JUDGMENT Satish Chandra, C.J.
1. For the assessment year 1961-62, the assessee claimed deduction of interest paid by it on loans advanced by certain persons to it on hundis. It proved the loans by producing the hundi khokhas which contained the signatures of the creditors, debtors and bankers. It had also established that interest was paid through account payee cheques. After enquiry, the ITO accepted its case and allowed deduction of interest.
2. Subsequently, the ITO received information from the ITO, Hundi Circle, Bombay, that there was a regular racket there, whereby certain persons lent their names and did not advance any money. Having reason to believe that the hundi loans claimed by the assessee were bogus, he reopened the assessment by issuing a notice under section 148 by applying Section 147, Clause (a), of the I.T. Act. The assessee appeared and took up the plea that the reopening was based on mere change of opinion and that the ITO had no material in his possession on the basis of which he could form the requisite opinion. The plea was repelled and since the assessee failed to prove the genuineness of the loan, the claim of deduction on account of interest was repelled and the amount of interest was added back. The assessee went up in appeal but failed. It then went to the Tribunal, which also dismissed the appeal. At the instance of the assessee the Tribunal has referred the following question of law :
" Whether, on the facts and in the circumstances of the case, the assessment for the assessment year 1961-62 was rightly reopened under section 147(a) of the Income-tax Act, 1961 ? "
3. From the judgment of the revenue authorities it appears that the ITO received information from his counterpart at Bombay that there was a regular racket in Bombay, whereby assessees introduced their own secreted funds into their books of account by the so called mechanism of multani hundi bankers. Specific statements were made by various hundi bankers who denied having lent any amount and unequivocally and unambiguously stated that they merely lent their names on a small commission. The I.T. Dept. at Bombay not only relied on their testimony but was able to gather sufficient material in support of these statements by raiding the premises of the hundi bankers. Out of the six bankers, who, the assessee claimed, had advanced money, three, namely, M/s. Bhajan Lal Dwarka Das, M/s. Kisram Goverdhan Das and M/s. Dwarka Das Karanchand, had specifically given statement on oath before the ITO, Hundi Circle, Bombay, denying advancing any genuine loans.
4. The revenue authorities have, on this statement of facts, held that this information was sufficient to lead the ITO to have reason to believe that income had escaped assessment. This belief was based on direct external evidence. It was not a case of change of opinion.
5. It is noticeable that the entire information received by the ITO, Bombay, was general in nature. The statements made by the three bankers were equally general. There is nothing to indicate that those bankers referred to the assessee as one of the persons to whom they had lent their names. They did not state that the actual loan, shown by the assessee as having been advanced by them, was not taken from them. In the third place, the statement did not specify the period during which the lending had been carried on. In other words, there is nothing to state that those statements refer to the year 1961-62 in particular. That is the year in question before us.
6. The learned counsel for the assessee has invited our attention to the case ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC). In that case one N. K. Mohan Singh Kanyalal, who was shown to be one of the creditors of the assessee, stated that he was doing only name-lending. The Supreme Court held that this information was not enough. They observed that there was nothing to show that the confession of M. K. related to a loan to the assessee, much less to the loan which was shown to have been advanced by that person to the respondent. In the first ground the live link or close nexus which should be there between the material before the ITO and the belief which he was to form was missing or in any event too tenuous to provide a legally sound basis for reopening the assessment. The case is applicable on all fours. For the revenue, learned counsel invited our attention to Phool Chand Bajrang Lal v. ITO [1977] 110 ITR 834 (All). In that case the confession of the managing director in question did not relate to borrow-
ing by the assessee much less to the alleged borrowing of Rs. 50,000 by him but it did relate to the borrowings from the year 1962-63 to 1964-65. The Division Bench of this court held that this last circumstance distinguishes the case from that of the Supreme Court decision in Lakhmani Mewal Das [1976J 103 ITR 437, inasmuch as here the confession was particularised with reference to time, which aspect was wanting, in the Supreme Court decision The Division Bench observed that in Lakhmani Mewal Das's case [1976] 103 ITR 437 (SC), it was the cumulative effect of all the aforesaid three circumstances that led the Supreme Court to hold that the confession Was too vague and indefinite. But in Phool Chand Bajrang Lol's case [1977] 110 ITR 834 (All), the confession was held to be sufficiently particularised. Phool Chund Bajrang Lal's case is distinguishable from the present case. In the present case, .all the three circumstances which led the Supreme Court to hold that the confession was too vague and indefinite are present. The statements made by the bankers at Bombay did not specify the name of the assessee as the alleged borrower. They did not refer to the actual loans shown by the assessee in his books of account and those statements did not even specify the period during which those bankers were doing name-lending. Consequently, the Supreme Court's decision is applicable while Phool Chand's case [1977] 110 ITR 834 (All) is distinguishable.
7. Learned counsel for the department relied on M. Varadarajulu Naidu v. CIT [1978] 111 ITR 301; Their Lordships of the Madras High Court have, ou facts, distinguished the case of Lakhmani Mewal Das [1976] 103 ITR 437 (SC). We have, however, found no distinguishing feature in the present case.
8. In the result, we answer the question referred to us in the negative, in favour of the assessee and against the department. The assessee will be entitled to costs which are, assessed at Rs. 200.