Law:

Section:

Section 147(a) of the income-tax act, 1961-Reassessment-Non-Disclosure of primary facts-Assessee allegedly borrowed on hundies certain amounts on interest-ITO completed assessment allowing interest-Subsequently assessment reopened under section 147(a) on the ground that ITO had information that creditors were hawala hundi name lenders-Whether reassessment proceedings valid in law-Held, on facts, no Facts In the assessment year 1961-62, the assessee claimed to have paid interest on hundi loans obtained from six Bombay parties and produced relevant hundi khokas and established that the interest amount had been paid through account payee cheques. After enquiry, the ITO accepted the assessee's claim and allowed deduction of interest in the original assessment. Subsequently, the ITO received information from his counterpart at Bombay that there was a regular market in hundi loans and that there were several multani hundi bankers who lent their names on a small commission to help assessees to introduce their own secreted funds into their books in the guise of hundi loans. Some such bankers, including three out of the six alleged creditors of the assessee, deposed before the ITO, Bombay denying the advance of any genuine loan. On receipt of this information, the ITO reopened the said assessment under section 147(a). The assessee challenged the reassessment proceedings as the ITO had no material to form a belief that taxable income had escaped assessment and that it was a case of mere change of opinion. On assessee's failure to prove the genuineness of the hundi loans, the ITO repelled the assessee's contentions and added in the reassessment the impugned interest amount. Both the AAC and the Tribunal confirmed the ITO's action. On reference: Held 1. Since some of the hundi creditors had made statements denying advancement of any hundi loan, the ITO had some direct external evidence to have reason to believe that taxable income had escaped assessment. It was not a case of change of opinion. 2. However, the entire information received from the ITO, Bombay, was general in nature. Even the statements of the hundi bankers were also equally general. Their statements did not…

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