Reassessment of escaped income under the repealed Act depends on the year's substantive law, with valid reopening on bona fide material.

For reassessment of escaped income for an assessment year governed by the repealed Act, the substantive law of that year applies, while section 297(2)(d)(ii) supplies only the reassessment machinery; the two hundi credits were therefore assessable in assessment year 1960-61, not only in 1961-62. Full and true disclosure under section 147(a) must be made for the relevant assessment year, and disclosure in later proceedings does not cure earlier nondisclosure. On the material that the creditors were bogus and the transactions benami, the Income-tax Officer had a bona fide reason to believe income had escaped assessment, so reopening under sections 147(a) and 148 was justified.

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Issues: (i) Whether, on the facts and in the circumstances of the case, the reassessment of the two hundi credits could be made for assessment year 1960-61 under section 297(2)(d)(ii) of the Income-tax Act, 1961. (ii) Whether there had been a failure by the assessee to disclose fully and truly all material facts necessary for the assessment for assessment year 1960-61, and whether the Income-tax Officer had reason to believe that income had escaped assessment so as to justify action under sections 147(a) and 148 of the Income-tax Act, 1961.

Issue (i): Whether, on the facts and in the circumstances of the case, the reassessment of the two hundi credits could be made for assessment year 1960-61 under section 297(2)(d)(ii) of the Income-tax Act, 1961.

Analysis: The saving clause in section 297(2)(d)(ii) applies the new Act only for the machinery of reassessment and does not import the substantive charging provisions of the Income-tax Act, 1961 for assessment years governed by the repealed Act. For income from undisclosed sources arising in an assessment year prior to the new Act, the governing substantive law remained that of the repealed Act, under which such income was assessable with reference to the financial year as the previous year and not by the assessee's own accounting year.

Conclusion: The credits could validly be assessed in assessment year 1960-61, and the Tribunal was wrong in holding that they could be assessed only in assessment year 1961-62.

Issue (ii): Whether there had been a failure by the assessee to disclose fully and truly all material facts necessary for the assessment for assessment year 1960-61, and whether the Income-tax Officer had reason to believe that income had escaped assessment so as to justify action under sections 147(a) and 148 of the Income-tax Act, 1961.

Analysis: The obligation under section 147(a) is to disclose fully and truly all material facts relevant to the assessment for the year in question. Disclosure in proceedings for a later year does not satisfy that duty for an earlier year if the relevant assessment had already been completed. The Court also held that the material before the Income-tax Officer, including information that the creditors were bogus and their sworn statements that the transactions were benami, constituted adequate material to form a bona fide belief that income had escaped assessment; the belief was not based on mere suspicion.

Conclusion: There was failure to make full and true disclosure for assessment year 1960-61, and the reopening under sections 147(a) and 148 was justified.

Final Conclusion: The reference was answered against the assessee on both questions, and the reassessment proceedings for assessment year 1960-61 were upheld.

Ratio Decidendi: For escaped-income reassessment of an assessment year governed by the repealed Act, the substantive law applicable is the law of that assessment year, while the new Act supplies only the procedural machinery; moreover, a later disclosure does not cure nondisclosure for the relevant year, and reassessment is valid where the officer has reasonable material to believe that income has escaped assessment.

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