ORDER
T.D. Sugla, J.
1. There are three question of law referred to this court by the Tribunal at the instance of the Department. They read thus :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that, due to disclosure made by the assessee in Part IV of the return, the assessee could not be said to have furnished inaccurate particulars of income within the meaning or section 271(1)(c) of the Act, and consequently, the levy of penalty under the said section was not justified ?
2. Whether the disclosure of the prize money receipts in Part IV of the return of income could be considered as true and full disclosure within the meaning of section 271(1)(c) of the Act ?
3. Whether the Tribunal was right in law in holding that, except for the falsity of the explanation of the assessee, it was not established by positive evidence by the Revenue that the impugned amount was income earned by the assessee during the year under appeal and, therefore, the penalty under section 271(1)(c) of the Act cannot be sustained ?”
2. The assessee is an individual. The assessment year involved is 1969-70. return of income for the year was filed on December 29, 1969, declaring a total income of Rs. 5,801. However, in Part IV of the return, the assessee had declared three amounts totalling Rs. 4,09,677 as income exempt from tax being receipts by way of agricultural income, marriage chandla and cross-word prize. The assessment was completed on January 31, 1972, under section 144 of the Income-tax Act, 1961, on a total income of Rs. 7,72,735. The additions included :
Rs.
Credit in the assessee's bank account for alleged
prizes in the name of his brother 3,02,930
Estimated commission paid for conversion of this amount 30,293
Alleged prizes in the name of the assessee and
credited in his bank account 3,03,044
Estimated amount paid for commission 30,254
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6,66,521
Out of amount claimed as chandla receipt 1,00,000
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7,66,521
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3. Being of the view that the penal provisions of section 271 were attracted, the Income-tax Officer referred the proceedings to the Inspecting Assistant Commissioner, under section 274(2) of the Act, who, after allowing the assessee an opportunity of being heard, imposed a penalty of Rs. 8,00,000 by an order dated March 25, 1974.
4. It appears that, subsequent thereto, the assessee approached the Commissioner of Income-tax for a settlement and a settlement was arrived at on August 13, 1974. The terms of the settlement are not on record What is on record is the assessee’s letter to the Commissioner on the basis of which the settlement appears to have been arrived at. The letter has been quoted in extenso in the order of the Tribunal. This letter clearly shows three things, viz., (1) The assessee asserted that all this claims regarding puzzle prize money and the chandla received at the time of the marriage were correct. (2) He also asserted that the prize money received by his brother was correct. However, it was only in order to buy peace that he was agreeing to be assessed on the aforesaid amounts and (3) The settlement should not be considered as an admission or confession in the prosecution or penalty proceedings which had to be considered on the basis of evidence and merits.
5. The question that arose before the Tribunal was whether, in a case like the one before it, the penal provisions of section 271(1)(c) read with or without the Explanation thereto were attracted. It was the case of the assessee that, apart from holding that the assessee’s statements were not correct or that the assessee was not able to prove the correctness of his claim, the Department had not brought any material on record to suggest that the amounts in fact represented his income. Secondly, having shown the amounts in Part IV of the return, the assessee should be treated as having been exonerated from the penal provisions even if it was held that the assessee was otherwise liable to penalty under section 271(1)(c). On behalf of the Department, the arguments advanced were that Part IV of the return would come to the assessee’s help only if the statement made by the assessee was correct and it was only its legal implication which was not acceptable. In the present case, the Department had, after making full investigation, proved that the assessee’s explanation was false. Accordingly, it was urged that the case would attract penalty under section 271(1)(c) and, in any event the provisions of section 271(1)(c) read with the Explanation thereto would certainly be attracted. For reasons given in paragraphs 11 and onwards of its order, the Tribunal accepted the assessee’s submissions and held that the penal provisions of section 271(1)(c) read with or without the Explanation thereto were not attracted in this case.
6. Dr. Balasubramanian, learned counsel for the Department, reiterated before us that mere mention by the assessee of certain claims which are found false in Part IV of his return would not exonerate him from the penal provisions of section 271(1)(c). Part IV was meant for the purpose of disclosing income which the assessee considered to be exempt from income-tax under certain provisions of law but was not sure about it. If eventually, it was held that the amount claimed as exempt was taxable and not exempt, the assessee might escape penalty. In the present case, the assessee disclosed that income shown in Part IV was from certain specific sources. The Department had proved that the assessee’s claim that he had received income from those sources was not correct. Therefore, the assessee’s claim was false and the case clearly fell within section 271(1)(c). As regards the settlement, Dr. Balasubramanian submits that the settlement is on the basis of the income assessed by the Income-tax Officer and, therefore, the fact that, ultimately, a settlement was arrived at is of no consequence. Inviting then our attention to the provisions of the Explanation to section 271(1)(c), Dr. Balasubramanian stated that once there was a difference of more than 20% between the returned income and the assessed income, the burden was on the assessee to prove that the difference had not arisen as a result of gross or wilful neglect or fraud on his part. Except for asserting that the income was received by way of cross-word prizes and chandla, the assessee had not done anything else to discharge its burden. Counsel for the assessee, on the other hand, contended that once there was a settlement, the findings given in the settlement by the Commissioner. The assessee’s letter in this regard was on record which clearly suggested that the settlement was arrived at by the assessee for purchasing peace and that the additions made therein were not to be treated as admission of concealment of income by the assessee.
7. Having heard the rival contentions, we are of the view that the purpose of Part IV of the return is to enable the assessee to declare particulars of income claimed to be exempt from tax and which are not included in Part I. It is not quite correct to say that the assessee can get the benefit of showing income in Part IV only when the claim for exemption is on legal grounds. Disclosure can include such items of income also about which the assessee may not have sufficient evidence to prove that such income is exempt and, therefore, desires to place it before the Income-tax Officer for such view as he might take in the circumstances. Having shown the amount in Part IV of the return, which appear before verification, it is difficult to say that the assessee had not disclosed the particulars of income. Moreover, both the order of assessment as well as the order of the Inspecting Assistant Commissioner imposing penalty are prior to the date on which the settlement was arrived at. In the circumstances, the question whether imposition of penalty is or is not justified will have to depend upon the findings arrived at in the proceedings for settlement and not those arrived at in the assessment order or the order of the Inspecting Assistant Commissioner. Unfortunately, the finding arrived at by the Commissioner in the settlement proceeding are not made part of the statement of the case. What we have on record is letter of the assessee addressed to the Commissioner. Presumably, the letter is the basis on which the settlement has been arrived at. This letter has been quoted by the Tribunal in extenso at page 86 of the paper-book. The letter makes it abundantly clear that the assessee was offering the amount for taxation for buying peace and had asserted that the amounts in fact represented the prize-money and the chandla receipts both in his case and in the case of his brother. The latter also makes it clear that the assessee’s offer to be assessed on these amounts was not to be considered as an admission or confession in prosecution and/or penalty proceeding in view of these conditions in the latter which must have been the basis of the settlement, we are in agreement with the tribunal there remain virtually nothing on record to suggest that the amounts offered for taxation really represented the assessee’s income in the sense that they would attract the penalty provisions of section 271(1)(c) read with or without the explanation thereto. Moreover, once the assessee had disclosed the particular of such income in Part IV of the return, the non-acceptance of the claim by the Department on the ground that such income was not exempt, the assessee not being able to prove the sources, does not bring the assessee within the purview of section 271(1)(c). In the above view of the matter, we are in agreement with the Tribunal that the assessee is not liable to penalty. Accordingly, all the three questions are answered in the affirmative and in favour of the assessee. No order as to costs.