I. T. AS. NOS. 204, 205, 244 AND 245 OF 1976-77, DECIDED ON 23RD DECEMBER, 1976. Versus I. T. AS. NOS. 204, 205, 244 AND 245 OF 1976-77, DECIDED ON 23RD DECEMBER, 1976.

ORDER

A. A. ZUBERI (MEMBER).‑‑ The appellant is an individual who carries on the profession of a Film Artist. The appeals have been filed against the order of learned A. A. C. Range, on Appeals Nos. 269 and 272/Film, dated 24‑5‑1976 relating to the assessment years 1973‑74 and 1974-75. There are two more appeals against the order of the learned Appellate Assistant Commissioner on penalty imposed by the assessing officer for the assessment years 1973‑74 and 1974‑75. These were decided by the learned Appellate Assistant Commissioner vide Appeals Nos. 270 and 272/Film, dated 24‑5‑1976.

2. Order under Section 23(3) of the Income‑tax Act.‑--The appellant in her return declared to have worked in 14 films in the period relating to the assessment year 1973‑74 and 17 films in the period relating to the assessment year 1974‑75. Receipts for the year 1973‑74 were declared at Rs. 60,000, against which Professional Expenses were claimed at Rs. 29,910 thus leaving a total income of Rs. 30;000. In the assessment year 1974‑75 receipts shown at Rs. 81,000 and Professional Expenses claimed at Rs. 53,650 hence the total income of Rs. 27,350 was offered for taxation. The appellant, in support of the Receipts, had submitted certificates from producers, the existence of any agreements was, however, denied. Again it was stated that no books of accounts were maintained. No bank account was produced and all the receipts were said to have been realised in cash. The assessing officer discarded the returned version and, on the basis of some Studio Guarantees, discovered in the cases of other film artists, he considered the Preferred Receipts as understated; did not find proper reconciliation of the Wealth Statement vis‑a‑vis personal expenses of the assessee ; gave a finding that the Assessee had a high social status and spent a glamorous life. On these considerations, he estimated receipts at Rs. 2,00,000 and after allowing Pro fessional Expenses at Rs. 15,000 determined the Total Income for the assess ment year 1973‑74 at Rs. 1,85,000. For similar reasons, Receipts for the assessment year 1974‑75 were estimated at Rs. 2,50,000 ; expenses were, however, allowed, as claimed, at Rs. 53,650 which left a Total Income of Rs. 1,96,350. The learned Appellate Assistant Commissioner confirmed the treatment in both the years, hence these appeals.

3. The learned counsel for the appellant at first tried to plead for acceptance of the declared version but, when told that, no such ground was taken in the Memorandum of Appeal, he quickly gave up this line of argument. It was, however, insisted that the assessing officer did not marshal any evidence to falsify the certificates filed by the Appellant. It was pleaded that the cases of the producers also were assessed by the same assessing officer and he could easily make a reference to these in order to ascertain the truth but no such effort was made and the assessing officer went by surmises and conjectures to discard the declared version. It was insisted that no S. G. in the Appellant's cases were discovered and no proof was gathered to prove any suppression in the Receipts hence the assessing officer could not condemn tile assessee for some discoveries which had prejudiced the cases of some other film artist. Similarly, the Appellate Assistant Commissioner erred in con firming the assessment on the basis of certain alleged malpractices in the film industry, about the press reports which relates to the glamorous life and high earnings of the film artist, the learned counsel submitted, judicial note of such gossips could be taken unless there was direct evidence to rebut the evidence led by the assessee. The learned counsel, Mr. Rizvi, repeated drew our attention to a decision of the learned Single Judge of the Lahore High Court in the case of Shahid Hameed's case (P L D 1976 Lah. 1626), wherein it was held that certificates produced could not be discarded unless these were proved wrong. The learned counsel attempted to establish parallel ness of appellant's case with the reported case by contending that the producers, who gave the certificates were assessed in the same Circle and by the same assessing officer, hence he could easily snake a reference to their files in order to ascertain; the truth of the certificates, but no such effort was made. The learned counsel placed on records two decisions of a Single Member Bench of the Tribunal (vide I. T. A. No. 1177 of 1972‑73 decided on 8‑10‑73 and I. T. A. No. 8657 of 1973‑74 dated 25‑4‑1974 wherein it was held that in the presence of certificates produced from the principles there was no justifica tion for fixing the receipts at random.

4. The Departmental Representative, on his turn tried to justify the action of the assessing officer and the decision by the learned Appellate Assistant Commissioner in confirming the same. The Departmental Repre sentative built up the argument that no other evidence except certificates from the producers was furnished. In the assessment year 1973‑74 the Appellant disclosed to have worked in 14 films but produced certificates only for 10 films Moreover, these certificates did not bear the confirmatory signatures of the appellant nor were these signed by the producers themselves hence these could not be treated as a valid piece of evidence. No other proof was filed and the expenses were all unvouched. The assessing officer was therefore, correct in estimating the receipts particularly when in an earlier year also, the declared version was rejected and the assessment was made on estimated basis.

5. We have given our earnest consideration to the arguments addressed to us, have carefully perused the orders of the two authorities below and have scrutinized the record. Having gone through the decision of the single Bench of the Lahore High Court in Shahid Hameed's case, we fired that the principle laid down in that case was that the evidence consisting of certificates produced by the assessee could not be ignored or rejected without proper enquiry and verification. In the light of that decision we find that the documentary evidence led by the Appellant consisted of certain certificates. These certificates, we are inclined to agree with the Authorised Representative, constitute a piece of evidence but these, admittedly, are not conclusive evidence of income. Nobody would deny that every piece of evidence has to be examined on merits and in relation to the peculiar circumstances of each case. That, in effect is the finding of his Lordship in Shahid Hameed's case. As the certificates in that case were rejected summarily, without any scrutiny of enquiry, and the order was passed ex parte, it was found that the assessing officer had not exercised his `best Judgment'. It would be pertinent to observe that the certificates were not ordered to be accepted even in Shahid Humeed's case and the learned Judge ultimately remanded the case for re‑examination and a fresh order of assessment. The certificates, in the appellant's case before u6, bore no reference number, had not been acknow ledged by the assessee herself and it was not known as to who had signed (or issued) the certificates. In any case, the certificates were not in the nature of direct piece of evidence. Such indirect and secondary evidence undoubtedly has probative value but is not free from doubt when the Assessee failed to produce the best evidence, nor the person who issued those certifi cates were presented to corroborate the contents of the certificates. In a case reported as (1944) 12 I T R 393, the contention was repelled that if an assessee offers any evidence under subsection (3) of section 23 of the Income tax Act (whether reliable or unreliable), by producing some documents the assessing officer must base his decision on that evidence. In fact the assessing officer, in our opinion, would be wrong in accepting the evidence if he finds it in corroborated and of indirect or secondary nature. In the ultimate analysis, we find that the assessing officer confirmed to the past history of determining income by estimate which the learned Appellate Assistant Com missioner held rather lenient because the rate of remuneration per film, for 14 films in the year 1973‑74, came to slightly over Rs. 14,000 and in the year 1974‑75 for 17 films to around Rs. 15,000. In the assessment year 1973‑74 the claim of Professional Expenses was roughly at 50 % of the declared Professional Receipts and in the assessment year 1974‑75 it came to over 65 %. The assessing officer curtailed these expenses in 1973‑74 to around 7.5 % of the receipts estimated by him. In the assessment year 1974‑75 the full claim was accepted but in comparison to the receipts enhanced by the assessing office, it came to nearly 21.5%. In the appeal by another film artist of Punjabi Films (decided by us vide I. T. A. Nos. 310 and 311 1976‑77 dated 21‑12‑1976) we have laid down that the common phenomenon in cases where receipts are suppressed is to understate the expenses also. Therefore, while determining the income by estimate, if receipts are enhanced, the expenses also should not be restricted to the extent of the claim only, but should be allowed at a reasonable figure (even though higher than the claim) to match with the estimate of Receipts and the Income being determined. For this assertion reliance was placed on a case reported as (1975) 32 Taxation 147. Confi rming the learned Appellate Assistant Commissioner's finding about there being no harshness in the estimate of professional receipts, we would work out the Income as under :‑‑

1973‑74 1974‑75

Rs. Rs.

Number of Films ... 14 17

Average Rate per film ... 14,500 14,500

Professional Receipts ... 2,03,000 2,46,000

Professional Expenses @ 15%

(approx) 30,000 37,000

Total Income 1,73,000 2,09,000

The estimate at the rate of Rs. 14,50 per film is taken considering, the budding stage of the appellant in the film industry when generally remunera tion is less but number of films is higher due to acceptance of all types of roles. During this period she is said not to have established herself as a leading heroine of Punjabi film. This principle of estimating remuneration and expenses has been laid down by us in other appeals also, especially I. T. As. Nos. 307 to 311 of 1976‑77 decided by the President's Bench on 21‑12‑1976.

6. In the assessment year 1974‑76, expenses on our working would come to Rs. 57,000 but the assessing officers has himself allowed these at Rs. 53,650, hence we do not disturb the same and CONFIRM the assessment, as framed at a Total Income of Rs. 1,96,350. Relief, however, accrues in the assessment year 1973‑74 because the Income STANDS REDUCED from the assessed Rs. 1,85,005 to Rs. 1,75,000.

7. For the reasons recorded hereinabove, the appeal for the assessment year 1973‑74 SUCCEEDS but the one for the assessment year 1974‑75 FAILS, Necessary relief shall be‑allowed.

Order under section 46(I) of the income‑tax Act

8. As the appellant did not pay the demands for the assessment years 1973‑74 and 1974‑75, the assessing officer imposed penalties under section 45(1) of the Income‑tax Act at 2.5% which came to Rs. 3,409 in the year 1973‑74 and to R.s. 3,663 in the year 1974‑75. The learned appellate Assistant Commissioner confirmed both the penalties for the reason that the default was not denied before her.

9. Admittedly no show‑cause notice, before the imposition penalties, was served on the appellant. In our view, therefore, the assessing officer violated the principle of natural justice by not serving upon the appellant a show‑cause notice prior to the passing of the impugned orders. The Legislature by enacting section 46(1) has vested a discretion in the assessing officer to impose penalty where an assessee is in default of making payment of tax. This discretion, we are of the unanimous view, cannot be judiciously exercised unless the Assessee‑in‑default is given a chance of being heard prior to the passing of order imposing the penalty under this section. The failure of the assessing officer to do so, in our opinion, rendered the impugned order void ab initio for having been passed in violation of the principles of natural justice. We, therefore, CANCEL the orders of penalties,

10. Both the penalty appeals, therefore, succeed.

Order accordingly.