SETHURAMAN J. - Under section 66(1) of the Indian Income-tax Act, 1922, the Income-tax Appellate Tribunal, Hyderabad Bench, has referred the following question of law for the opinion of the court :
'Whether, on the facts and in the circumstances of the case, the assessment for the year 1951-52 made on March 31, 1960, was barred by limitation in view of the provision of section 34(3) of the Income-tax Act ?'
One Borajannah was an assessee who was being assessed as an individual. He died on May 5, 1949, leaving his two sons, T. B. Raju and T. B. Hanumantha Raj, and also his widow, Putta Thayammal. What was left by the deceased consisted of immovable property and business, which devolved upon the Hindu undivided family constituted by the sons and others. There was a total partition of this family on November 30, 1950. The present reference relates to the assessment year 1951-52 for which the relevant accounting periods were : (a) the year ended November 30, 1950, so far as the immovable property was concerned, and (b) the year ended December 31, 1950, for the income from the business.
For the assessment year 1951-52, the assessee filed a voluntary return under the signature of T. B. Hanumntha Raj described as the 'karta' of the Hindu undivided family, on May 28, 1952, disclosing a sum of Rs. 17,406 as income from property and a loss of Rs. 10,333 from business. The result was a net income of Rs. 7,073 was disclosed in the return. A covering letter was sent with the return stating that the assessment should be made on the joint Hindu family and reference was made to the fact that partition had taken place between the brothers on December 2, 1950.
The Income-tax Officer completed the assessment on the basis of the above return on March 31, 1960. In the assessment so made, the Income-tax Officer added a sum of Rs. 10,000 as income from undisclosed sources and another sum of Rs. 17,767 being the share income from Messrs. A. Anandaraya Mudaliar & Co. The assessee had not disclosed in the return nor at any point of time subsequently, the share income from the said firm of Messrs. A. Anandaraya Mudaliar & Co. Before the Income-tax Officer, the assessee urged that, by virtue of section 34(3) of the Indian Income-tax Act, 1922, the assessment for the assessment year 1951-52 had to be completed within a period of four years. The Income-tax Officer considered that this argument was not maintainable. He pointed out that this was a case to which the provisions of section 28(1)(c) of the Act applied and that, therefore, there was a longer period of limitation available under section 34(3) of the Act.
The assessee appealed to the Appellate Assistant Commissioner disputing the assessment on the ground of limitation and also contesting that the addition of the cash credit of Rs. 10,000 had been made without providing the assessee with a sufficient opportunity to prove the nature thereof. The Appellate Assistant Commissioner called for a report from the Income-tax Officer, directing him to give the assessee an opportunity to prove the nature and source of the credit. But the assessee's representatives admitted before the Income-tax Officer that in spite of best efforts they were unable to place any evidence on the matter. The Appellate Assistant Commissioner, therefore, confirmed the assessment holding that this was a case to which the provisions of section 28(1)(c) applied, because the assessee had failed to disclose the income represented by the cash credit of Rs. 10,000.
The assessee further appealed to the Tribunal, before whom he challenged the assessment on the ground of limitation. The Tribunal held as follows :
'It is common ground that the assessee had not disclosed his share of profit from Messrs. Anandaraya Mudaliar & Co. The fact that the assessee was a partner in that firm was also not disclosed in Part III of the return. There was no forwarding letter intimating the factum of the assessee being a partner in that firm. Beyond saying that this was due to inadvertence, no factors have been brought before us to show the circumstance under which the assessee failed to disclose the share of profit from the firm. It was not until March, 1957, that the assessee filed his return of income for 1950-51 when the share of profit this firm for that year was disclosed, but even at that stage the assessee did not care to rectify the return for 1951-52 nor did he write to the Income-tax Officer that he was a partner in the above noted firm for the assessment year 1951-52 also. In the absence of any material to indicate the circumstances under which the above omission was committed by the assessee, the revenue authorities were justified in holding that the assessee had concealed his income. Even in respect of the cash credit of Rs. 10,000 which has been treated as the assessee's income from an undisclosed source, no explanation was forthcoming. The assessee had been introducing income from undisclosed source from year to year in the shape of cash credits and a sum of Rs. 12,000 was assessed in similar circumstances for the assessment year 1950-51. The actual source from which the cash deposits came is within the assessee's special knowledge. When he chooses not to furnish any explanation in respect of the cash deposits, the revenue authorities are justified in holding that the correct source is such as would, if disclosed, have rendered items liable to tax. In these circumstances, the finding of the revenue authorities that the assessee had concealed his income both in regard to the share of profit from Messrs. A. Anandaraya Mudaliar & Co. and from the undisclosed source, which was reflected in the shape of cash credits to the tune of Rs. 10,000 must be upheld.'
The Tribunal, therefore, dismissed the appeal filed by the assessee. It is this conclusion of the Tribunal, that is challenged in the form of the question set out already,
Learned counsel for the assessee submitted that this was a case to which the provisions of section 28(1)(c) of the Act could not have been applied because of two reasons : (1) the failure to disclose the share income from the firm in the return was only due to inadvertence; (2) the family having been disrupted, there was no question of levying any penalty on the family.
Section 34(3) of the Indian Income-tax Act, 1922, in so far as it is relevant runs thus :
'No order of assessment...... other than an order of assessment under section 23 to which clause (c) of sub-section (1) of section 28 applies.... shall be made after the expiry of four years from the end of the year in which the income, profits or gains were first assessable.'
The short point to be considered is whether this was a case of an assessment under section 23 to which clause (c) of sub-section (1) of section 28 applied.
The plea of inadvertence has not been accepted by the Tribunal. Learned counsel for the assessee pointed out that the assessee himself filed a return showing the share income from the firm for the assessment year 1950-51, subsequently in March, 1957, and that this itself would show that there was no question of his having any deliberate intention to exclude the share income from the return. Assuming for a moment that he is right in this submission, at any rate as far as the sum of Rs. 10,000 is concerned the assessee had absolutely no explanation. The Tribunal has pointed out that year after year there were cash credits which were being assessed as income from undisclosed sources. With reference to the assessment year in question, the assessee himself had made a complaint before the Appellate Assistant Commissioner that he had not been given an opportunity to prove the nature and source of the cash credits. When the opportunity was given to the assessee subsequently, he did not place any materials before the Income-tax Officer to explain the source from which these cash credits came. In these circumstances, the income-tax authorities as well as the Tribunal were right in drawing the conclusion that, as far as the sum of Rs. 10,000, at any rate, is concerned, the provisions of section 28(1)(c) would apply.
The fact that a penalty was not levied under section 28(1)(c) does not in any manner affect the question as to whether this was a case to which the provisions of section 28(1)(c) applied or not. The conclusion of the income-tax authorities and the Tribunal that this was a case to which the provisions of section 28(1)(c) applied in view of assessee's conduct in regard to the sum of Rs. 10,000 is correct.
Learned counsel submitted that the Hindu undivided family having ceased to exist, there was no question of application of the provisions of section 28(1)(c) to it. The question as to whether any penalty could be levied on the Hindu undivided family is different from the question as to whether the assessee is one to whom the provisions of section 28(1)(c) would apply. We are concerned with the earlier stage of the assessment itself and we have to find out whether this was a case to which the provisions of section 28(1)(c) applied. With reference to this aspect, there can be no dispute that the assessee not having disclosed in the return the share income, the provisions of section 28(1)(c) would apply. Whether section 28(1)(c) could be applied after the disruption of the undivided family for the levy of penalty is not a question to be gone into now in the present reference, because these are not penalty proceedings.
For these reasons, we reject the contentions urged on behalf of the assessee and answer the question referred to us in the negative and against the assessee. The Commissioner will be entitled to his costs. Counsel's fee Rs. 500.