COMMISSIONER OF INCOME TAX Vs. PAUL A C

JUDGEMENT

(1.) THE assessee in this case had business activities both in Ceylon and in India. He owned properties in both the countries. In the course of his assessment for 1964-65, the ITO found that the assessee had made investments in his name as well as in the names of his wife and son. Investments were made to the extent of Rs. 1,05,850. When the assessee was asked to explain the source for those investment which were not to be found in the account books kept by the assessee, it was explained that the monies had come from out of the savings from his agricultural income. It was also explained that dividends from shares which had not been brought into the books also accounted for a portion of the investments. In addition, the assessee explained that whenever his wife or sons travelled from Ceylon to India, they brought into India remittances of monies not disclosing them to the foreign exchange authorities in either country. THE explanations were not believed by the ITO. He held that of the total investments of the value of Rs. 1,05,850 which were made by the assessee during the relevant account year both in his name and in the names of his wife and son, the assessee was in a position to explain the sources of funds from untaxed dividends and untaxed agricultural income to the extent of Rs. 44,961 after allowing for household expenses. He thus calculated that the assessee had yet to explain the sources of investments to the extent of Rs. 60,889. Since there was no valid explanation as to this part of the value of the investments, the ITO added this amount to the income returned by the assessee.

(2.) THE assessment in the manner aforesaid was followed by penalty proceedings initiated earlier under s. 271(1)(c) of the Act on the ground that the assessee had concealed particulars of his income to the extent that he was not able to explain satisfactorily, his investments to the extent of a sum of Rs. 60,889. THE penalty proceedings were subsequently taken over by the IAC. Before this authority, the assessee explained that the ITO had not properly judged the resources which the assessee had, from out of which the investments must be regarded as having been fully and properly explained. It was submitted that the ITO was not justified in estimating the agricultural income of the assessee at Rs. 20,000 per annum, nor was he justified in putting the household expenses at Rs. 20,000. It was also submitted that the remittances which the assessee's wife and son had brought from Ceylon clandestinely were of a kind which could not be supported by proof of such remittances. THE IAC once again went into the resources which were available in the hands of the assessee for making the investments. According to the IAC, the ITO had failed to give further credit to agricultural income of Rs. 8,000 and dividend income of Rs. 24,961. He further held that after setting off Rs. 15,000 as household expenses a net sum of Rs. 17,961 must be given credit to, for the purpose of ascertaining what the balance of unexplained source for investment made by the assessee was. In this re-estimation of the availability of funds with the assessee for making investments, the IAC arrived at a figure of Rs. 30,000 as the value of the investments for which the assessee's explanation fell short. Since there was thus an estimated shortfall of Rs. 30,000 in the sources of investment made by the assessee, the IAC concluded that this must be regarded as the assessee's concealed income for which there was no proper explanation. On this basis, he levied a penalty of Rs. 20,000 under s. 271(1)(c) of the Act.

(3.) THE learned standing counsel for the Department submitted that even in the absence of the Department not pressing for the application of the Explanation to s. 271(1)(c), the Tribunal ought properly to have invoked that provision of their own accord, while considering the merits of the penalty order. THE learned standing counsel referred, in this connection, to a decision of the Orissa High Court in CIT v. Laxmi Auto Stores [1977] 106 ITR 626. In that case, a penalty imposed by the Department had been canceled by the Tribunal, but without going into the application of the Explanation to 271(1)(c) of the Act. THE Orissa High Court held that the ambit of the dispute before the Tribunal was wide enough to cover the justification for penalty from all angles and since the Explanation to s. 271(1)(c) was the law applicable to the point at issue before the Tribunal, that Explanation must be deemed to have been canvassed before the Tribunal. THE Tribunal in that case merely followed the decision of the Supreme Court in Anwar Ali's case [1970] 76 ITR 696 and had canceled the penalty. According to the Orissa High Court, even if the Explanation had not been canvassed before the Tribunal, it was the bounden duty of the Tribunal to invoke the provision as though it had been canvassed before them by the Department. THE learned standing counsel submitted that we should adopt this rule of practice laid down by the orissa High Court.