LOKNATH CHOWDHURY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This reference under Section 256(1) of the I.T. Act, 1961, relates to the assessment year 1975-76. The assessee and his brother, Sushil Kumar Choudhury constructed a building at New Road, Alipore, Calcutta, during the previous years relevant to the assessment years 1974-75 to 1976-77. The assessee showed the total cost of construction at Rs. 5,29,562 and that in the assessment year 1975-76 at Rs. 3,82,293. This was not accepted by the ITO and the departmental valuer was required to estimate the cost of construction. The departmental valuer determined the total cost of construction of the building at Rs. 7,74,900 and that in the assessment year 1975-76 at Rs. 5,59,700. The difference between the cost of construction relating to the assessment year 1975-76 at Rs. 1,77,407 was treated by the ITO as income from undisclosed sources for the said assessment year and half of the said amount, i.e., Rs. 88,703, being the assessee's half share, was assessed in his hands. Penalty proceedings were initiated under Section 271(1)(c) of the Act in the course of the assessment proceedings in respect of the said unexplained investment. In appeal against the quantum assessment, the said addition was reduced by Rs. 17,500 and a sum of Rs. 71,203 was taken as the unexplained investment of the assessee,

(2.) It was contended before the ITO that penalty should not be imposed when the addition has been made on the basis of estimate only and the statements regarding the cost of construction by the assessee were not proved to be incorrect. The contention was not accepted by the ITO who, therefore, with the previous approval of the Inspecting Assistant Commissioner, passed an order imposing a penalty of Rs. 48,115 which was the amount of tax sought to be evaded. On appeal, the Commissioner of Income-tax (Appeals) also rejected the contention of the assessee and confirmed the order of penalty.

(3.) The assessee went on appeal before the Tribunal. It was contended by the assessee before the Tribunal that the cost of construction was determined finally by the Commissioner of Income-tax (Appeals) on estimate. In this regard, all the estimates made by the departmental valuer as well as the assessee's valuer were rejected by him. It was argued that penalty should not be imposed for additions to income based on estimate. The Tribunal observed that in this case it was seen from the penalty order that the income added was Rs. 71,203 and that the total income returned by the assessee was Rs. 28,342 and the total income assessed was Rs. 1,20,957. There was no doubt that the total income returned by the assessee was less than 80% of the total income finally assessed. So the ITO, according to the Tribunal, was correct in applying the Explanation to Section 271(1)(c) of the Act as it stood before its amendment by the Taxation Laws (Amendment) Act, 1975.