COMMISSIONER OF INCOME TAX Vs. VARKEY CHACKO

JUDGEMENT

(1.) THIS is a reference compelled by the revenue under Section 256(2) of the I.T. Act. The assessee was an individual carrying on business as foreman of a chitty. The assessment year with which we are concerned, is 1969-70. He filed a return on April 16, 1970, showing an income of Rs. 36,332. THIS represented an income of Rs. 51,525 less loss for the assessment year 1968-69, amounting to Rs. 15,193 leaving as balance the amount shown as income. No particulars were supplied in the income-tax return, But in the computation of income, the income from chitty business was shown as Rs. 47,412. Subsequent to the filing of the return, the business premises of the assessee were searched on July 25, 1970, and certain books were seized. A scrutiny of these showed details as to how the sum of Rs. 47,412 was arrived at. It was seen that under the head "receipts" was entered veethapalisa at Rs. 18,728.24, sundry income at Rs. 19.70 and chitty commission at Rs. 1,42,250. These totalled to Rs.1,60,997.94. Deducting Rs. 1,13,585-42 as expenses, the balance income was arrived at as Rs. 47,412.52. In the statement filed by the assessee after the seizure, the chitty commission was shown at Rs. 84,930, veethapalisa at Rs. 2,548 and a new item of receipt, namely, interest, Rs. 32,000. THIS new calculation reduced the income to Rs. 19,760. A scrutiny of the ledger and comparison with the expenses claimed, disclosed many discrepancies. According to the ITO, there was concealment on two counts, (1) inflation of expenditure of Rs. 26,050 in regard to the three items referred to previously and (2) non-disclosure of the income from interest amounting to Rs. 36,705, totalling Rs. 62,755. He accepted the chitty commission of Rs. 1,42,250 as per the original statement found among the papers seized. On appeal, however, the assessee's contention that the chitty commission was only Rs. 84,930 was accepted.

(2.) THE ITO thereupon initiated penalty proceedings. THE IAC held that there was inflation in expenses under the head "salary", "canvassing commission" and "bonus". One source of income, namely, receipt by way of interest was found to have been completely suppressed. THE assessee pointed out the difference between the returned income of Rs. 51,525 and the finally assessed income of Rs. 56,950, and submitted that the difference between the two alone would represent the concealed income. It was argued by the assessee that if there was inflation under one head, there was an understatement with respect to another, so that, the surplus under the one would cancel the deficit under the other. It was, therefore, argued that there should be no concealment of income. This argument found favour with the Tribunal, but not with the IAC. THE relevant paragraphs in the Tribunal's order are paras. 5, 6 and 7. We may quote paragraph 6 :

(3.) IT would be seen from the section that liability to penalty would be attracted under Clause (c) if there has been concealment of the particulars of income or furnishing of inaccurate particulars of such income. IT is enough if this basic requirement is satisfied. Then the modus operandi for imposition of penalty provided in Sub-clauses (i) to (iii) can apply. Sub-clause (iii) has relation to Clause (c). A recent decision of this court in CIT v. Rowther Brothers [1979] 119 ITR 353 explained the requirement of the section thus (p. 356):