Ajay R. Dhoot v. The Deputy Commissioner Of Income Tax, Mumbai And Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1127 OF 2000 Ajay R. Dhoot ..Appellant Vs. The Deputy Commissioner of Income Tax, Mumbai and Ors. ..Respondents .... Mr. Subramniam a/w V.S. Hadade, Advocates for Appellant.Mr. Arvind Pinto, Advocate for Respondents. .... CORAM : M.S. SANKLECHA & N.M. JAMDAR, JJ.DATED : 15 JULY 2015 ORAL JUDGMENT (PER: SANKLECHA, J): This appeal under Section 260A of the Income Tax Act,1961 (the 'Act') is directed against the order dated 18 April 2000passed by the Income Tax Appellate Tribunal (the 'Tribunal'). Therelevant assessment year is Assessment Year 1987-88. 2.On 5 March 2002, this appeal was admitted on thefollowing two substantial questions of law: “1)Whether on the facts and in thecircumstances of the case and in law the Tribunalwas right in law in confirming the addition of S.S.DESHPANDE 1 / 14 Rs.2,01,200/- under section 69A of the Act in theAssessment Year 1987-88 when the assessee wasnot found to be owners of jewellery valued at thesaid amount in the financial year 1986-88 beingthe relevant previous year for the Assessment Year1987-88 which is the requirement of section 69Aof the Act? 2)Whether on the facts and circumstancesof the case and in law the Tribunal erred inconfirming the addition of Rs.2,01,100/- in theAssessment Year 1987-88 specially in view of theaddition made in the assessee's own case for theAssessment Year 1986-87 which addition includesthe alleged source of the jewellery valued atRs.2,02,100/-, thereby resulting in a doubleaddition?” 3.The common facts necessary to answer both the above questions in this appeal are as under: On 19 March 1986, a search action under Section 132 of the Actwas carried out by the revenue in respect of the appellant'spremises. During the course of the search, on 20 March 1986, alocker key belonging to one Mrs. Sujata Malani was seized, who atthe relevant time was staying with the appellant. S.S.DESHPANDE2 / 14 4.On 28 July 1986, the locker of Mrs. Malani (the key towhich was seized on 20 March 1986) was opened by the revenue.On opening the locker, jewellery valued in the aggregate of Rs.2.53lakh was found therein. In the course of proceedings under Section132(5) of the Act, the revenue on 25 November 1986 accepted theexplanation of Mrs. Malani that jewellery valued at Rs2.41 lakh outof Rs.2.53 lakh belonged to the appellant. The appellant alsoclaimed to be owner of the same which was valued at the cost ofRs.2.01 lakh. 5.On 21 March 1990, the Assessing Officer passed an orderfor the Assessment Year 1987-88 inrespect of the appellant. In theassessment order, it is recorded that the appellant had filed itswealth tax return for the Assessment Year 1987-88 on 25 June 1987declaring jewellery valued at Rs.2.15 lakh received as gift by himfrom one Mrs. Shashikala L. Dhoot. The Assessing Officer did notaccept the appellant's explanation of source of the jewellery foundin Mrs. Malani's locker as being a gift recived from Mrs. ShashikalaL. Dhoot. Consequently, the Assessing Officer added the cost of the jewellery which at Rs.2.01 lakh as deemed income under Section69A of the Act. 6.In appeal, the Commissioner of Income Tax (Appeals)(the 'CIT(A)') did not interfere with the order of the AssessingOfficer to the extent a sum of Rs.2.01 lakh which was added asdeemed income on account of unexplained jewellery owned by theappellant. jewellery which at Rs.2.01 lakh as deemed income under Section69A of the Act. 6.In appeal, the Commissioner of Income Tax (Appeals)(the 'CIT(A)') did not interfere with the order of the AssessingOfficer to the extent a sum of Rs.2.01 lakh which was added asdeemed income on account of unexplained jewellery owned by theappellant. 7.On further appeal, the Tribunal by the impugned orderdismissed the appellant's appeal. In particular it did not accept theappellant's contention that as the locker key belonging to Mrs.Malani has been seized on 20 March 1986, the addition of deemedincome under Section 69A of the Act to be made on account ofjewellery found on opening of the locker on 28 July 1986 can onlybe in the Assessment Year 1986-87 and not for the Assessment Year1987-88. The impugned order holds that in terms of Section 69A ofthe Act, the financial year in which an assessee is found to be ownerof any jewellery and for which no sufficient explanation is offered,then the value of such jewellery is deemed to be income of theS.S.DESHPANDE4 / 14 assessee in such financial year in which the jewellery was found. Inthis case, the impugned order holds that the jewellery was found tobe owned by the appellant only on opening the locker i.e. on 28July 1986. Consequently, the year of assessment in respect of suchdeemed income for unexplained jewellery would be the AssessmentYear 1987-88. 8.We shall now deal with the submission made in respect ofboth the above questions separately as under:- -9.Question 1: (a)Mr. Subramaniam, the learned Counsel for theappellant in support of the appeal with particular reference toquestions submits that the locker key was found by the revenue on20 March 1986 at the time they conducted the search of theappellant's premises. Thus it would be on that date, that thejewellery valued at cost of Rs.2.01 lakh was found in the ownershipof the appellant for the purposes of Section 69A of the Act. Thefinding of the jewellery it is submitted was not dependent uponopening of the locker but on the revenue having possession of the 5 / 14 keys to the locker which contained the jewellery. In thesecircumstances, it was submitted that the jewellery was found in theprevious year relevant to Assessment Year 1986-87 and notAssessment Year 1987-88. In support, Mr. Subramaniam alsoplaced reliance upon the decisions of Gauhati High Court in PatoaBrothers Vs. CIT[1], Madhya Pradesh High Court in Harlal MannulalVs. CIT[2] and of this Court in Mathuradas Gokuldas Vs. CIT[3]. (b)As against the above, Mr. Pinto, the learnedCounsel for revenue in support of the impugned order states thatthe locker keys which were seized on 20 March 1986 belonged notto the appellant but to one Mrs. Malani. Therefore it is only onopening the locker that the quantum/value of the jewellery could beascertained for subsequent decision/finding on ownership.Consequently, in terms of Section 69A of the Act, the ownership ofthe appellant in respect of the jewellery in the locker of Mrs. Malaniwas found only on opening of the locker. Thus the Assessment Year1987-88 is the correct assessment year to which jewellery has beenbrought to tax as deemed income in view of unexplained jewellery. 1. 133 ITR 6722. 147 ITR 113. 102 ITR 4252. 147 ITR 113. 102 ITR 425 6 / 14 (b)As against the above, Mr. Pinto, the learnedCounsel for revenue in support of the impugned order states thatthe locker keys which were seized on 20 March 1986 belonged notto the appellant but to one Mrs. Malani. Therefore it is only onopening the locker that the quantum/value of the jewellery could beascertained for subsequent decision/finding on ownership.Consequently, in terms of Section 69A of the Act, the ownership ofthe appellant in respect of the jewellery in the locker of Mrs. Malaniwas found only on opening of the locker. Thus the Assessment Year1987-88 is the correct assessment year to which jewellery has beenbrought to tax as deemed income in view of unexplained jewellery. 1. 133 ITR 6722. 147 ITR 113. 102 ITR 4252. 147 ITR 113. 102 ITR 425 6 / 14 (c)We have considered the rival submissions.Section 69A of the Act provides that where in any financial year, anassessee is found to be the owner of any jewellery which is notrecorded in the books of account and the explanation offered byassessee about the nature and source of acquisition is notsatisfactory, then value of such jewellery would be deemed to beincome of the assessee in the year in which the assessee was foundto be the owner of the jewellery. Admittedly, the locker key whichwas seized by the department during the course of the search on 20March 1986, did not belong to the appellant. Thus on that date thequantum of jewellery in the locker of Mrs. Malani which belongedto the appellant could not be ascertained/forecast. The normalpresumption would be the jewellery in the locker of Mrs. Malaniwould belong to her and not to another person. Therefore, it is onlyon opening of the locker of Mrs. Malani on 28 July 1986, did therevenue find the jewellery and also that some part thereof, belongedto the appellant as claimed by the appellant and as also declared byMrs. Malani in her assessment proceedings as recorded in the orderof her Assessing Officer at Kolkata on 25 November 1986. Thus it is only in the previous year relevant to the Assessment Year 1987-88i.e. financial year 1 April 1986 to 31 March 1987 that the appellantwas found to be the owner of the jewellery in the locker belongingto Mrs. Malani. (d)The three decisions relied upon by theappellant do not have any application to the present facts. Thebasic difference in all the cited cases to the present facts is that thelocker key which was seized on 20 March 1986 did not belong tothe appellant but to one Mrs. Malani and therefore it was only onthe opening of her locker that the question of finding jewellery inthe locker and if found, the ownership of such jewellery would arisefor determination. In all the cited cases the offending goods/moneyetc was found in the possession of the party in whose hand Section69A of the Act was applied. (e)So far as decision in Patoa Brothers by GauhatiHigh Court is concerned, the facts are that the revenue during thecourse of search proceedings found at the residence of the applicanttherein undeclared articles such as Swiss made wrist watches, hairand main springs and Indian currency notes, etc. at a total value of 8 / 14 (e)So far as decision in Patoa Brothers by GauhatiHigh Court is concerned, the facts are that the revenue during thecourse of search proceedings found at the residence of the applicanttherein undeclared articles such as Swiss made wrist watches, hairand main springs and Indian currency notes, etc. at a total value of 8 / 14 Rs.1.2 crores. This was assessed to income under Section 69A ofthe Act. The search took place on 3 March 1970. The revenueassessed the applicant therein to tax for the Assessment Year 1970-71. However the applicant therein claimed that as ownership of thearticles found in its residence was determined only when anassessment order was passed on 25 August 1971, the appropriateassessment would be the Assessment Year 1972-73. The GauhatiHigh Court on the basis of plain interpretation of Section 69A of theAct held that the date on which the applicant was found to be inpossession of the jewellery, etc. would be the date to be taken intoconsideration while assessing the party to tax. The fact that theassessment order renders a finding that the applicant in whosepossession the jewellery was found is the owner will haveretrospective effect to the date the articles were seized. In this case,admittedly the jewellery was found and seized only on the openingof the locker of Mrs. Malani on 28 July 1986. Therefore theassessment year in the present case is correctly the Assessment Year1987-88. (f)The next decision relied upon by the appellantwas of Madhya Pradesh High Court in the case of Harlal Mannulal.In the that case for the Assessment Year 1973-74, the relevantprevious year of the applicant therein was 19 October 1971 to 5November 1972. For the Assessment Year 1973-74, an addition ofRs.20,000/- as income from undisclosed sources was made by theAssessing Officer. This was on the basis of statement filed by theappellant alongwith his return for the Assessment Year 1972-73 thathe was inter alia possessed of Rs.20,000/- on 18 October 1971 i.e.one date before the commencement of the relevant previous year.The Court held that as Rs.20,000/- of unexplained money declaredby the applicant on 18 October 1971 alongwith his return of incomefor the Assessment Year 1972-73 ought to have been added to theassessee's income for the Assessment Year 1972-73 and not for theAssessment Year 1973-74 as done by the authorities. In this case,the jewellery was found in the locker of Mrs.Malani only on openingit on 28 July 1986 unlike in the case of Harlal Mannulal where anunexplained cash of Rs.20,000/- was disclosed by the applicant in its return of income for the Assessment Year 1972-73 and thereforeit was to be asessed in the Assessment Year 1972-73. (g)The last case relied upon by the appellant isMathuradas Gokuldas decided by this Court wherein the assesseehad made a declaration on 19 January 1946 that she possessed 138notes of Rs.1,000/- each. The revenue assessed the aforesaidRs.1,38,000/- representing 138 notes as income from undisclosedsources and bought it to tax in the Assessment Year 1947-48. ThisCourt held that income from undisclosed sources has to be assessedin the relevant assessment year dependent upon the financial yearin which such income has been declared. In these circumstances,the assessment year applicable would be the Assessment Year 1946-47 when the income was decided and not Assessment Year 1947-48as done by the authorities under the Act. The aforesaid decisionalso has no application to the present facts, as admittedly thejewellery was found only on 28 July 1986 on opening the lockerbelonging to Mrs. Malani for which the relevant Assessment Year is1987-88. (h)In view of the above, so far as the first questionis concerned, we find no infirmity in the impugned order of theTribunal and the same is answered in the affirmative in favour ofthe revenue and against the assessee. -10.Question 2: (h)In view of the above, so far as the first questionis concerned, we find no infirmity in the impugned order of theTribunal and the same is answered in the affirmative in favour ofthe revenue and against the assessee. -10.Question 2: (a)It was urged by Mr. Subramaniam that thejewellery found in the locker of Mrs. Malani belonging to theappellant was sourced from the amounts received by the appellantin cash from M/s Industrial Meters Ltd. in which he was Directorand the same was a subject matter of consideration by the revenuefor the Assessment Year 1986-87. Thus seeking to charge the tax onthe same jewellery, as deemed income where the source of jewelleryis found in diaries which were the subject matter of considerationduring the Assessment Year 1986-87. Thus charging of tax in theAssessment Year 1987-88 would lead to double taxation. (b)As against the above, Mr. Pinto submits that theoccasion to tax the jewellery found in the locker of Mrs. Malanivalued at Rs.2.01 lakh during the Assessment Year 1986-87 doesnot arise. This for the reason that it has never been the appellant'sS.S.DESHPANDE12 / 14 case that the jewellery which was found on opening of Mrs. Malani'slocker was jewellery which had been purchased out of the cashentries found in the diary maintained by the employee of M/sIndustrial Meters Ltd. evidencing receipt of cash by the appellant. (c)The contention urged before us is that theamount of Rs.2.01 lakh is actually a part of Rs.9.73 lakh which werea part of the entries made in a diary by one Mr. Gandhi, the ChiefAccountant of M/s Industrial Meters Ltd. of which the appellant wasa Director. This diary kept a record of amount of cash paid by Mr.Gandhi to the appellant. It is on the basis of the above diary thatthe appellant contends that the jewellery found in the locker on 28July 1986 had been acquired by him out of the cash amount givenby M/s Industrial Meters Ltd. to the appellant. The entries in thediary according to the appellant were a subject matter ofconsideration by the Assessing Officer for the Assessment Year1986-87. Consequently, it is submitted that the addition to be madeon account of jewellery found in the locker ought to have beenmade in the Assessment Year1986-87 and not in Assessment Year1987-88. (d)The aforesaid explanation is not acceptable forthe reason that at no point of time, the jewellery found in the lockerwas sourced from the cash received by the appellant from M/sIndustrial Meters Ltd. The case of the appellant has always beenthe jewellery found in the locker was a gift received by him on 27January 1986 from his aunt. This theory of gift being received fromhis aunt was not accepted by the authorities under the Act includingthe Tribunal. Thus the deemed income being the cost of jewelleryfound in the locker of Mr. Malani being assessed to tax inAssessment Year 1987-88 cannot be found fault with. (e)In the circumstances, the second question asframed has to be answered in negative i.e. in favour of the revenueand against the appellant-assessee. 11.Accordingly the appeal is dismissed. No order as to costs. [N.M. JAMDAR, J] [M.S. SANKLECHA, J.]