COMMISSIONER OF INCOME TAX Vs. VORA L H

JUDGEMENT

(1.) THIS is a reference under s. 66(1) of the IT Act, 1922, at the instance of the CIT. The reference arises out of imposition of penalties under s. 28(1)(c) of the Act for the asst. yrs. 1952-53 and 1953-54, the corresponding previous years being the years ending March 31, 1952 and March 31, 1953, respectively.

(2.) THE assessee, during the material period, was engaged as an agent and was earning remuneration as such agent and for that purpose had resided at Delhi. For the two assessment. years, he filed his returns declaring his income at Rs. 6,000 and odd for the asst. yr. 1952-53 and Rs. 6,768 for the asst. yr. 1953-54. In respect of the asst. yr. 1952-53, he revised his returns at a subsequent date, declaring his total income for that year at Rs. 3,337. It is an admitted fact that he did not maintain any books of accounts in respect of his employment. THE returns filed by him were in due course investigated by the ITO and in completing the assessments, he brought to tax additional amounts of Rs. 17,390 and Rs. 29,483 for the two years respectively as income from undisclosed sources. THE assessment order for the asst. yr. 1952- 53 shows that though the assessee had filed his returns for that year declaring therein only Rs. 3,337 as his total income, it was found by the ITO that during that year he had purchased a motor- car for Rs. 10,250, a piece of land for Rs. 9,330 and had commenced construction of a house upon that piece of land. THE construction of the house was commenced in November, 1951, that is to say, during the account year 1951-52, and was completed some time in April or May, 1952, during the account period 1952- 53. On the discovery by him of the acquisition during the relevant period of these assets, the ITO called upon the assessee to furnish information regarding the sources of these expenditures. THEreupon, the assessee made a statement in which he explained that he had taken Rs. 15,250 from his father, Rs. 800 from his wife, Rs. 2,000 from his brother, Rs. 1,000 as loans from one K. D. Mehta and D. Shukla, and, lastly, that Rs. 1,500 were his earnings from races and cards and that the rest of the amount required by him in the acquisition of these assets represented withdrawals from his banking accounts. Except for the sum of Rs. 2,000 said to have been borrowed by him from his brother, the ITO rejected the explanation for the rest of the amounts, holding that the explanation given by the assessee was false and unbelievable and added, as aforesaid, Rs. 17,390 in the computation of the total income of the assessee for that year as income from undisclosed sources. For the asst. yr. 1953-54, the assessee had shown his total income at Rs. 7,150 and his case was that he had, during the relevant account year, worked for two concerns of Bombay, namely, M. Kolman and Paragon Textile Mills. In the returns he had also shown that he had received a sum of Rs. 2,000 being bonus earned by him, for M/s Nanavati and Co. in respect of work done for them during an earlier period. THE construction of the house was completed in or about April-May, 1952, and in respect of the cost of that construction and the land, the assessee explained that he had taken Rs. 8,000 from his father, Rs. 5,000 from his wife and that the rest represented withdrawals from the bank. THE ITO rejected this explanation, characterising it as unworthy of belief observing that the assessee had been hard put to explain the sources from which he could incur the cost of construction. He also observed that in explaining the sources from which he got these amounts, he had this time given up some of the items totaling to Rs. 10,330 which he had explained earlier when he gave explanation for the previous assessment year and had added a new source, namely, Rs. 1,400, being the commission earned by him from Diarvi Trading Co. for whom he had acted as the agent for Saurashtra and Kutch. THE ITO stated that though the assessee showed this sum of Rs. 1,400 as available to him for the construction of the house, he had not included that amount in the returns for that year. THE ITO also found that the assessee had underestimated the building cost to about Rs. 23,000 and estimated that cost at Rs. 40,000 and taking that figure to be correct and adding Rs. 1,400, being the income not disclosed in the returns, held that the total assessable income against the income disclosed by the assessee namely, Rs. 9,890, was Rs. 40,563. Thus the ITO brought to tax additional amounts of Rs. 17,390 and Rs. 29,483 as income from undisclosed sources respectively for the two assessment years. In the appeals filed by the assessee before the AAC, these amounts were reduced to Rs. 15,245 and Rs. 15,083 respectively. THE record shows that the assessee did not file any further appeal from the orders passed by the AAC and acquiesced in the said amounts. THE amount of Rs. 15,083 added for the asst. yr. 1953-54, however, included Rs. 2,000 received as bonus from M/s Nanavati and Co., but since its source was disclosed it could not be said to be income from undisclosed sources and to that extent, the order passed by the AAC was factually incorrect. On the very day that the ITO passed his aforesaid orders, he initiated penalty proceedings against the assessee under s. 28(1)(c) and issued notices dated April 3, 1957, and February 20, 1958, for the two assessment years respectively. THE assessee, in reply to these notices, furnished his explanation. On August 25, 1958, the ITO, after taking into consideration the assessee's explanation, imposed penalties of Rs. 2,682 and Rs. 2,855 as penalties in respect of Rs. 15,245 and Rs. 15,083, they being the amounts held as income from undisclosed sources as finally fixed by the AAC. An appeal was filed against these orders before the AAC but that was rejected.

(3.) AGAINST the two orders, the assessee filed appeals before the AAC. The AAC heard the appeals together and passed a common order dated August 18, 1959, dismissing both the appeals. The assessee's case before the AAC was that the added amounts were considered to be income from undisclosed sources merely on the basis that the ITO had not accepted his explanation, that the ITO had failed to establish that the amounts treated as income from undisclosed sources constituted his income and were not receipts which were not his income. The assessee, therefore, contended that his case fell within the purview of the decision in Gokuldas Harivallabhdas (supra) and that, therefore, the ITO was not justified in levying the penalties. The AAC rejected these contentions, and relying upon a letter written by Abdulla Fidaali and CO. to the effect that the assessee was not their salaried employee and was employed to represent them whenever they found the presence of a representative at Delhi necessary, came to the conclusion that the work done by the assessee at Delhi for that firm was of a minor nature, was not one which was likely to keep him busy for the whole time and yet the assessee had been paid Rs. 5,000. He concluded from these facts that such work only could not have kept the assessee at Delhi for a period of about six months, and, therefore, the appellant must have also served other parties and obtained remunerations from them. On this basis he held that "the income which has been considered 'to be his income from undisclosed sources' is actually the income of the appellant which he has earned for rendering services of this type, and as such has to be considered as income in the hands of the appellant on that account."