Rs. 32,000 was made up of several items of capital contributed by the individual partners in proportion to their shares and as it could not, on materials, be held as the income of the firm, the inquiry as to the source and genuineness of the cash credits should be pursued in the assessment of the individual partners. Accordingly, the Tribunal by its order dated November 4, 1953, deleted the total amount of Rs. 32,000 from the assessment of the firm. In view of this decision by the Tribunal, the ITO after obtaining due sanction of the CIT issued notice under s. 34 on March 10, 1956, to the assessee on the ground that certain income, i.e., capital contributed by him to the firm has escaped assessment. The assessee was asked to explain the source and genuineness of the said sum of Rs. 3,500. As the explanation offered by the assessee was disbelieved by the ITO the amount of cash credit was added to his income. An appeal was taken by the assessee to the AAC. Before the IT authorities the assessee contended in the first instance that there was no scope for reopening the assessment under s. 34 by the ITO, as the entire materials were laid before him at the time of the assessment of the firm. The second contention was that the second proviso to s. 34(3) in so far as it affected persons other than the assessee not parties to the proceedings, was ultra virus as it contravened Art. 14 of the Constitution. In this reference we are not concerned with the second contention, as it has not been pressed. The details of the first contention, which has been pressed, are given below : "In the course of the assessment proceeding of the firm or simultaneously of the partners, the account books of the firm showing the cash deposits were placed before the ITO and the assessee having submitted himself to the original assessment, it cannot be said that he had failed to disclose any material particulars regarding the cash credit. Therefore the original assessment should not have been reopened under s. 34(1) (a)."
(3.) THE ITO negatived this contention raised by the assessee and when the matter ultimately went up before the Tribunal, it affirmed the decision of the AAC, who did not interfere with the order of the ITO. THE Tribunal came to the conclusion that besides merely stating that the assessee was the partner of the firm and was sharing profits to an extent, neither the applicant made any declaration about the cash credits in the return nor did he declare at the time of the assessment of the firm that the cash credit in question was introduced by him from his income. On such a conclusion, it was found by the Tribunal that the ITO had reason to believe that the assessee did not disclose fully and truly all the material facts that he introduced the amount of cash credit and about its source and, under such circumstances, the ITO was entitled to reopen the case under s. 34(1) (a). It will appear from the order of the Tribunal dated November 4, 1953, in the firm's IT Appeal No. 6615 of 1952-53 that, on the facts of the case, the Tribunal did not see any reason to doubt that the amount of Rs. 32,000 was made up of several smaller sums actually contributed as capital by the individual partners. The addition of Rs. 32,000 to the firm's income was, therefore, deleted. It also expressed an opinion that the partners are assessees in their individual capacities and if the explanation of their respective accretion of wealth was unsatisfactory, the inquiry should be pursued in the assessment of the individuals. From the order of the AAC, it will appear that the assessment was reopened under s. 34 of the IT Act. In response to notice under s. 23(2), the assessee's representative appeared. He was asked to explain the source and nature of deposit of Rs. 3,500 as shown by the assessee under section "D" of the return, by producing documentary evidence or any other proof. He explained that the money was obtained from different sources, viz., from Bharat Luxmi Rice Mill, sale proceeds of agricultural produce and from home chest. The explanation offered was not accepted on the ground that, at the time of the assessment of the firm, a different stand was taken, viz., that the partners invested the money in the business from the sale proceeds.;