COMMISSIONER OF INCOME TAX Vs. KHATEEB MAHMOOD

JUDGEMENT

(1.) THE assessee was formerly carrying on business in Ceylon in gold and gems from 1920 to 1958 as a partner in the firm of Messrs. Khateeb & Bros. He left Ceylon for good in 1958 and settled down at Kayalpatnam in India. On July 2, 1964, the customs authorities searched the premises No. 90, Naina Street, Kayalpatnam, belonging to the son-in-law of the assessee and found a sum of Rs. 1,70,000 in ten rupee notes kept in two boxes which were buried in the earth in an open place in the house. On information relating to the discovery of this amount and the admission by the assessee that the money belonged to him, the Income-tax Officer started assessment proceedings invoking his power under Section 175 of the Act. He issued a notice under Section 139(2) on January 11, 1965. In response to this notice, the assessee filed a return on January 19, 1965, admitting an income of Rs. 5,000 under the head of "Property income". With reference to the sum of Rs. 1,70,000, it was explained on behalf of the assessee that he and his two sons were carrying on business in Ceylon for a number of years and that the said money represented the amounts saved by them in that business and remitted into India. THE Income-tax Officer called for details of the remittance. THE remittances as evidenced by the passport of the assessee and his sons worked out to Rs. 50,930. THE investment in properties in India came to Rs. 50,000. THEre was also evidence to show that the assessee had spent about Rs. 9,500 for the marriages of his two daughters after 1956. Even before the Income-tax Officer the assessee admitted that the sum of Rs. 1,70,000 belonged to him. On the ground that the explanation of the assessee relating to the source was not acceptable and was not supported by any documentary or oral evidence, the Income-tax Officer came to the conclusion that the said sum represented income of the assessee from undisclosed sources. In coming to this view, the Income-tax Officer specifically relied on Section 69A of the Act. THE Income-tax Officer also proposed to levy penalty under Section 271(1)(c) and since the penalty leviable was more than Rs. 1,000 he referred the matter to the Inspecting Assistant Commissioner. After issuing show-cause notice and following the prescribed procedure, the Inspecting Assistant Commissioner, finding the assessee guilty of having concealed the particulars of his income and also furnished inaccurate particulars, imposed a penalty of Rs. 50,000 by his order dated March 22, 1966. Along with the assessment order, the Income-tax Officer had also issued a demand notice for paying a tax of Rs. 1,28,221.87. This amount was payable within ten days from the date of service of the demand notice. Since the tax was not paid, as demanded, within the time allowed, a show-cause notice was issued by the Income-tax Officer under Section 221 of the Act and ultimately imposed a penalty of Rs. 6,400 equivalent to 5 per cent. of the tax. THE assessee preferred appeals to the Appellate Assistant Commissioner against the assessment order and the penalty levied under Section 221. THE Appellate Assistant Commissioner confirmed the finding of the Income-tax Officer that the explanation of the assessee was not acceptable and that the sum of Rs. 1,70,000 was the income of the assessee from undisclosed sources. Accordingly, he confirmed the assessment and dismissed the appeal. He also confirmed the finding of the Income-tax Officer relating to the liability of the assessee for penalty under Section 221, but all the same, reduced the penalty from Rs. 6,400 to Rs. 2,500. THE assessee preferred further appeals to the Income-tax Appellate Tribunal against these orders of the Appellate Assistant Commissioner. He also preferred an appeal to the Tribunal against the order of the Inspecting Assistant Commissioner made under Section 271(1)(c) of the Act. THE department also preferred an appeal against the order of the Appellate 'Assistant Commissioner reducing the penalty from Rs. 6,400 to Rs. 2,500. All these appeals were taken together for hearing by the Tribunal.

(2.) THE Tribunal considered that the assessee was carrying on business at Ceylon on a considerably large scale and that there was reason to believe that the assessee was earning much more income than the one he was actually assessed to. THEre was no evidence to show that he was investing or spending on any extraordinary expenses apart from his ordinary household expenses and that, therefore, it was reasonable to think that he must have saved his income in Ceylon and could have remitted it into India from time to time. In so far as the remittances prior to 1949 are concerned, there were no restrictions on the remittances and that, therefore, the assessee might not have kept any accounts of the remittances. And so far as the remittances after 1949 are concerned, since there were restrictions on the remittance, it would not be fair to expect any evidence of such remittances as they would be in the nature of clandestine remittances. THE Tribunal also pointed out that if as large an amount of Rs. 1,70,000 is to be earned in the normal course of business, it would require a large amount of capital and there is no evidence of investment of such capital in India by the assessee. On these reasonings, the Tribunal held that there was no material for them to hold that the amount in question represented the income of the assessee. On this finding the Tribunal set aside the order of assessment. Consequently, the appeals filed by the assessee against the penalty order under Section 271(1)(c) and Section 221 were also allowed and the appeal filed by the department against the reduction of the penalty levied under Section 221 was dismissed.