ORIENTAL WIRE INDUSTRIES P LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The assessment year involved in this case is 1965-66. In this reference, under Section 256(2) of the I.T. Act, 1961, as directed by this court, the Tribunal has referred the following question :

(2.) The relevant previous year for the assessment year with which we are concerned ended on the 31st March, 1965. The assessee-company is a manufacturer of wire netting, wirenails, strapping, etc. There was a deposit of Rs. 20,000 as on 1st March, 1965, in the assessee's books of account in the name of Nirmala Debi, wife of V.K. Agarwala, the brother of one of the directors of the assessee-company. The explanation of the assessee was that the lady had received Rs. 25,000 from, her father in November, 1962, at the time of her marriage, out of the gifts received by him on her behalf and kept in deposit with M/s. Madanpur Coal Co. Ltd., of which he was the managing director. The ITO did not doubt the fact of receipt of the gift or the withdrawal of the amount by the lady's father. He, however, doubted the fact that the withdrawals remained with the lady and were utilised by her by way of deposit with the assessee-company. He was of the view that the money must have been spent by her father in her marriage. In any case, there was no evidence to show that the same amount continued to remain with the lady which she could have deposited with the assessee after about 21/2 years. Accordingly, he assessed the said amount as his income from other sources. The AAC confirmed the order of the ITO on appeal. There was a further appeal before the Tribunal.

(3.) Before the Tribunal it was submitted that Rs. 25,000 withdrawn by the lady's father was handed over to her which she kept with her till Rs. 20,000 was deposited with the assessee-company on the 1st March, 1965. It was also submitted that the ITO had also assessed Smt. Nirmala Devi Agarwala on the interest income received by her from the assessee-company on the above amount after holding that the sum represented her undisclosed income. A copy of the assessment order in the case of the lady relating to the assessment year 1966-67 was also placed before the Tribunal in which it was observed by the ITO that the sum represented the benami investment of her husband, V. K. Agarwala, and the income from interest should be considered in his hands and the assessment in this case of the lady was made as "a protective measure". It was argued on behalf of the assessee before the Tribunal that in view of the above finding of the ITO, an amount of Rs. 20,000 could not be assessed in the hands of the assessee. The Tribunal after a consideration of the facts was of the opinion that the observations of the ITO in the last mentioned assessment order were of no avail at this stage particularly when the assessment of Sri V. K. Agarwala had not been finalised. Since the ITO had not given any finding on merits in the case of the lady, the Tribunal considered whether the credit was explained in the hands of the assessee or not. On the merits of the case, the Tribunal agreed with the authorities below that the assessee on the facts of the case had failed to explain the sources of the amount. In arriving at its finding the Tribunal gave reasons as follows;