1. Aggrieved by the order passed on June 15, 1971, by the Commissioner of Income-tax, Mysore, Bangalore, in L. R. P. No. 108 of 1970 under section 264 of the Income-tax Act, 1961, the petitioner has filed this writ petition.
2. The petitioner was carrying on business in extraction and sale of manganese and iron ores. In the course of the proceedings relating to the assessment of his income in respect of the assessment year 1962-63, the Income-tax Officer found that there were certain discrepancies regarding and that a sum of Rs. 1,75,000 shown in the books of the petitioner as borrowings on hundies had not been established. He was also of the opinion that there was a credit of Rs. 9,000 in suspense account regarding which there was no proper explanation. In view of the foregoing, the Income-tax Officer ordered that in all a sum of Rs. 3,40,970 as income from undisclosed sources should be added to the income declared by the petitioner in his profit and loss account. The appeal filed against the order of the Income-tax Officer was unsuccessful. Thereafter, the petitioner filed a petition under section 264 of the Income-tax Act, 1961, before the Commissioner of Income-tax. The Commissioner of Income-tax modified the order of assessment to a small extent, but he negatived the contention urged on behalf of the petitioner with regard to the following items :
(1) Rs. 1,75,000 shown as borrowed on hundies;
(2) Rs. 9,000 shown in suspense account; and
(3) Rs. 85,783 being the value of the stock of manganese are held by the petitioner during the relevant period which had not been shown in his account books.
3. Aggrieved by the order of the Commissioner, the petitioner has filed this writ petition.
4. It is not disputed that a sum Rs. 1,75,000 which was shown as amount borrowed on hundies, Rs. 9,000 which is stated to be an amount value of the undisclosed stock of manganese are relate to the period prior to March 31, 1961, and it is also not disputed that they are treated by all the authorities concerned as income attributable to undisclosed sources.
5. The question urged by Sri K. Srinivasan, learned counsel for the petitioner, is that on the admitted facts, the Commissioner was in error in treating Rs. 1,75,000, Rs. 9,000 and Rs. 13,261 referred to above as income assessable during the assessment year 1962-63, because, they being incomes attributed to undisclosed sources during the financial year 1960-61 and there being no accounts regarding the alleged undisclosed sources, were assessable as income of the petitioner only in the assessment year 1961-62, if at all they were assessable. In support of the above proposition, he relied on a decision of the Supreme Court in Baladin Ram v. Commissioner of Income-tax, in which it was observed by the Supreme Court that it was well-settled that in the absence of any accounts in respect of the undisclosed source or when there was nothing to sow that the assessee had exercised any option under section 2 (11) (i) (a) of the 1922 Act, the only possible way in which income from an undisclosed source could be assessed or reassessed was to make the assessment on the basis that the previous year for such an income would be the ordinary financial year and had to be assessed in the immediately following financial year. The case of the petitioner squarely falls within the scope of the enunciation made by the Supreme Court.
6. Sri S. R. Rajasekhara Murthy, learned counsel for the revenue, however relied on section 297(2)(b) of the Income-tax Act, 1961, and argued that the case in question was governed by the provisions of the Income-tax Act, 1961, which came into force on April 1, 1962, as the return of income had been filed after April 1, 1962, and any pronouncement made on the basis of the provisions of the 1922 Act would not be applicable. Clause (b) of sub-section (2) of section 297 states :
'297. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act), - ...
(b) Where a return of income is filed after the commencement of this Act otherwise than in pursuance of a notice under section 34 of the repealed Act by any person for the assessment year ending on the 31st day of March, 1962, or any earlier year, the assessment of that person for that year shall be made in accordance with the procedure specified in this Act.'
7. A reading of the said provision makes it very clear that what is held to be applicable to returns of income filed after the commencement of the 1961 Act is the procedural part of that Act and not cases we are concerned with the liability of an assessee. In these cases we are concerned with the liability of an assessee. Hence, no support can be derived by Sri Rajasekhara Murthy from the above provision.
8. Therefore, the order passed by the Commissioner in respect of a sum of Rs. 1,75,000 said to have been borrowed on hundies, Rs. 9,000 traced to an unexplained suspense account, and Rs. 13,261 attributable to the undisclosed stock during the period prior to March 31, 1961, treating them as taxable in the assessment year 1962-63 should be set aside and it is accordingly set aside. The matter is now remitted to the Commissioner to pass a fresh order in the light of this decision and in accordance with law. It is, however, made clear that it is open to the authorities to take such steps as may be available to them in law regarding the above sums against the petitioners. The writ petition is accordingly allowed. No costs.