BASI K P Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of an assessee to income-tax, the Income-tax Appellate Tribunal (in short, "the Tribunal") has referred the following question of law for the decision of this court :

(2.) THE respondent is the Revenue. We are concerned with the assessment year 1975-76, for which, the accounting period ended on March 31, 1975. THE assessee was carrying on the business of money-lending with effect from December, 1973. His residence-cum-business place was raided on December 17, 1974. THE said disclosed an excess cash balance with the assessee in the sum of Rs. 63,853.54. A sum of Rs. 35,000 was seized by the Department. Proceedings were initiated against the assessee under section 132 of the Income-tax Act, 1961. THE Income-tax Officer passed an order, under Section 132(5) of the Act, dated March 14, 1975. In the said proceedings, the assessee explained the source for the funds. He stated that his mother-in-law, Smt. Ammakunju, who expired on December 4, 1974, had entrusted a sum of Rs. 37,000 to his wife, Santha, and the seized amount of Rs. 35,000 formed part of the said Rs. 37,000. THE Income-tax Officer held that the explanation for the source of funds was not satisfactory. He held that the sum of Rs. 63,853.54 represented the assessee's income from undisclosed sources. A sum of Rs. 35,917 was determined as tax payable on such undisclosed income. THE sum of Rs. 53,000 seized on December 17, 1974, was retained towards tax liability. A sworn statement was taken by the Income-tax Officer in proceedings under section 132 of the Act on February 28, 1975. THE petition filed by the assessee before the Central Board of Direct Taxes under section 132(11) of the Act on March 24, 1975, was dismissed. Subsequently, the assessee filed returns of income for the year 1975-76 on December 29, 1975 (December 15, 1975 ?), in which no part of this amount of Rs. 63,853.54 was shown. When questioned, the assessee explained before the Income-tax Officer that this sum of Rs. 63,853.54 was made up of contributions or loans from his mother-in-law and brothers-in-law (Dr. Natarajan and Narayanan). An affidavit signed and filed by all the children of Smt. Ammakunju, excepting the predeceased son and the mentally unsound daughter, supported the plea of the assessee to the effect that Rs. 37,000 of the said amount belonged to Ammakunju. THE Income-tax Officer did not accept the plea of the assessee. In appeal, the Appellate Assistant Commissioner accepted that a sum of Rs. 15,000 from Dr. Natarajan, brother-in-law of the assessee, and a sum of Rs. 5,000 from Ammakunju (mother-in-law of the assessee) were properly explained, as belonging to them. In the further appeal before the Tribunal, the quantum fixed by the Appellate Assistant Commissioner was confirmed. THE Tribunal referred to the earlier statement given by the assessee to the Income-tax Officer on December 17, 1974, and the later sworn statement dated February 28, 1975, as also the affidavits and statements filed by near relations and held that there are discrepancies and the quantum fixed by the Appellate Assistant Commissioner does not require interference. THE Tribunal noticed a deposit made in the name of the mother-in-law, Ammakunju, in the sum of Rs. 15,000. It was held that the amount of Rs. 37,000 was not availed of as pleaded by the assessee. Regarding Narayanan, the Tribunal held that he was not in a position to lend a sum of Rs. 10,000. THE appeal filed from the order of assessment was disposed of by the Tribunal, thus sustaining the additions to the extent of Rs. 45,656 out of the addition of Rs. 65,686 made by the Income-tax Officer in his order dated March 31, 1976. Proceedings were initiated against the assessee for levy of penalty under Section 271(1)(c) of the Act by the Inspecting Assistant Commissioner of Income-tax, Trivandrum. By order dated March 29, 1979, the Inspecting Assistant Commissioner held that the case attracted levy of penalty under Section 271(1)(c) of the Act read with the Explanation thereto and levied a sum of Rs. 50,000 as penalty. In the appeal filed by the assessee, the Tribunal, in I. T. A. No. 140/(Coch) of 1979, by order dated September 30, 1981, held that the explanation of the assessee regarding the source of funds is false. It was further held that though the Income-tax Officer was aware of the stand of the assessee even before the return was filed to the effect that the amounts came out of the funds belonging to Ammakunju (mother-in-law of the assessee) and others and the that non-inclusion of the amount in the return was consistent with the stand taken before the authorities, in proceedings under Section 132 of the Act and also the assessment proceedings, the non-declaration of the disputed income was based on a false explanation which amounts to fraud in terms of the Explanation to Section 271(1)(c) of the Act as it stood at the relevant time. In other words, the Tribunal held that the Income-tax Officer was aware even before the returns were filed by the assessee about the amounts unearthed during the raid and the non-inclusion of the said amount in the return was consistent with the stand taken by the assessee in proceedings under Section 132 and the assessment proceedings. Since the non-inclusion of the said income is due to a false explanation which amounts to fraud in terms of the Explanation to Section 271(1)(c) of the Act, penalty under Section 271(1)(c) of the Act read with the Explanation was justified. However, with regard to the amount of Rs. 10,000 said to be a loan from Narayanan, the Tribunal held that the explanation of the assessee was found to be only unacceptable but not found to be false. So a penalty on this amount under Section 271(1)(c) read with the Explanation was uncalled for and was deleted. THE penalty was reduced to Rs. 37,000, the minimum leviable. It is thereafter at the instance of the assessee that the question of law formulated hereinabove has been referred by the Tribunal for the decision of this court.

(3.) WE answer the question in the affirmative, against the assessee and in favour of the Revenue.