Reassessment for undisclosed credits upheld where the assessee failed to make full and true disclosure of material facts.

Reassessment under section 147(1) was upheld where unexplained credits arose in the relevant financial year and were treated as income from undisclosed sources. The court held that, after repeal of the 1922 Act, the relevant previous year remained the year to which the income related, and section 297(2)(d)(ii) of the 1961 Act did not alter the substantive law on taxability. It further held that the finding on undisclosed sources could not be reopened in reference and that the assessee had not made a full and true disclosure of material facts for the assessment year concerned. The reassessment proceedings were therefore valid.

---

---

Issues: Whether the reassessment proceedings initiated under section 147(1) of the Income-tax Act, 1961, were valid.

Analysis: The credits in question were found to have arisen during the financial year ending on 31 March 1959, and were treated as income from undisclosed sources. On that footing, they fell within the assessment year 1959-60. The court held that, for the purpose of reassessment of escaped income after the repeal of the Indian Income-tax Act, 1922, the relevant previous year remained the year to which the income related, and section 297(2)(d)(ii) of the Income-tax Act, 1961, did not alter the substantive law governing liability. The court further held that the finding that the amount represented income from undisclosed sources could not be reopened in reference and that the assessee had failed to make a full and true disclosure of material facts for the assessment year concerned.

Conclusion: The reassessment proceedings were valid and the Income-tax Officer was justified in initiating action under section 147(1) of the Income-tax Act, 1961.

Ratio Decidendi: For escaped income comprising unexplained credits arising in the relevant financial year, reassessment is valid under section 147(1) where the assessee failed to make a full and true disclosure of material facts for that assessment year, and the machinery provisions of the repealing and saving clause do not change the substantive year of taxability.

---