1. This judgment of ours would dispose of Income-tax References Nos. 42 and 43 of 1971. The facts read as under :

For the assessment years 1959-60 and 1960-61, regular assessments had been made in respect of Messrs. Kishan Lal Shiv Chand Rai. Later on, notices were issued under Sections 143(3)/148 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), and in the course of the assessment proceedings in pursuance of those notices, the assessee surrendered certain amounts which it had shown as loans of third parties at the time of earlier regular assessments. The Income-tax Officer accepted those surrenders and made orders of reassessment after affording an opportunity to the assessee-firm to prove that the credits on the basis of hundis shown in the names of third parties were genuine credits. At that time, the assessee-firm, instead of proving that fact, gave a statement surrendering those amounts to be treated as its income of the year from undisclosed sources.

2. Thereafter, proceedings for imposition of penalty were initiated against the assessee-firm. In those proceedings, it was pleaded by the assessee that it should be given an opportunity to prove that th