D.K. Kapur J.
1. The assessed was originally assessed for the assessment year 1953-54 on March 28, 1958. As a result of certain observations made by the Appellate Assistant Commissioner in the appellate order in respect of the assessment year 1954-55, a notice was issued under section 148 of the Income-tax Act, 1961, with the previous approval of the Central Board of Direct Taxes. Two sums, which were treated as unexplained credits showing income from undisclosed sources, were added to the assessed's income. The first sum of Rs. 93,000 was received from M/s. Dalmia Cement and Paper Marketing Co. Ltd. and the second sum of Rs. 5,51,400 was received from M/s. R. K. Relhan & Co., Stock Brokers. The assessed's Explanationn that the first sum was received as a result of debit notes and the second sum was received as a result of the sale of the shares of the Lahore Electric Supply Co. Ltd. was rejected. The Appellate Assistant Commissioner sustained the addition.
2. The following question has been referred to us under section 256(1) of the Act :
'Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that section 68 of the Income-tax Act. 1961, was applicable to this case and the two sums of Rs. 93,000 and Rs. 5,51,400 were not assessable in the assessment year 1953-54 ?'
3. The facts and circumstances of the case relating to the two credits were elaborately examined by the Income-tax Officer as well as the Appellate Assistant Commissioner, but the Tribunal decided the assessed's appeal in his favor on a legal issue without going into the merits of the two additions to the assessed income. We are not setting out the facts relating to the two amounts involved in any detail as it is not necessary in view of the order that has to be passed in this case.
4. The Income-tax Appellate Tribunal found that the assessment year under consideration was 1953-54, when the Indian Income-tax Act, 1922, was in operation, but the reassessment was done after the Act of 1961 had come into operation. The Tribunal examined the provisions of section 297(2)(d)(ii) of the Act and came to the conclusion that the words occurring therein showed that after the new Act was introduced, the Act of 1922 stood repealed and thereafter the procedure prescribed by the 1961 Act had to be applied. The important words in section 297(2)(d)(ii) were that a notice could be issued under section 148, etc., and all the provisions of this Act shall apply accordingly. These were enough to show that section 68 also applied, so the undisclosed income had to be added in the assessment year 1954-55 and not 1953-54.
5. The provisions of section 68 of the Act are to the effect that if there is any undisclosed credit in the account for which the Explanationn is not accepted by the Income-tax Officer, then the amount has to be treated as the income of that year.
6. It so happened that the accounting year corresponding to the assessment year 1953-54 was the period ending on September 30, 1952. All the entries relating to the sum of Rs. 93,000 and Rs. 5,51,400 were made after September 30, 1952. They were in the books relating to the accounting period relevant to the assessment year 1954-55.
7. The conclusion of the Income-tax Appellate Tribunal was that these two sums were to be added, if at all, in the income relating to the assessment year 1954-55 and not 1953-54. As noted already, the appeal was decided without determining the merits regarding the taxability of the two sums of Rs. 93,000 and Rs. 5,51,400.
8. A number of cases have been cited before us, which on examination show that the applicability of section 68 to the facts of this case has to be ruled out.
9. The Supreme Court held in Govinddas v. ITO : 103ITR123(SC) , that the words 'all the provisions of this Act shall apply' occurring in section 297(2)(d)(ii) applied only to the machinery portion of the new Act and not the substantive portion. That case was really concerned with section 171 of the new Act, which made some new provisions regarding the taxability of a Hindu undivided family after its partition. The court held that this was not a machinery portion of the new Act and did not apply to reassessment proceedings in respect of the earlier years.
10. In CIT v. Dharamchand Anandkumar : 128ITR219(MP) , the Madhya Pradesh Court held that section 68 was not a machinery provision in so far as it fixed a year for income from undisclosed sources and hence it did not apply to reassessment proceedings.
11. Another similar decision is Bhogilal Virchand v. CIT .
12. Any doubts that we may have about the applicability of section 68 have to be eliminated in view of the Supreme Court's decision in Baladin Ram v. CIT : 71ITR427(SC) , wherein it was held that under the 1922 Act, if there was income from undisclosed sources, it had to be taxed in the financial year corresponding to the assessment year and not taxed according to the previous accounting period or the previous year of the assessed. In other words, although the entries were made after the close of the accounting year of the assessed, as they were made in the financial year ending on March 31, 1953, they had to be taxed, if at all, for the financial year 1953-54. There is obviously a change in the new Act.
13. It so happened that this change was also discussed by the Supreme Court in the said judgment. It was noted that if there were entries, then section 68 would make the entries chargeable to tax in the assessment year relevant to the previous year of the assessed, i.e., the accounting year. But, if there were no entries, then probably even under the new Act, the financial year would indicate that which assessment year was to apply.
14. We take it as settled, as far as we are concerned that the two amounts in question have to be taxed in the financial year corresponding to the assessment year 1953-54 and the Tribunal's view is not correct. This means that we have to answer the question referred to us in the negative, in favor of the Department and against the assessed.
15. However, this does not end the matter because at the close of the Tribunal's order in appeal, there are the following observations :
'In view of our above findings, it is not necessary to record a finding on merits in regard to the genuineness of these transactions.'
16. We have, thereforee, to direct the Tribunal to deal with the assessed's case in accordance with our answer to the question and also this means that the Tribunal will have to deal with the question on merits. The Department will be entitled to its costs; counsel's fee Rs. 500.