Law:

Section:

Section 147 of the Income-tax Act, 1961 Income escaping assessment - Illustrations - Assessment year 1962-63 - At time of original assessment, account books showing hundi loans, balance sheets, names of creditors and other evidence regarding them were furnished - When genuineness of loans was being investigated, disclosure petition was filed stating that hundi loans, except loan in name of 'JP', were not genuine - Interest credited in JP's account was allowed - A finding was recorded in subsequent year that loan in name of 'JP' was also not genuine - ITO re-opened assessment, for year under consideration on that basis - Whether since material facts with contemporaneous records and documents were placed before ITO at time of original assessment, it was for ITO to investigate and them to accept or reject case of assessee and it was not for to invite rejection from ITO by confessing that his return was not true or correct or that he had concealed material facts or had made untrue statements - Held, yes - Whether reassessment proceedings initiated were not valid - Held, yes FACTS At the time of original assessment a number of purported hundi loans including one in the name of one 'JP' were shown as genuine loans advanced to the assessee. When the genuineness of the said loans was being investigated, the assessee made a disclosure petition under section 271(4A) disclosing that the said hundi loans except of 'JP' were fictitious and they represented the concealed income of the assessee. Accordingly, the ITO had allowed deduction of interest of Rs. 9,000 on the said account which was credited to the account of 'JP'. Subsequently, in the course of assessment proceedings for the subsequent assessment year, it was found that the loan to 'JP' was a bogus loan and the interest alleged to have been paid on it was also bogus. The said loan and the interest were both treated as concealed income of the assessee. The said interest was not allowed to be deducted for the subsequent assessment year and was added back to the income of the assessee. The said assessment had since been confirmed by the AAC. On the said premises, the ITO believed that the assessee had failed to…

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