ORDER
P.M. Jagtap, A.M.
This appeal is preferred by the assessee against the order of learned Commissioner (Appeals), Jodhpur, dated 24-2-1992.
2. The only ground raised by the assessee originally in this appeal reads as under :
“Under the facts and circumstances of the case, the learned Commissioner (Appeals) has erred in confirming the addition of Rs. 7,82,974 on account of unexplained investment in building, furniture and plant and machinery, ignoring the fact that the assessee-firm has not started any income-earning activity during the relevant year and also ignoring the fact that this amount was invested by seven partners in firm who have surrendered Rs. 1,25,000 each on account of such unexplained investment in course of search through the head of the family, Shri Ram Sahai, the correct name is Ram Swaroop.”
3. In this case, the original assessment was completed under section 143(1) by assessing officer on 29-3-1988, on the basis of return of income, filed by the assessee on 31-7-1987, declaring a loss-of Rs. 9,393. Subsequently, survey under section 133A was carried out on 27th and 28-9-1988, at the premises of the assessee during which books of account were impounded under section 131(a). Besides this, search operations were also conducted at the residential premises of the partners of the assessee-firm during which certain incriminating documents were seized. A reference was made by assessing officer to the Departmental Valuer for estimating the value of construction of cinema building owned by the assessee-firm and the Departmental Valuation Officer estimated the same at Rs, 17,34,000. On the basis of Departmental Valuation Officers report as well as material found during the search, the assessment was reopened by the assessing officer by issuing notice under section 148. In response to the said notice, the assessee-firm filed its return of income on 22-3-1991, which was taken up by assessing officer for further scrutiny by issuing notice under section 143(2), While examining the books of account of the assessee-firm, the assessing officer found that the assessee has shown the expenditure of Rs. 00,977 on construction of cinema building in the previous year relevant to the assessment year 1987-88, whereas the cost of construction as per seized records incurred in the said year was worked out to Rs. 15,20,460. Similarly, it was also found that the assessee has not recorded the entire expenses incurred on furniture and plant and machinery in its regular books of account. The assessing officer, therefore, sought clarification/explanation from the assessee in respect of these unrecorded capital expenses amounting to Rs. 7,19,483, Rs. 34,324 and Rs. 73,034 in building account, furniture account and plant and machinery account, respectively. Before the assessing officer, it was explained on behalf of the assessee that the difference between the value as per seized records and as per the regular books of account has been surrendered by its partners of the assessee-firm in their returns of income for assessment year 1989-90, in pursuance of Explanation 5 to section 271(1)(c). This Explanation was rejected by assessing officer observing that the surrender made by the partners is not applicable in the case of the assessee-firm and he made the additions of Rs. 7,82,974 in the income of the assessee-firm under section 69 on account of unexplained investment in the construction of cinema building, furniture and plant and machinery. The matter was carried before the learned Commissioner (Appeals) who confirmed the additions made by assessing officer on this score considering that there is no material evidence on record to show that the partners of the assessee-firm contributed towards the unexplained investment. Aggrieved by the same, the assessee is in appeal before us.
4. We have heard the arguments of both the sides and also perused the relevant material on record. We have also gone through the written submission furnished by the learned counsel for the assessee and perused the decisions cited by him in support. It is observed that the explanation of the assessee that the deficiency found regarding the capital expenditure incurred on cinema building has been made good by the partners by surrendering the equivalent amount in their returns of income for assessment year 1989-90, was not accepted by the authorities below as there was no material evidence on record to establish that the partners of the assessee-firm in fact had contributed towards the unexplained investment made by the assessee-firm. Moreover, the nexus between the surrender made by the partners of the assessee-firm, during assessment year 1989-90 could not be established with the capital expenditure, found unrecorded in the books of account of the assessee-firm. While pointing out one instance, the learned counsel for the assessee has submitted before us that Shri Nagarmal, partner of the assessee-firm surrendered Rs. 1,55,000 as his income, invested in the firm. In this regard, he draw our attention to the copy of relevant assessment order, placed at p. No. 34A and 34B of his paper book. A perusal of the same, however, reveals that the assessing officer did not accept the surrender made by the said partner stating that the undisclosed investment found to be made in the cinema building related to the assessee-firm for assessment years 1987-88 and 1988-89 and, therefore, the surrender made by the partner of the assessee-firm in his individual case for assessment year 1989-90, cannot be correlated to the said investment. Under the circumstances we find the contentions of the learned counsel for the assessee raised before us on the basis of surrender made by the partner of the assessee-firm devoid of any merit and the same is, therefore, rejected. The learned counsel for the assessee has relied on the decision of the Honble Supreme Court in the case of Shree Lekha Banerjee v. CIT (1963) 49 ITR 122 (SC). However, as the explanation offered by the assessee in the present case has been rejected by the authorities below on a specific basis, the ratio laid down by the Honble Supreme Court, in the said case, cited by the learned counsel for the assessee cannot be applied in the present case.
5. The learned counsel for the assessee has contended before us that the addition under section 69 cannot be made in firms case for the reason that the firms business of exhibition of film was not started at the relevant time. In support of this contention he has relied on the decision of Honble Supreme Court in the case of Roshan Di Hatti v. CIT (1977) 107 ITR 938 (SC) and also in the case of CIT v. Bharat Engg. & Construction Co. (1972) 83 ITR 187 (SC). After carefully perusing the entire text of the said judgments of the Honble Apex Court, we find that the facts and circumstances involved in the said cases are entirely different from the facts of the present case inasmuch as those cases relate to 1922 Act and the issue of unexplained cash credit was under consideration. It is pertinent to mention here that there is a clear departure from law as it stood in the 1922 Act and that which stand after the insertion of section 68 in the 1961 Act. In the case of CIT v. Anupam Udyog (1983) 142 ITR 133 (Pat) the Honble Patna High Court has explicitly made out the said distinction in para 9 of its order, the relevant portion of which is reproduced below :
“The other distinction of paramount importance is this. Under the 1922 Act, it was held that where large amount of cash is credited on the very first day of the accounting year, and considering the extent of the business, it is not possible that the assessee earned a profit of that amount in one day, the amount could not be assessed as the income of the year on the first day on which it is credited in the books. Under section 68 of the Act, even in such a case, the unexplained cash credit may be assessed as the income of the accounting year for which the books are maintained.”
6. The decision of Honble Supreme Court in the case of CIT v. R.K. Noorjahan (1999) 237 ITR 571 (SC) cited by the learned counsel for the assessee, however, is directly applicable to the present case. In the said case involving identical facts, the assessee, a Muslim lady, was found as the owner of two plots of land having purchased the same in the previous year relevant to the assessment years 1968-69 and 1969-70. The explanation of the assessee regarding the source of the purchase consideration for this investment was rejected by assessing officer and the addition was made to the income of the assessee under section 69 of the Act, on account of unexplained investment in the said plots of land. The said orders of the assessing officer were affirmed in appeals by Appellate Assistant Commissioner. In the second appeal the Tribunal, however, held that even though the explanation about the nature and source of purchase money was not satisfactory but in the facts and circumstances of the case, it was not possible for the assessee to earn the amount invested in the property and that by no stretch of imagination could the assessee be credited with having earned this income in the course of the assessment year. The Tribunal took the view that although, the explanation of the assessee was liable to be rejected, section 69 conferred only a discretion on the assessing officer to deal with the investment as the income of the assessee and that it did not make it mandatory on his part to deal with the investment as income of the assessee as soon as the latters explanation happened to be rejected, On that view, the Tribunal allowed the appeals of the assessee and deleted the additions made by assessing officer under section 69. Subsequently the Honble High Court also agreed with the said view of the Tribunal and the Honble Supreme Court has also not found any error in the findings, recorded by the Tribunal in that case observing that the discretion has been conferred on the assessing officer under section 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case.
7. In the present case, the assessee-firm started its business of exhibition of films on 30-3-1987, whereas the relevant previous year ended on 31-3-1987. This undisputed fact makes it abundantly clear that the assessee firm carried out its business only for two days in the year under consideration and there being no other business activities carried out by the assessee-firm during the relevant year, it was not possible for the assessee to earn the amount alleged as unexplained investment in this case in just two days of its business operations. Moreover, the entire investment in the cinema building was found to be made prior to the commencement of the assessees business activities of exhibiting films. As such considering all the facts and circumstances of the case and respectfully following the decision of Honble Supreme Court in the case of CIT v. P.K Noorjahan (supra) we hold that the learned Commissioner (Appeals) was not justified in confirming the addition made by assessing officer under section 69 on account of unexplained investment. We, therefore, delete the same.
8. Before we depart on this issue, we may also consider other contentions raised by the learned counsel for the assessee stating that the addition in respect of such unexplained investment made from funds, introduced by the partners in the form of capital, cannot be considered in the firms hands and the same can only be considered in the cases of the concerned partners. He has cited the decisions of Allahabad High Court reported in 141 ITR 703 (sic), Indra Rice Mills v. CIT (1996) 218 ITR 508 (All) and Surendra Mohan Seth v. CIT (1996) 221 ITR 239 (All), It is, however, observed that all these cases cited by the learned counsel for the assessee relate to section 68 involving the issue of addition on account of unexplained cash credit. Moreover, a different view has been taken by the Honble Rajasthan High Court in the case of CIT v. Kishorilal Santoshlal (1995) 216 ITR 9 (Raj) wherein the Honble Jurisdictional High Court has held that the provisions of section 68 will cover even those credit entries made through partners accounts in the books of the assessee-firm and if the same remain unexplained, the addition can be made in the hands of the firm. Needless to observe that the said decision of Honble Jurisdictional High Court is binding on us and respectfully following the same, we reject this contention raised by the learned counsel for the assessee.
9. The learned counsel for the assessee has sought our permission for admission of an additional ground relating to the issue of charging of interest under section 217.
10. After considering the rival submissions and perusing the relevant material on record we admit the said additional ground involving legal issue and proceed to dispose of the same as follows :
It is observed that the original assessment was completed by the assessing officer in this case under section 143(1) on 29-3-1988, on the basis of return of income filed by the assessee-firm on 31-7-1987, declaring loss of Rs. 9,393. Subsequently the said assessment was reopened by issuing notice under section 148 and the reassessment under section 147 was completed on 27-3-1991, wherein, inter alia, interest under section 217 was levied by the assessing officer. A perusal of the provisions of section 217 reveals that interest under that section can be levied only on making regular assessment and the regular assessment as defined in section 2(40) at the relevant time means the assessment made under section 143 or section 144. Moreover, an assessment made for the first time under section 147 is also regarded as a regular assessment, inter alia, for the purpose of section 217 as per Explanation 6 to section 215. In the present case, undoubtedly the assessment was completed under section 147 after the completion of original assessment under section 143(1) and this being the factual position, the same cannot be considered as regular assessment for the purpose of levy of interest under section 217. We, therefore, direct the assessing officer to delete the same.
11. In the result, this appeal of the assessee is allowed.