- (1.) THIS is an income-tax reference under Section 66 (3) of the Act arising out of the assessment o Messrs. Lachhman Das Brijballabh Das for the assessment year 1934-35. The assessees accounting year was the Diwali year from November 1932 to November 1933 and the profits of that period have got to be considered for the purpose of this reference.
(2.) IT appears that when called upon to submit a return he filed one, but the Income-tax Officer was of the opinion that the return did not furnish true particulars and therefore he went carefully into the regular account books of the assessee and considered certain facts which became evident from a little investigation. He increased the profits of the assessee and being of the opinion that the assessee had concealed the particulars of his income he imposed a penalty under Section 28 of the Act. There was an appeal to the Assistant Commissioner and that officer, although he reduced the amount of the tax, was also of the opinion that there had been deliberate concealment and therefore a penalty was imposed by him though in a lesser sum. The assessee then applied to the Commissioner under Section 33 of the Act and there was an application for a reference to this Court under Section 66 (2) of the Act. The learned Commissioner gave some relief under Section 33, but he did not refer the cases to this Court. The tax and the penalty were reduced, but the learned Commissioner was also of the opinion that there had been concealment of the income. The assessee then applied to this Court under Section 66 (3) of the Act on the 30th of July 1936 and by an order of this Court dated the 28th July 1939 the Commissioner was required by us to state a case and to formulate certain questions of law for our decision. These questions of law are mentioned in the application to us and this Court was of the opinion that question No 1. was not fair and was not couched in happy language, but the other three questions did arise and the learned commissioner was required to refer those question did arise and the learned Commissioner was required to refer those questions of law for our decision. It was further made clear that if any question of law arose out of the first question mentioned in the application of the assessee that question may also be referred to us in a different form, but we made it quite clear that the facts should be found definitely and categorically by the Commissioner. It is under these circumstance that the present reference has been made to us, and as would have become evident by this time the main question of controversy between the revenue authorities and the assessee was the question of concealment. The first question that has been referred to us is as follows : "Whether under the circumstances of the case in which the difference between the Income-tax Officer regarding certain income and its consequents non-entry in the return Section 22 (2) depends solely on the method of computation and accounting adopted by either party,, could it be said to be a deliberate concealment of income or particulars of such income and whether provisions of Section 28, Income-tax Act, apply to such a case? " The assessee has income from interest on securities, property and business in grain, money-lending, cotton and commission agency. In October 1918 he had advanced a loan of Rs. 65,000 to Babulal Lachhman Das, and Hiralal under a usufructuary mortgage in respect of property known as Shankerganj. Shortly after, in December 1918 he advanced another sum of Rs. 40,000 to the same debtors under a simple mortgage and the properties mortgaged were the equity of redemption so far as Shankerganj property was concerned and the village Sahil and a house in Lohar Gali. In 1920 the assessee advanced a sum of Rs. 7,200 to Hirala, one of the previous debtors, under a simple mortgage and the property mortgaged was the share of Hiralal in the three properties mentioned above. In the year 1924 the assessee brought a suit in respect of the simple mortgage of Rs. 40,000 and obtained a decree. In execution of the decree on the 21st of December 1929 the assessee put village Sahil to sale and purchased it for Rs. 56,000. The decree was for a larger amount and a portion of the decree remained unsatisfied. On the 3rd of January 1933 in execution of the same decree the assessee put the house at Lohar Gali to sale and purchased it for Rs. 1,700. The value of the Shakerganj property was fixed at the figure of Rs. 73, 837 out of which Rs. 1,200 was adjusted towards the decretal amount.
(3.) THE assessee had for the assessment year 1934-35 returned an income of Rs. 35,414. No income in this return related to the transactions which we have already mentioned. Nothing was said in the return about the purchase of village Sahil or the purchase of Shankerganj property or the purchases of Village Sahil or the purchase of Shankerganj property or the purchase of the house in Lohar Gali. THE Income-tax Officer was of the opinion that when village Sahil was purchased for Rs. 56,000 the capital of Rs. 40,000 was wiped out and there was a clear profit of Rs. 16,000. He also thought that there was a profit of Rs. 1,700 when the house in Lohar Gali was purchased. In connection with the purchase of the Shankerganj property he was of the opinion that there was a profit of Rs. 1,200 and further a profit of Rs. 7,000 odd, the difference between the amount of the usufructuary mortgage (Rs. 65,000) and the price fixed for Shankerganj property (Rs. 72,637). After appropriate deductions and taking into account the income shown by the assessee in his return the Income-tax Officer fixed the total income from all sources of the assessee at 62,378 and levied tax accordingly. He then observed :- "As the assessee did not show any income from his investments on Messrs. Babulal Lachhman Das and Hirala and did not make any mention of the Same in the return under Section 22 (2) and had obviously concealed the particulars of interest, he was asked to show cause why a proper penalty under Section 28 be not imposed". In connection with these proceeding the assessee was represented by Pandit Prabhu Dayal, pleader, and an application was made where in it was mentioned that the income shown in the return was not below the real amount and the circumstances of the case did not justify the imposition of any penalty. The Income-tax Officer, however, held that there was deliberate concealment in as much as the investments were not noted in the regular account books nor was there any record for purchase of properties in the books produced. The concealed income was deduced after a very thorough investigation. An income of about Rs. 26,212 would have escaped taxation but for the industry of the Income-tax Officer. The case was considered to be a suitable case for imposition of a penalty and a penalty in the sum of Rs, 2,500 was imposed.;