HENRY ISIDORE Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN pursuance of the direction of this Court given to the Tribunal in TCP No. 109 of 1980, dt. 14th July, 1980, the Tribunal referred the following questions for the opinion of this Court under s. 256(2) of the IT Act, 1961 :

(2.) THE assessee runs a lodging house known as "Chandra Lodge". His place of business was raided by the IT Department on 22nd Aug., 1972, and a number of documents and books were seized. One of those books marked as "14(b)", contained entries showing receipts of various amounts by the assessee from persons who were allowed to park their tourist buses within the compound of the assessee's lodge during the relevant previous year, the total aggregating to Rs. 36,015. Another book marked as "No. 7" contained entries said to be relating to the expenditure incurred by the assessee. A statement was recorded by the Assistant Director of Inspection from the assessee on the same day. It was stated by the assessee then that certain bus owners, viz., Selvi Sri Ram and N. P., used to park their buses in the compound of his lodge, that he had collected rent from them for so parking their buses, that he used to get Rs. 600 per month gross and that he had recorded such receipts in the account books marked as "14(b)". He further stated that he had not disclosed such income in the income-tax returns filed by him earlier. For the asst. yr. 1972-73, a notice was issued to the assessee by the ITO under s. 139(2) on 21st Feb., 1973, requiring him to file his return of income. THE assessee filed the return on 28th Feb., 1973, disclosing income of Rs. 27,000 made up of Rs. 18,000 under the head "Property" and Rs. 9,000 under the head "Business", both being estimated figures. It was stated by the assessee in the covering letter dt. 28th Feb., 1973, sent along with the return that such income had been returned on estimate as the account books had been seized and kept by the Department. THEreupon, the seized account books were made available to the assessee and he was permitted to take extracts therefrom. Subsequently, the assessee filed a return on 13th Feb., 1975, disclosing an income of Rs. 32,954 made up of Rs. 16,164 under the head "Property" and Rs. 16,790 under the head "Business". On 20th Feb., 1975, the assessee appeared before the ITO with his authorised representative, in response to the notice issued under s. 142(1). THE ITO required the assessee to furnish details regarding the rent collected in respect of the lodging house during the relevant accounting year, of the lease agreements entered into during the relevant accounting year, of bus parking charges received by the assessee during the relevant previous year, of rent in respect of house properties and regarding certain loans said to have been taken by the assessee. THE assessee agreed to furnish the details, as can be seen from the entry made by the ITO on 20th Feb., 1975, in the order sheet wherein the assessee's authorised representative also signed. On 6th March, 1975, the assessee filed a return disclosing income of Rs. 47,324 made up of Rs. 31,662 under the head "Property" and Rs. 15,662 under the head "Business". THE ITO examined the assessee on 10th March, 1975, and recorded his statement. THE assessee was shown the account book marked as "14(b)" and was informed that it contained entries showing receipt of Rs. 36,015 by way of bus parking charges during the relevant previous year. THE assessee stated that he had received 20 per cent thereof as commission and had shown the same in the revised return filed by him on 6th March, 1975. THE assessee further stated that there was no evidence available with him to prove that the remaining 80 per cent had been expended by him. On 17th March, 1975, a revised statement was filed by the assessee's authorised representative, showing the income as Rs. 46,819. On 22nd March, 1975, the ITO made an assessment determining the total income as Rs. 1,05,003. THE ITO recomputed the total receipts from the lodge as Rs. 78,867. He disallowed Rs. 8,400 out of Rs. 11,667 claimed by the assessee as salary paid for the staff. He also disallowed Rs. 6,000 out of Rs. 7,000 claimed as salary paid to the manager. THE ITO also included Rs. 36,015 as income received by the assessee by way of parking charges. THE ITO also initiated action for levy of penalty for alleged concealment of income under s. 271(1)(c) of the IT Act, 1961.

(3.) THE second item is Rs. 4,800 disallowed out of Rs. 6,000 claimed to have been paid as salary to the Manager. THE ITO pointed out that the pocket note book marked as "No. 7" which was seized at the time of raid disclosed that the salary was paid to the Manager, Sri Sundararajan, at the rate of Rs. 300 per month up to 31st July, 1971, when he left service. THErefore, he allowed only Rs. 1,200 and the balance of Rs. 4,800 was disallowed. It was contended before the Tribunal that the balance represented the salary paid to Sri P. V. Ramana Bhatt during the relevant previous year. It was stated that this could be established from the books seized by the Department. THE books were not made available to the assessee. But, ultimately, the assessee stated that no payment was made to Sri Ramana Bhatt during the relevant previous year. According to the assessee, moneys had been advanced to Ramana Bhatt earlier and the same was set off against the salary payable to him when he worked as Manager. But no evidence was produced to substantiate this version. THE said Sri Ramana Bhatt had also written a letter to the assessee on 14th Feb., 1970, stating that he had not at all served as Manager or in any other capacity during the relevant previous year. However, the assessee claimed Rs. 6,000 as salary paid to the Manager. In this view of the matter, the Tribunal held that the assessee had concealed income of Rs. 4,800.