Bankim J. Shah vs Commissioner of Income Tax

R.C. Mankad, J.—The assessee is an individual and in this reference, we are concerned with his income tax assessment for the assessment year 1970-71. The assessee derives income from dividend, interest and share of profit from Superior Engineering and Moulding Works. In his return of income for the assessment year 1970-71, the assessee disclosed total income of Rs. 8,822. In Part IV of the return of income, the assessee claimed exemption in respect of a sum of Rs. 70,000 on the ground that it represented an income of casual nature. According to the assessee, the said sum of Rs. 70,000 represent prize money received by him in cross-word puzzle competition conducted by one ''Kundan Sabda Sparda'' (''Sparda'') and, as such, the said sum was not taxable. The ITO called upon the assessee to produce before him the proprietor of Sparda along with his books of account in order to verify the claim made by the assessee. The ITO addressed several letters to the assessee, to which the assessee''s representative replied by saying that all the documentary evidence was lying in possession of the income tax Department. The ITO recorded statements of the assessee as well as his father J.M. Shah. The ITO pointed out to the assessee that, since he was claiming exemption in respect of the aforesaid sum of Rs. 70,000, burden was on him to prove that he was entitled to such exemption and he called upon the assessee to produce such evidence as he might consider necessary in support of his claim for exemption. The assessee was also given opportunity to take inspection of the documents and evidence, which the ITO had collected in the course of his inquiry. The ITO examined witnesses and the assessee was given opportunity to cross-examine them. In his assessment order, the ITO, on appreciation of the evidence on record, held that the sum of Rs. 70,000 in respect of which the assessee had claimed exemption, did not represent genuine prize money, as claimed by the assessee. He held that the said sum of Rs. 70,000 represented assessee''s income from undisclosed sources. The ITO further held that the assessee had paid commission of Rs. 2,100 to one N.S. Patel for the bogus prize which was alleged to have been received. In the view which the took, the ITO added Rs. 70,000 and Rs. 2,100 to the income disclosed by the assessee in his return, and framed assessment accordingly. Being aggrieved by the inclusion of sums of Rs. 70,000 and Rs. 2,100 in his total income, the assessee carried the matter in appeal before the AAC. The AAC confirming the view of the ITO held that there was enough material on record to hold that a sum of Rs. 70,000 received by the assessee was not genuine prize money, as claimed by him, but was unaccounted money which was shown as prize money. He also upheld the addition of Rs. 2,100 added as the commission paid to N.S. Patel.

Being aggrieved by the order of the AAC, the assessee preferred appeal before the Tribunal. The Tribunal examined the evidence on record in detail and found that the persons, who wanted to bring out their unaccounted money, contacted the proprietor of Sparda through their agents and filled in forms with correct solutions of the cross-word puzzles. Prizes were declared in favour of such parties and cheques were issued in their favour, for the prize money, which were cleared from the moneys deposited by them. The Tribunal found that Sparda did not have enough funds of its own to distribute prizes. On appreciation of the evidence and material on record, the Tribunal came to the conclusion that the alleged prize declared in favour of the assessee did not represent the genuine prize. The Tribunal also pointed out other material circumstances which strengthened the conclusion reached by it. The Tribunal, therefore, held that the assessee had failed to satisfactorily explain source of Rs. 70,000 credited by him in his books. It, therefore, upheld the decision of the AAC and the ITO that the sum of Rs. 70,000 was liable to be taxed in the hands of the assessee as income from undisclosed sources. For the same reasons, it also upheld the addition of Rs. 2,100 paid by way of commission to N.S. Patel. In the result, the Tribunal dismissed the assessee''s appeal.

It is in the background of the above facts that the Tribunal has referred to us, for our opinion, the following questions u/s 256(2) of the income tax Act, 1961:

Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in basing its conclusions on evidence which was not brought to the notice of the assessee and the veracity of which was not offered for being tested at the hands of the assessee by cross-examination?

Whether, on the facts and in the circumstances of the case, the order of the Tribunal is invalid in law because it is based on certain information which was never put to the assessee on certain depositions of witnesses who were never offered for cross-examination to the assessee?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the prize of Rs. 70,000 paid by Kundan Sabda Spardha Harifai to the assessee was taxable income of the assessee?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in adding Rs. 2,100 to the income of the assessee as alleged commission paid to the Harifai?

The finding recorded by the Tribunal that the sum of Rs. 70,000 included by the assessee in Part-IV of his return of income did not represent genuine prize money received by him for the correct solution of cross-word puzzle and that it represented the assessee''s income from undisclosed source is a finding of fact. It was, however, urged that, in recording the above finding, the Tribunal had relied on evidence of witnesses, who were not examined in presence of the assessee and who were not offered for cross-examination by the assessee. It was urged that the ITO had not examined (1) C.N. Shah, who was alleged to have deposited Rs. 70,000 in the bank account of Sparda; (2) V.C. Vyas, employee of N.S. Patel, proprietor of Sparda; (3) H.C. Trivedi, proprietor of Janta Stall; (4) Shantilal Shah; and (5) M.T. Patni nor had he offered them for the assessee''s cross-examination. He, however, relied on their evidence in disbelieving the claim made by the assessee. It is not disputed that N.S. Patel, proprietor of Sparda, was examined by the ITO in presence of the assessee and the assessee had cross-examined him at length. It was urged that the finding recorded by the Tribunal is vitiated because it is based on relevant and irrelevant evidence.

We do not find any substance in the contention of the assessee. It is not correct to say that the Tribunal had relied on the evidence of the aforesaid witnesses and the evidence of other witnesses in reaching the conclusion which it did. The conclusion of the Tribunal is based on the testimony of N.S. Patel, proprietor of Sparda. N.S. Patel has deposed that, parties, who submitted entries with correct solution of the cross-word puzzle, were given prizes by cheques, which were cleared with their own money. Parties, who wanted to bring out their unaccounted money, approached through their agents and such parties gave money for the payment of the prizes declared in their favour. It also appears from his evidence that he did not have money of his own from which he could have given the prizes to the persons who had given correct solution to the cross-word puzzle. N.S. Patel stated that prize given to the assessee was arranged through his agent. It is on this evidence that the Tribunal came to the conclusion that the prize, alleged to have been declared in favour of the assessee, was not a genuine prize. It is true that, after reaching this conclusion, the Tribunal has referred to the circumstances which strengthened its conclusion. While referring to these circumstances, the Tribunal appears to have taken into consideration statements made by witnesses, who were not examined. However, in our opinion, merely because the Tribunal has referred to certain circumstance which strengthened its conclusion would not vitiate its finding, which is based on the evidence of N.S. Patel. The Tribunal thought it fit to rely on the testimony of N.S. Patel and, in this reference, we would not be justified in holding that the Tribunal ought not have relied on his evidence. As the final fact-finding authority, it was open to the Tribunal whether or not to place reliance on the testimony of a witness and, if, in its wisdom, it thought it fit to rely on the evidence of a witness, it is hardly a matter for this Court to interfere in the reference. The finding recorded by the Tribunal is not unreasonable or perverse. We, therefore, do not see any reason to disagree with the conclusion reached by the Tribunal that the sum of Rs. 70,000 disclosed in Part-IV of the return of income of the assessee and the sum of Rs. 2,100 paid by way of commission to N.S. Patel were liable to be added to the income of the assessee for the assessment year under reference.

So far as question Nos. 1 and 2 are concerned, as already observed above, the Tribunal has not reached this conclusion on the evidence which was not brought to the notice of the assessee or the evidence of witnesses who were not examined in presence of the assessee and who were not offered for his cross-examination. For the reasons stated above we are not inclined to hold that the Tribunal had misdirected itself or its order is invalid on the grounds mentioned in question Nos. 1 and 2. We, therefore, answer question Nos. 1 and 2 in the negative and against the assessee. In the view which we are taking, we answer question Nos. 3 and 4 in the affirmative and against the assessee. Reference answered, accordingly, with no order as to costs.