Ajit K.Sengupta, J. - (1.) In this reference under Section 256(2) of the Income-tax Act, 1961 ("the Act"), for the assessment years 1962-63 and 1964-65, the following questions of law have been referred to this court: Assessment year 1962-63 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reassessment proceeding under Section 147(a) of the Income-tax Act, 1961, was illegal and ab initio void and in that view annulling the assessment ?" Assessment year 1964-65 ; " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reassessment proceeding under Section 147(a) of the Income-tax Act, 1961, was illegal and ab initio void and in that view annulling the assessment ? 2. If the answer to question No. 1 is in the affirmative, then whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in not upholding the validity of the proceeding under Section 147(a) when the same was initiated within the time-limit prescribed under Section 147(b) ?"
(2.) The facts shortly stated are that the original assessment for 1962-63 was completed on January 22, 1965. During the original assessment proceedings, the accounts of the creditors, the list of loan creditors, and the statement of interest paid by the assessee were all filed with the Income-tax Officer. The addresses of the creditors were also duly supplied to him. The assessment was made on the business income of Rs. 3,603. Later on, the Income-tax Officer served a notice under Section 147 of the Act on the assessee in 1970 as he suspected the genuineness of the loans appearing in the account of Suwalal Jain and other concerns which he thought were the concerns of the former. During the reassessment proceedings, the Income-tax Officer put across to the assessee that Suwalal Jain had made a confession before the Income-tax Department in 1965, that he was a name-lender and was not a genuine loan creditor. The Income-tax Officer was later on confronted by the assessee with affidavits made by Suwalal Jain testifying to the genuineness of the loan advanced to the assessee. The Income-tax Officer refused to place any credence on the assessee's version in view of the contradictory statements made by Suwalal Jain. He, therefore, added back the sum of Rs. 2,80,000 along with interest thereon as the assessee's income from undisclosed sources. He further disallowed interest of Rs. 12,533 in respect of Jahurilal Kanahaiyalal. While reopening the assessment for 1962-63, the Income-tax Officer recorded the following reasons before taking the approval of the Commissioner : "Books of account of the assessee for the relevant accounting year show cash credits totalling over Rs. 10,000 in the name of Suwalal Jain of 46, Strand Road, Calcutta. This alleged creditor has confessed before the Department that he did not advance any genuine loans but only acted as a name-lender to help the assessee to introduce their concealed profits. Hence, bogus credits and the interest thereon represent escaped income of the assessee. I have reason to believe that owing to the assessee's omission or failure to disclose fully and truly all material facts necessary for its assessment, income has escaped assessment"
(3.) For the assessment year 1964-65, the original assessment was completed on March 4, 1965, on a total income of Rs. 21,056. The Income-tax Officer reopened the assessment for this year in view of the said confidential letter referred to in the earlier years by the Income-tax Officer mentioning that some of the credits in the books of account of the assessee are bogus. Here too, the Income-tax Officer treated as bogus the accounts of Suwalal Jain and the other concerns which Shri Suwalal Jain had reportedly confessed to be his own concerns. He, therefore, made a fresh assessment by adding back the credits in the accounts of these concerns and disallowed the interest allegedly payable to these parties amounting to Rs. 45,014.;