Commissioner of Income Tax vs Namlabhai Bhanabhai

Ahmadi, J.—The assessee, an individual, filed his return of Income for the assessment year 1969-70 in response to a notice u/s 139(2) of

the Income Tax Act, 1961 (hereinafter called ""the Act""). While declaring his total income to be nil, he stated in Part IV of the revised return that he

had received an amount of Rs. 1,16,500 as prize money from Makam Sahitya Harifai, a crossword competition. After recording the assessee''s

statement on December 18, 1970, the Income Tax Officer came to a tentative conclusion that the claim stated in Part IV of the revised return was

not a genuine one. Notice u/s 142(1) of the Act was, therefore, issued calling upon the assessee to furnish certain information regarding his

investments and expenditure in the prescribed form. Since the assessee failed to comply with this notice, the assessment was completed u/s 144 of

the Act. The Income Tax Officer after appreciating the evidence on record came to the conclusion that the claim of Rs. 1,16,500 was a false claim.

In his view, the assessee had brought out unaccounted money by showing it as prize won in a cross-word competition. The Income Tax Officer,

therefore, taxed the amount as assessee''s income from undisclosed source. The sum of Rs. 11,657 was further added being the commission

amount paid by the assessee to the organisers of the cross-word competition for declaring the prize money and thereby assisting him to bring out

his unaccounted money. The Income Tax Officer then initiated proceedings u/s 271(1)(c) of the Act and referred the matter to the Inspecting

Assistant Commissioner who, after considering the contentions raised on behalf of the assessee, concluded that the assessee had concealed his

income and furnished inaccurate particulars thereof and was, therefore, liable to penalty under the aforesaid provision. Penalty of Rs. 1,35,000

was, therefore, imposed.

The assessee feeling aggrieved by the order passed by the Inspecting Assistant Commissioner preferred an appeal to the Appellate Tribunal.

The Tribunal following the decision in the case of Jogibhai Mangalbhai v. ITO, in Income Tax Application No. 373 of 1974-75 decided on 18th

October, 1975, held that the penalty levied by the Inspecting Assistant Commissioner could not be sustained and accordingly cancelled the same.

The Revenue feeling aggrieved by this order of the Appellate Tribunal sought a reference u/s 256(1) of the Act on as many as five questions.

The Tribunal, however, referred the following two questions for our opinion :

(1) ""Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that on account of disclosure of Rs.

1,16,500 made by the assessee in Part IV of the return, the assessee could not be said to have concealed his income or furnished inaccurate

particulars thereof within the meaning of section 271(1)(c) of the Act and consequently levy of penalty under the said section was not justified ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that except for the falsity of the explanation of the

assessee, it was not established by positive evidence by the Revenue that the impugned amount was income earned by the assessee during the year

under reference and, therefore, the penalty u/s 271(1)(c) of the Act could. not be sustained ?

For the reasons which we will immediately indicate, we are of the opinion that both the questions must be answered in the negative, i.e., against

the assessee and in favour of the Revenue.

More or less a similar question arose for determination before this court in the case of Commissioner of Income Tax, Gujarat Vs. Suleman

Abdul Sattar, : . In that case, some time in June, 1969, the premises in which cross-word competition was carried on was searched u/s 132 of the

Act. From the documents and material seized during the search and from the statements recorded in connection with the cross-word competition

during the course of investigation, it was discovered that the cross-word competition was conducted solely with the object of helping persons who

had unaccounted money to disclose such income or money as having been won in a cross-word competition. In other words, it was found that the

cross-word competition was a mere device or a scheme to lend a colour of legitimacy to unaccounted money and thereby convert black money

into white money. Those with unaccounted money approached the organisers of the cross-word competition and on paying about 10% by way of

commission secure a prize for the amount which they desired to disclose as unaccounted money as having been won in a cross-word competition.

The Revenue, therefore, contended, in our opinion rightly, that the disclosure made in Part IV of the return was factually false inasmuch as the

amount disclosed was in fact not won in any cross-word competition whatsoever. In other words, those conducting the cross-word competition

were practising fraud by declaring those who desired to disclose their unaccounted money as winners without they having in fact entered the

competition and successfully won the prize money. Suleman Abdul Sattar was one such person who too disclosed a sum of Rs. 46,959 in Part IV

of his return as prize money received in a cross-word competition. The proceedings in that case also proceeded almost on the same lines as in the

case of the assessee before us. Since the Tribunal in that case also followed its earlier decision in the case of Jogibhai Mangalbhai (supra), it set

aside the levy of penalty imposed on the premise that the assessee was not guilty of concealment of income and of furnishing inaccurate and false

particulars.

On the request of the Revenue, two questions were referred to this Court for opinion. The first being verbatim the same except for the addition

of words ""concealed his income"" which we find in question No. 1 formulated in the following words :

Whether the Tribunal was right in law in holding that there was no gross or wilful neglect on the part of the assessee, nor was it a case of fraud,

and, therefore, levy of penalty on the basis of the Explanation to section 271(1)(c) of the Act on the facts of the case was not justified ?

Since such a question has not been formulated in the reference before us, the Revenue filed an application being Income Tax Application No. 72

of 1977 seeking a reference on three other points with a view to focussing attention to the Explanation to section 271(1)(c) of the Act and with a

view to pointing out that there was gross and wilful negligence on the part of the assessee and the assessee had practised fraud and was, therefore,

liable to penalty under the said provision. We would have been inclined to formulate an additional question on the lines of question No. 2 framed in

Commissioner of Income Tax, Gujarat Vs. Suleman Abdul Sattar, : , but since the words ""concealed his income"" have been specifically used in

question No. 1, we think that its coverage is sufficiently wide to include question No. 2 framed in the aforesaid case. We, therefore, do not think it

necessary to frame any additional question, as requested by the said application and we, therefore, dispose of the application accordingly.

It will be seen from the above that the facts in Commissioner of Income Tax, Gujarat Vs. Suleman Abdul Sattar, : and the facts of this case are

by and large identical. In the present case also, the authorities have come to the conclusion that the assessee''s version that he secured a prize in

cross-word competition was palpably false. Since the assessee admitted the fact that he had earned income during the said assessment year by

showing the same in Part IV of the Return, the authorities below were justified in bringing the same to tax as income derived from an undisclosed

source. Under the Explanation to section 271(1)(c) of the Act (as it then stood) where the total income returned by any person was less than 80%

of the total income assessed, such person was deemed to have concealed the particulars of his income or furnished inaccurate particulars of such

income for the purposes of the said clause, unless he was able to show that the failure to return the correct income was not on account of any fraud

or gross or wilful neglect on his part. Once it is established that the difference between the returned income and the assessed income is more than

20%, a presumption of concealment or wilful furnishing of inaccurate particulars arises against the assessee and unless that presumption is rebutted,

the Revenue would be entitled to levy penalty in accordance with the said provision. It is not necessary for us to analyse the relevant provisions in

detail because the ratio in Commissioner of Income Tax, Gujarat Vs. Suleman Abdul Sattar, must squarely apply in the facts and circumstances of

this case. To put it straight, we are of the view that the decision in this case must turn on the ratio of Commissioner of Income Tax, Gujarat Vs.

Suleman Abdul Sattar, : as the facts are by and large identical.

For the above reasons, we answer both the questions in the negative, that is, against the assessee and in favour of the Revenue.

In view of what we have stated earlier, we pass no orders on I.T.A. No. 72 of 1977.

Reference is disposed accordingly with no order as to costs.