V P SAMTANI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In this reference under Section 256(2) of the I.T. Act, 1961, the following questions have been referred to this court:

(2.) It appears that this reference relates to the assessment for the assessment year 1962-63. For this year the assessee filed a return on June 26, 1964, declaring a total income of Rs. 15,235. In Part F of the return the assessee showed a sum of Rs. 1,24,881 as receipt exempt from tax under Section 10(3) of the I.T. Act, 1961, being winnings from betting on horse races. The said winnings were stated to have been received through K. N. Chakraborty, proprietor of M/s. Taraknath & Co., a concern of book-makers of the turf club. In the course of the assessment proceedings the ITO noticed credits aggregating to Rs. 1,45,000 in five ledger accounts of the relevant previous year. In those ledger accounts the credits appeared as loans taken from hundi creditors. By a letter dated 14th March, 1967, the ITO informed the assessee that no evidence had been produced in support of the genuineness of the cash credits and called upon him to show cause why they should not be treated as the assessee's income from undisclosed sources. In his reply dated March 17, 1967, the advocate of the assessee referred the ITO to the assessee's disclosure petition filed before the Commissioner of Income-tax, wherein it was admitted that the said credits represented the assessee's own undisclosed earnings during the assessment years 1950 to 1959 which he had subsequently introduced under the assumed names either in his own accounts or in those of one Majula Pvt. Ltd. of which concern he was a director. By that reply the ITO was requested to keep the assessment pending till the disposal of the disclosure petition by the Commissioner. The ITO, however, completed the assessment on 28th March, 1967, adding the sum of Rs. 1,45,000, the aggregate of the cash credits under the head "Other sources", since the assessee failed to discharge the onus of proving the source of the cash credits. By a letter dated 15th March, 1967, the ITO informed the assessee that the book-maker was summoned under Section 131 of the Act to produce his books of account and other relevant evidence in support of the payment of the horse race winnings of the assessee. Then the assessee was asked to appear to prove the same. But the assessee was unable to prove because the entries in the book-maker's account had not tallied with that of the assessee. In that context the ITO observed : "I hold that Rs. 1,24,881 is the income from undisclosed source and winning on horse betting is only a created one only to rise up to the occasion to explain away the real source of income."

(3.) After completion of the assessment the ITO initiated penal proceedings against the assessee under Section 271(1)(c) and referred the matter to the IAC for further action. Before the IAC it was contended that the asses-see's appeal disputing the above-mentioned addition in the assessment was pending and till the disposal of appeal the question of imposing penalty did not arise. The IAC overruled the objection and for the reasons mentioned in his order dated 25th March, 1963, held that the assessee was guilty of concealment of the aforesaid three items of income added in the assessment. In his order the IAC has observed as follows ;