COMMISSIONER OF INCOME TAX Vs. SULEMAN ABDUL SATTAR

JUDGEMENT

(1.) AN assessee indicated in Part IV of his return of income for the asst. year 1969 70 that a receipt of Rs. 44,239 in the relevant year was not taxable on the ground that it was prize money received in a competition which was of the character of casual income earned during the previous year relevant to the said assessment year. According to the assessee, the said income of Rs. 44,239 represented the prize received by him in a crossword puzzle competition conducted by one Kasoti Sahitya Harilal (hereinafter referred to as "Harifai") and, therefore, it was casual income which was not taxable. It was proved by overwhelming evidence that the story regarding winning of prize was a hoax and a device to legitimize the introduction of unaccounted money under the smoke screen of the story. It was found as a matter of fact that the assessee had not received any such prize and the amount alleged to have been received as prize was in truth his unaccounted income. The statement, made by the assessee in Part IV of his return was thus proved to be factually false. And yet, the Tribunal (hereinafter referred to as "the Tribunal"), in the appeal preferred by the assessee against the levy of penalty under S. 271(1)(c) of the IT Act, 1961 (hereinafter referred to as "the Act") by the IAC, held that no penalty was leviable because, (i) in view of the disclosure made by the assesse in Part IV of the return, the assessee could not be said to have concealed income or furnished in accurate particulars thereof ; (ii) the Revenue had not proved that the money which the assessee was alleged to have received as prize in the crossword puzzle competition was income earned by the assessee in the aforesaid assessment year and that it was a case of mere falsity of explanation given by the assessee; and (iii) there being no gross or wilful neglect or fraud on the part of the assessee, no penalty was leviable on the basis of the Explanation to S. 27l(1)(c) of the Act, notwithstanding that the assessee's case was covered by the said Explanation. In our opinion, for the reasons which we shall presently state, the Tribunal's view cannot be sustained.

(2.) FACTS leading to this reference are as follows: Some time in June, 1969, the premises of Harifai were searched under S. 132 of the Act. From the documents and material seized during the search and statements of various persons connected with the Harifai recorded during the course of the investigation, it was discovered that Harifai was conducting crossword puzzle competitions only with the object of helping the persons who had unaccounted income or money, to bring out such income or money by way of prizes at such crossword puzzle competitions. Investigation revealed that Harifai was organised to devise a scheme to give colour of legitimate source to the unaccounted money. The scheme functioned in the following manner. Persons with unaccounted money would approach the organisers of Harifai and on their paying commission, which was usually 10 per cent. of the unaccounted money, the organisers of the Harifai would declare a prize equal to the amount of the unaccounted money, which persons wanted to bring out, for winning crossword puzzle competition, which was not genuine. The documents and material on record show that within a period of two years, unaccounted money totalling to about Rs. 40 lakhs of about 30 persons from various strata of society were brought out in the form of bogus prizes. The persons who brought out their un accounted money in the aforesaid dubious manner openly utilised the money for their business and other purposes and whenever called upon to explain the source of such money by the authorities concerned, their explanation was that they had won a prize at the crossword puzzle competition. It was in this manner that the organisers of Harifai helped the persons with unaccounted money to give colour of legitimate source to their un accounted money. It appears that one Navnitlal S. Patel was the proprietor of Harifai. This Navnitlal S. Patel conducted such dubious crossword puzzle competitions also in the name of Makkam Harifai and Kundan Shabda Spardha. The assessee was one of the persons in whose favour Harifai had declared a prize. The evidence disclosed that the prize which was declared in favour of the assessee was Rs. 46,959 and not Rs. 44,239 as stated by the assessee in Part IV of his return. The evidence further disclosed that the assessee had paid Rs. 4,695, being 10 per cent. commission to the organisers of Harifai, for getting the prize declared. According to the Revenue, both these amounts represented the unaccounted money or income of the assessee.

(3.) THE ITO by a letter called upon the assessee to produce evidence in support of the claim made in Part IV of the return. The assessee, however, did not avail of the opportunity, ignored the letter and in fact failed to give any reply to this letter. Thereafter, the ITO issued notices under ss. 142 (2) and 143(2) of the Act, calling upon the assessee to appear before him. The assessee was also called upon to produce the organiser of Harifai with his books of account to establish his claim for exemption for the sum of Rs. 44,239 mentioned in Part IV of his return. The assessee was also called upon to furnish a statement of his total wealth as on different dates. The ITO called for information in respect of a number of matters, details whereof need not be mentioned for the present purposes. The ITO also made detailed enquiries regarding the prize money alleged to have Particulars Amount Reasons why not taxable Lottery receipts Rs. 44,239 Casual income Agricultural income Rs. 3,434 Casual income been received by the assessee which were claimed as exempt and his enquiry showed that the prize was not genuine. The information, which the ITO had collected in the course of the enquiry and copies of statements of various persons which he had recorded in the course of the enquiry, which he proposed to use against the assessee, were sent to the assessee to give him an opportunity to rebut or explain the evidence which was to be used against him. The assessee, however, refused to accept the envelope containing copies of statements sent to him. The assessee also failed to submit a statement of his wealth as required by S. 142(1) of the Act. The ITO, therefore, proceeded to make assessment under S. 144 of the Act and determined the total income of the assessee at Rs. 72,260, details of which are as follows :