M CT MUTHIAH, HUF Vs. INCOME-TAX OFFICER

JUDGEMENT

(1.) This appeal is directed against the sustention of an addition of Rs. 1,51,150 as the income of the assessee from other sources.

(2.) The assessee is a HUF consisting of Shri M. Ct. Muthiah and his wife Mrs. Muthiah. For the previous year ended on 31-3-1978 corresponding to the assessment year 1978-79, the assessee filed a return on 28-7-1978 declaring a total income of Rs. 25,480. The assessee also claimed loss of Rs. 19,870 under the head Winnings from horse races to be computed separately and carried forward. While considering that return, the ITO made a draft assessment order on 27-3-1981 by which he proposed that an addition should be made for unexplained investment of Rs. 1,53,250 for purchase of the horses - Well-connected for Rs. 35,000 and More Over for Rs. 92,500 and expenditure in maintenance of the horses leading to a loss of Rs. 25,750. The assessee gave his objections dated 14-4-1981 annexing a receipt and expenditure statement in respect of his horses racing activities and also explaining the sources of the investment referred to by the ITO. By a letter dated 18-4-1981 the ITO required further particulars and the assessee replied giving such information by his letter dated 11-7-1981. After hearing the assessee, the IAC, to whom the matter was referred under section 144B of the Income-tax Act, 1961 (the Act,), gave his directions by order dated 25-9-1981. By that order, he stated that the explanation given by the assessee with reference to the sources of funds for the investment in the purchase of the horses and the maintenance of the horses was reported by the ITO to have been fully explained. However, he further noted that the activities of the assessee with relation to the maintenance of the race horses and the winnings therefrom could be fully scrutinised only at that stage and he came to the conclusion that such activities amounted to a regular source of income. He overruled the objection of the assessee that it was only a hobby and directed that the income that source computed at Rs. 1,22,500 as well as the excess of income over expenditure in the statement of accounts relating to the racing activities given by the assessee totaling Rs. 1,51,152 should be added to the total income of the assessee. On appeal, the Commissioner (Appeals) confirmed the addition except with the direction to verify the figures and allow relief in respect of Rs. 46,125 which was a double addition.

(3.) In the further appeal before us, the assessee has taken a preliminary objection relating to the jurisdiction of the IAC to give a direction regarding the assessment of income from horse racing as a source when no such proposal has been made in the draft assessment order. Reliance was placed on the decisions of the Bombay Bench of the Tribunal in the case of PQR Co. [IT Appeal No. 3321 (Bom.) of 1977-78, dated 30-4-1981] as well as the Cochin Bench in the case of N. Krishan [IT Appeal Nos. 741 and 746 (Coch.) of 1977-78, dated 3-2-1981]. It was submitted that when the ITO had only proposed an addition for unexplained investment and the IAC found that the investment has been completely explained, there was nothing more that could be done by the Commissioner (Appeals) and no direction could be given for adding any amount to the total income of the assessee. On the other hand, it was pointed out on behalf of the revenue that the subject-matter was not at all different from what was proposed by the ITO. According to the revenue, the ITO had proposed to have the funds untilised for meeting the expenses as the income of the assessee in the absence of any explanation. When the explanation showed that the funds were in fact the income of the assessee from a source, it was only a question whether it was to be assessed as income from undisclosed sources or as income from a known source and the proposal to tax that fund remained unchanged. We agree with this contention of the revenue for we find that what was the controversy was only the nature of the funds utilised by the assessee for meeting the expenses as to whether it was to be treated as income from undisclosed sources or knowing the nature of that fund whether it should be assessable to tax. Since the amount in question, after the nature of that amount was revealed, still remained the amount in respect of which the taxability was in dispute, it cannot be said that the IAC had given directions in respect of any amount which was not proposed to be taxed by the ITO. We, therefore, overrule his preliminary objection.