COMMISSIONER OF INCOME TAX Vs. P R SEETHARAMA RAO

JUDGEMENT

(1.) THE assessee is the proprietor of a hotel. He started his life as an employee in another hotel in or about 1928. He set up his own business in 1944. As he had not maintained proper accounts his income for the assts. yr. 1950-51 to 1953-54 were assessed on an estimate basis. During the assessment proceedings for 1958-59, a wealth statement was obtained from the assessee. It came to light that the assessee purchased in March, 1954 in a Court auction sale the property bearing No. 5 Sunkuvar Street, Triplicane, in the name of his wife for Rs. 30, 000/- in execution of a decree in his favour of Rs. 53, 417/- in C. S. No. 353/52. THE suit was filed by him against the legal representative of his paternal uncle one S. V. Rao, sho was the Managing Director of Premier Bank Ltd. for the recovery of the amount due to the assessee under pronote dt. 23rd June, 1961 for Rs. 50, 000/- executed by his late uncle. THE papers also disclosed that there were six chit transactions with the same bank in the name of the assessee and his relatives. When asked to explain the origin and source for the pronote loan the assessee wrote to the ITO on 10th October, 1958 stating that it comprised of his savings left with S. V. Rao and the loans obtained by the assessee from the Premier Bank Ltd., but utilised by S. V. Rao for his personal purposes. On 23rd October, 1958 the assessee was examined and in his statement he has stated that in 1949 the amount due from S. V. Rao in respect of deposits left with him was Rs. 31, 000/- and a sum of Rs. 12, 000/- was due from Rao towards the balance of the borrowings of Rs. 25, 000 from the Bank but utilised by Rao. In respect of the chit transactions he had stated that they were all taken by Rao with the ostensible purposes of utilising the matured amounts to pay off the sums due to the assessee and that the chits were taken in the name of the assessee and his relations as the Managing Director of the Bank was precluded to open chit accounts. Another explanatory statement was filed by the assessee through his Chartered Accountant on 14th November, 1958 that the loans to the tune of Rs. 25, 000/- standing in the assessee's name in the Bank and the proceeds of which were utilised by Rao were discharged by Rao himself out of the chit amounts which had matured in 1950 and 1951. THE assessee filed further statement on 24th November, 1958 in which he had stated that Rao had utilised for his benefit "not only Rs. 12, 122/- being the balance of the pronote loans of Rs. 25, 000/- after repayment of the earlier loans of Rs. 6000/- each (total repayment including interest was Rs. 12, 878/-) but also the earlier issue of Rs. 6000/- each" *.

(2.) THE ITO initiated reassessment proceedings under s. 34(1)(a) of the Indian IT Act, 1922 (hereinafter called the Act), after obtaining the sanction of the CIT, Madras. In response to the notice the assessee filed fresh returns of income. Except for very minor variations the return submitted disclosed only the income which was computed at the time of the original assessment. THE ITO considered that the explanation given by the assessee in respect of the pronote loan and the various borrowings from the Bank and the purchase of properties were contradictory and unreliable. At the time of original assessment for 1950-51 the assessee was asked to explain the source for purchase of a house at No. 2 Kachaleswarar Agraharam, which was not accounted in the books. He had stated that the property was purchased out of the borrowings from the Bank under two loans for Rs. 6000/- and Rs. 10, 000/- THE two sums were later in the statements given in 1958 shown as included in the total borrowings of Rs. 25, 000/- which was stated to have been utilised by Rao and formed part of the consideration for the promissory note of Rs. 50, 000/- Yet another explanation given was that out of the borrowing of Rs. 25, 000/- a sum of Rs. 11, 000/- was discharged on 23rd August, 1950 by Rao himself when some chit transactions matured leaving a balance of Rs. 14, 000/- and this amount with his deposits made prior to 1949 amounted to Rs. 30, 000/- Since Rao was heavily involved in debts and it was considered that the assessee might not be able to recover cent per cent of his loan he got executed a promissory note for the inflated amount of Rs. 50, 000/- and as security for the payment of the loan the title deeds of Rao relating to Sunkaver Street property were deposited with the assessee. THE suit was filed sometime in 1952 for the entire sum of Rs. 50, 000/- with interest and a decree was obtained for Rs. 53, 417 in November, 1953. But it was given in the statements that the balance of the loan of Rs. 14, 000/- borrowed from the bank was discharged on 2nd February, 1952 with the amounts received when the other chits matured. THE ITO also rejected certain other papers produced by the assessee as evidencing the dealings between Rao and the assessee as they did not bear the signature of Rao. THE ITO accordingly was of the view that the chit transactions were that of the assessee and that the sum of Rs. 50, 000/- for which the promissory note was executed by Rao should have been advanced by the assessee from out of his earnings which have not been accounted for. In the result, he added a sum of Rs. 9, 393 which was the amount contributed towards the chit transactions during the previous year relevant to the asst. yr. 1950-51 and made a reassessment order accordingly. In respect of asst. yr. 1952-53 the discharge of the loan of Rs. 11, 000/- to the Premier Bank which fell within the previous year to that assessment year was included in the assessment and reassessment order was made accordingly. For 1952-53 the ITO added a sum of Rs. 50, 000/- advanced on the promissory note together with a sum of Rs. 200 as interest due thereon in the reassessment order. For 1953-54 in the reassessment order he included a sum of Rs. 14, 000 which was the amount that was paid to the bank in discharge of the loan in the previous year relevant to that assessment year. THEse reassessment orders were made on 23rd March, 1960 in respect of all those assessment orders. THE orders also stated that penalty action had already been taken for concealment and furnishing of inaccurate particulars of income under s. 28(1)(c). THE assessee preferred an appeal against all these reassessment order. THE AAC was of the view that though the papers produced by the assessee as having been handed over by Rao which disclosed the various dealings between the assessee and Rao are not acceptable and they lacked authenticity. It raised a grave doubt on the point in issue and therefore the amount of escaped income in the various years had to be considered on the basis of the accretion to the assessee's wealth. According to had working such accretion amounted to Rs. 68, 000/- and that it had accrued over a period of 9 years. In that view he set aside the reassessment orders and directed the ITO to redo the assessment by spreading over the increase in wealth equitably. THE Department preferred an appeal to the Tribunal. THE Tribunal observed that there had been a lot of confusion that Rao had helped the assessee by getting loan from the Premier Bank and that he had also helped himself to some extent out of the advance secured by the assessee and that no correlation was available of specific items of advances and utilisation by the assessee and Rao respectively. THE Tribunal therefore considered that the accretion to wealth was the proper method to estimate the income. It however fixed the accretion to the wealth at Rs. 75, 000/- including the sum of Rs. 7000/- to the amount fixed by the AAC. THE Tribunal also directed that the sum of Rs. 75, 000/- to be assessed in the following manner : --------- ------------ 1950-51 Rs. 18, 000 --------- ------------ 1951-52 Rs. 18, 000 --------- ------------ 1952-53 Rs. 21, 000 --------- ------------ 1953-54 Rs. 18, 000 --------- ------------ Consequent on the Tribunal's order the ITO passed orders on 29th October, 1963 revising the assessments.

(3.) THE only question therefore which arises for consideration is on the merits as to whether on the fact and circumstances the provisions of s. 28(1)(c) were not applicable. This provision could be invoked and the assessee would be liable for penalty only if the assessee were guilty of concealment of income or deliberately furnishing inaccurate particulars therefor. It cannot be denied that accretions to wealth unless properly explained could be taken as evidence of concealment of income. It is true that concealment of income should be referable to a particular assessment year and that therefore, unless the accretion to net wealth is also referable to that assessment year concealment of income could not be inferred. But once it is shown that there is an accretion wealth disproportionate to the income assessed during the relevant year it is for the assessee to prove that the acquisition was not with the income received during the assessment year in question. THE acquisition of the property and the source from which the property was acquired are all within the exclusive knowledge of the assessee and he cannot merely plead that the onus is on the Department to prove concealment and keep quiet. Further in this case the Tribunal on the earlier occasion had already held that the accretions were referable to the asst. yrs. 1950-51 to 1953-54 and that order is not liable to review. THE ITO and the AAC have held that the explanation given by the assessee was contradictory, that an increase in wealth disproved the claim of benami and that therefore there was a deliberate concealment of income. It is true that the Tribunal on the earlier occasion in s. 34 proceedings directed the allocation among the various assessment years on certain ad hoc basis. If the Tribunal in the present proceedings is not satisfied with the estimation and allocation it is bound to give a finding as to whether there is any concealment of income or deliberate furnishing of inaccurate particulars. By merely stating that in determining the accretion to net wealth at Rs. 75, 000/- the saving of the assessee between 1928 and 1944 and the loans outstanding, if any had not been taken into account and that there was an ad hoc addition in respect of each year, the Tribunal cannot set aside the penalty order. As already stated, the ITO and the AAC had given certain reasons for holding that the assessee is guilty of concealment of income and deliberately furnishing inaccurate particulars. THE Tribunal had also not considered those points.