Commissioner Of Income Tax Erode v. K.thangamani

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MRS. JUSTICE PRABHA SRIDEVAN THE HONOURABLE MR.JUSTICE K.K. SASIDHARAN Commissioner of Income Tax Erode...Appellant in both cases -Vs.- K.Thangamani ..Respondent in both cases Prayer:- Tax Case Appeals against the order of the Income TaxAppellate Tribunal Madras "A" Bench dated 25.10.2002 in ITANo.304/M/94 and 95/M/92 for the Assessment Years 1987-88, 1988-89respectively against the orders of the Commissioner of Income Tax(Appeals) Coimbatore in ITA.NO.563-C/93-94 dated 8.12.1993 andITA.No.2-C/91-92 dated 31.10.91 respectively and against theassessment order of the Assistant Commissioner of Income Tax , Spl.Investigation Circle, Erode dated 16.8.93 for the Assesment year1987-88 and 1988-89 respectively in PAN/GIR.No.49-517-PX-8742. For Appellant : Mr.N.Murali Kumaran Standing Counsel for Income Tax Department For Respondent : Mr.T.S.V.Krishnan These tax cases are at the instance of the revenue and thefollowing substantial question of law is raised for ourconsideration:-"1. Whether in the facts andcircumstances of the case, the Tribunal wasright in holding that the refunds collectedillegally by production of bogus TDShttps://hcservices.ecourts.gov.in/hcservices/certificates by the assessee could under nocircumstances be the income of the assessee? 2. Whether in the facts and circumstancesof the case, the Tribunal was right in holdingthat amounts earned fraudulently cannot betreated as income and taxed?" Factual Matrix:- 2. The asessment relates to the years 1987-88 and 1988-89. Theassessee is engaged in tax consultancy and audit work. In a searchconducted in the residential premises as well as in the office ofthe assessee on 14.3.1989, certain incriminating documents wereseized. From the documents so seized by the Income Tax Department,it was revealed that the assessee had been claiming and receivingincome tax refunds by filing bogus TDS certificates along withreturn of income prepared by him even in the names of non-existentpersons. The assessee has filed his return of income for theassessment year 1987-88 originally on 30.11.1987 reporting anincome of Rs.29,700/-. However on the basis of the informationavailable after the search of his premises, the assessment wasreopened under Section 147 of the Income Tax Act and afterconsidering the explanation submitted by the assessee, a sum ofRs.7,29,424/- was arrived at by the department, being the T.D.S.Certificate en-cashed by the assessee during the previous year andthe same was treated as "professional income" during the saidprevious year. 3. With respect to the assessment year 1988-89, the assesseehas filed the return of income on 27.1.1989 admitting an income ofRs.32,870/-. The assessment was completed by the Assessing Officerby treating the deposits made by the assessee during the previousyear relevant to the assessment year by determining a sum ofRs.60,09,366/- as his income from "undisclosed source" as well as bytaking into consideration of the bogus claim made by him. 3. With respect to the assessment year 1988-89, the assesseehas filed the return of income on 27.1.1989 admitting an income ofRs.32,870/-. The assessment was completed by the Assessing Officerby treating the deposits made by the assessee during the previousyear relevant to the assessment year by determining a sum ofRs.60,09,366/- as his income from "undisclosed source" as well as bytaking into consideration of the bogus claim made by him. 4. The assessment order for the year 1987-88 and 1988-89 werechallenged by the assessee before the Commissioner (Appeals). Themain objection was with regard to inclusion of a sum ofRs.7,29,424/- in the income of the assessee. The Commissioner foundthat the assessee himself admitted before the investigating officersas well as before the Income Tax authorities about the fraudulentpractice adopted by him for preparation of false TDS certificatesand returns and obtaining refunds from the department. However theCommissioner was of the opinion that the refunds supposed to havebeen received by the assessee could be worked out only to the extentof 60% of the total refunds and on a consideration of the facts andcircumstances of the case, the income of the assessee on account ofthe refunds received by him during the assessment year 1987-88 wasreduced to Rs.4,37,000/- and the same was substituted in the placeof Rs.7,29,424/-. The Commissioner also directed inclusion of thesaid amount under "Residuary" head instead of "Profession". Withrespect to the assessment year 1988-89, the Commissioner (Appeals)estimated the income from refund of false TDS claim athttps://hcservices.ecourts.gov.in/hcservices/Rs.14,36,758/- and accordingly the appeal was partly allowed. 5. Aggrieved by the order of the Commissioner (Appeals), boththe revenue as well as assessee filed appeals before the Income TaxAppellate Tribunal. 6. The Income Tax Appellate Tribunal rendered a clear factualfinding to the effect that the assessee indulged in filing bogusT.D.S. certificates and made unjust enrichment and the income taxofficials were also involved in the said transaction. However theTribunal was of the view that the amount of refund received by theassessee by fraudulent means cannot be assessed as income inasmuchas the department committed one more wrong by treating it as theincome of the assessee. Accordingly, by holding that the entirerefunds collected illegally by the assessee could under nocircumstances be his income, allowed the appeal preferred by theassessee and dismissed the appeal filed by the revenue.Accordingly, the revenue is now before us. CONTENTION:- 7. The learned Standing Counsel for the revenue contended thatthe Tribunal was of the opinion that the assessee had indulged inmaking illegal claim from the department and as such the Tribunalshould have treated the refunds received by the assessee as hisincome. The learned counsel by placing reliance on the decisions inMOHAMED ABDUL KAREEM & CO. v. COMMR. OF INC.TAX [1948)16 ITR 412]and COMMISSIONER OF INCOME TAX v. S.C.KOTHARI [(1968) 69 ITR 1]submitted that even if the income was not earned in a legal manner,still such income is taxable and it is not the concern of the IncomeTax Department as to how the assessee earned his income. 8. The learned counsel appearing on behalf of the assesseecontended that the department was not justified in assessing theincome, when admittedly it was the case of the revenue that theincome was earned only by getting the refunds on fraudulent TDScertificates. The learned counsel also relied on the decision of theDivision Bench of this Court dated 19.7.1972 in TC Nos.314 and 326of 1966 (CIT v. A.R. ADAIKAPPA CHETTIAR & ANR.). CONSIDERATION:- 8. The learned counsel appearing on behalf of the assesseecontended that the department was not justified in assessing theincome, when admittedly it was the case of the revenue that theincome was earned only by getting the refunds on fraudulent TDScertificates. The learned counsel also relied on the decision of theDivision Bench of this Court dated 19.7.1972 in TC Nos.314 and 326of 1966 (CIT v. A.R. ADAIKAPPA CHETTIAR & ANR.). CONSIDERATION:- 9. There is no factual dispute with regard to the searchconducted by the department in the business as well as residentialpremises of the assessee under Section 132 of the Income Tax Act on14.3.1989 and the incriminating documents seized during such search.During the course of search operations, the assessee admitted tohave prepared bogus TDS certificates along with bogus returns andgot it encashed. It is also evident from the records that theinvestigation conducted by the Central Bureau of Investigation alsorevealed the refund received from the Income Tax department byproducing bogus TDS certificates prepared by the assessee. 10. The entire refund received from the department wereconsidered as the income of the assessee and he was assessedhttps://hcservices.ecourts.gov.in/hcservices/accordingly. In fact, in the order passed by the Commissioner(Appeals) there was a clear factual finding with regard to the modus operandi as well as justification for taxing the income at the handsof the assessee, even though the same was obtained in an unlawfulmanner. The following observations of the Commissioner (Appeals)makes the position more clear. https://hcservices.ecourts.gov.in/hcservices/ the appellant has denied that he hasobtained illegal refunds he has notsubstantiated with any acceptableevidence that such refunds were claimedby the respective persons who filed theT.D.S. Claims before the department.He has not produced any of the partieson whose behalf he is supposed to haverendered professional service forgetting refunds. Since he has acted ontheir behalf it is up to him to producethe parties for examination by thedepartment and prove that the appellanthas nothing to do with the refundsclaimed by his clients though illegal.He has on the contrary admitted havingopened several bank accounts in thenames of various persons who haveclaimed refunds and also obtained therefunds himself." https://hcservices.ecourts.gov.in/hcservices/ the appellant has denied that he hasobtained illegal refunds he has notsubstantiated with any acceptableevidence that such refunds were claimedby the respective persons who filed theT.D.S. Claims before the department.He has not produced any of the partieson whose behalf he is supposed to haverendered professional service forgetting refunds. Since he has acted ontheir behalf it is up to him to producethe parties for examination by thedepartment and prove that the appellanthas nothing to do with the refundsclaimed by his clients though illegal.He has on the contrary admitted havingopened several bank accounts in thenames of various persons who haveclaimed refunds and also obtained therefunds himself." 11. The Tribunal concurred with the factual finding arrived atby the Assessing officer as well as the Commissioner (Appeals) andcommented upon the conduct of the assessee as "tax practitioner" instrong words. The Tribunal found that claim of refund by filingbogus T.D.S. certificates were illegal and an economic offence andthe departmental officials also colluded with the assessee, buthowever was of the opinion that the money earned by the assessee bymaking use of the fraudulent TDS certificates remained as moneystolen from the income tax department. The Tribunal alsocategorically held that there was no dispute about the factum offraud committed by the assessee and further observed that thedepartment would be justified in recovering the amount from theassessee as recovery of stolen property. It was also observed bythe Tribunal that any person, who steals money may not be the ownerof the money because it would belong to the original owner which, inthe instant case is the department, which has been hoodwinked bythe assessee. After recording the factual finding, very strangelythe Tribunal set aside the order of the Assessing Officer as wellas Commissioner (Appeals) by holding that the department by treatingit as the income of the assessee earned by illegal methods, wascommitting one more wrong by treating the income as earned by theassessee. The Tribunal was of the further opinion that thedepartment was asking for a share of the booty in the form of taxesto the Government. Therefore the Tribunal held that the entirerefund collected illegally by the assessee could under nocircumstances be the income of the assessee. The finding recorded bythe Tribunal is clearly unsustainable in law. When the Tribunalfound that the assessee had indulged in fabricating TDS certificatesand got it refunded from the department, it should not have come tothe conclusion that such income is not taxable. https://hcservices.ecourts.gov.in/hcservices/ 12. Section 2(24) of the Income Tax Act gives an inclusivedefinition to the word "income". The expression "income" is very wide and the object of the Income Tax Act being one to tax income ithas to be given an extended meaning. Any kind of income earned bythe assessee attracts income tax at the point of earning and tax lawis not concerned about the ultimate event as to how the income wasexpended. Of course statutory exemptions and deductions aspermitted by relevant provisions of the Income Tax Act could beavailed of by a tax payer. However the fact remains that Income TaxAct makes an obligation to pay tax on all income received. https://hcservices.ecourts.gov.in/hcservices/ 12. Section 2(24) of the Income Tax Act gives an inclusivedefinition to the word "income". The expression "income" is very wide and the object of the Income Tax Act being one to tax income ithas to be given an extended meaning. Any kind of income earned bythe assessee attracts income tax at the point of earning and tax lawis not concerned about the ultimate event as to how the income wasexpended. Of course statutory exemptions and deductions aspermitted by relevant provisions of the Income Tax Act could beavailed of by a tax payer. However the fact remains that Income TaxAct makes an obligation to pay tax on all income received. 13. The taxability of income earned by the assessee byresorting to unlawful means came up for consideration before aDivision Bench of this court in MOHAMED ABDUL KAREEM & CO. v.COMMR. OF INC.TAX [1948)16 ITR 412]. In the said case severalpersons formed into a partnership agreeing that all the arrack shopsleased in the names of those persons should be run by thepartnership. The application submitted for registration of the saidpartnership was rejected on the ground that the formation of apartnership with regard to Arrack and Toddy shops were prohibitedby Abkari Law without the prior permission of the DistrictCollector. However the Income Tax Officer assessed each firm in thestatus of an "association of persons". This was objected to by theassesee on the ground that since there was no lawful partnership,the assessment could be made only upon each individual lessee andnot upon the entire body of lessees as an association. Thecontention of the assessee that the association formed for unlawfulpurpose has no legal existence and cannot be recognised as anassessable unit under the taxing statute, was negatived by theDivision Bench and in the said factual context, it was observedthus:- "So long as it is an associationwhich produces income, profits or gainsit is assessable to tax by force ofSection 3. It is unnecessary in order toconstitute an association that thereshould be any mutual rights orobligations among the members enforceablein a Court of law. So long as the objectof the association is to carry on forgain a business which is not unlawful –the object in the present case being tosell arrack or toddy, as the case may be,under the authority of a licence dulygranted by the Government – thesupervening circumstance of the formationof a partnership in contravention of theabkari law does not render the income,profits and gains of the associationimmune from taxation." 14. In COMMISSIONER OF INCOME TAX v. S.C.KOTHARI [(1968) 69 ITRhttps://hcservices.ecourts.gov.in/hcservices/1] the issue before a Division Bench of the Gujarat High Court wasregarding taxability of income derived from an illegal trade andtaking into account the English case laws on the point, the Division Bench speaking through Mr.Justice P.N.Bhagwati (as His Lordship thenwas) held thus: 14. In COMMISSIONER OF INCOME TAX v. S.C.KOTHARI [(1968) 69 ITRhttps://hcservices.ecourts.gov.in/hcservices/1] the issue before a Division Bench of the Gujarat High Court wasregarding taxability of income derived from an illegal trade andtaking into account the English case laws on the point, the Division Bench speaking through Mr.Justice P.N.Bhagwati (as His Lordship thenwas) held thus: "That immediately takes us to aconsideration of the second question. Thisquestion raises a point of considerableimportance to the revenue and broadly statedthe point is whether a loss arising in anunlawful business is liable tobe taken intoaccount in computing the business income ofthe assessee under Section 10 of he IncomeTax Act,1922. Now it is well settled inEngland that the Income-tax Act is notrestricted in its application to lawfulbusiness only. Once it is found that thetransactioninquestionistrade,manufacture, adventure or concern in thenature of trade within the meaning of theIncome-tax Act, the words of the section arenot to be cut down by the consideration thatthe trade is tainted with illegality. Thetaint of illegality or wrong-doingassociated with income, profits and gains isimmaterial for the purpose of taxation. Evenif a trade is illegal, it is still a tradewithin the meaning of the Income-tax Act,and its income, profits and gains arechargeable with income-tax." 15. In S.C.Kothari's case cited supra the decision of the Courtof Sessions, Scotland in Lindsay vs. Commissioner of Inland Revenue[(1932) 18 Tax Case 43] was also relied on by the Division Bench.In the said case, a partnership for bootlegging was entered intobetween three persons with an intention to transport whisky into theUnited States, but in breach of law of Great Britain as well asUnited States and the issue before the Court of Sessions was aboutthe nature of income and its taxability, and the point was decidedin favour of the revenue by adding ill-gotten wealth in the tax netand in the said context Lord Sands observed thus:- "The tax is imposed upon profits oftrade. Crime, such as house-breaking, is nottrade and therefore the proceeds are notcaught by the tax. It does not follow,however, that there cannot be a businessanswering to the description of trade, albeitit is tainted with illegality. Traffickingin drugs, for example, is of the nature oftrade, albeit such trafficking may in thecircumstances be illegal. I respectfullyhttps://hcservices.ecourts.gov.in/hcservices/adopt the dictum of Lord Haldane, indelivering the judgment of the Privy Councilin the case of Smith, that once the character of business has been ascertained as being ofthe nature of trade, the person who carriesit on cannot found upon elements ofillegality to avoid the tax." 16. The views expressed by Lord Sands was approved by LordMorison in the following words:- "The burglar and the swindler, who carry on a trade or business forprofit, are as liable to tax as anhonest business man, and, in addition they get their deserts elsewhere." of business has been ascertained as being ofthe nature of trade, the person who carriesit on cannot found upon elements ofillegality to avoid the tax." 16. The views expressed by Lord Sands was approved by LordMorison in the following words:- "The burglar and the swindler, who carry on a trade or business forprofit, are as liable to tax as anhonest business man, and, in addition they get their deserts elsewhere." 17. In Mohamad Abdul Kareem's case cited supra, the DivisionBench relied on the decision in Mann vs. Nash [(1932) 16 Tax Case523)]. In the said case the assessee was carrying on business ofproviding automatic machines. Since the use of such automaticmachines were held to be illegal the assessee contended that aportion of profit derived from such illegal business shall beexcluded from tax as it was earned by resorting to illegal means.While holding that the income was liable to be assessed under thetax laws, Rowlatt, J observed thus:-"The great mainstay of Mr.Field'sargument, quiet rightly from his point ofview, was the case of Duggan, decided inthe Irish Free State, and that decision ofthe Supreme Court seems to have gone uponthis principle that no construction couldbe admitted which recognised that the Stateshould come forward and seem to take aprofit from what the State prohibited,because the State ought to have preventedit; and it was argued, if I may venture tosay so, in a somewhat rhetorical style:Does the State keep its revenue eye openand its eye of justice closed? I must say,I do not feel the force of that Observationat all. Would it have made any difference,I ventured to ask in the argument, if theState had kept both its eyes open andprosecuted the man for the lottery andtaxed him for the profits at the same time?That would at any rate have protected theState from the reflections which were madeupon it in the words I have quoted. But,in truth, it seems to me that all thatconsideration is misconceived. The Revenuerepresenting the State, is merely lookingat an accomplished fact. It is notcondoning it; it has not taken part in it;it merely finds profits made from whatappears to be a trade, and the Revenue lawshappen to say that the profits made fromtrade have to be taxed, and they say: "Give https://hcservices.ecourts.gov.in/hcservices/ us the tax". It is not to the purpose inmy judgment to say: 'But the same Statethat you represent has said they areunlawful': that is immaterial altogetherand I do not see that there is any contactbetween the two propositions. It was said in the Irish case thatalleganus suam turpitudinem non estaudiendus. I cannot see that the State arealleging their own turpitude; it is theappellant who is alleging his ownturpitude. The State says: ' t is abusiness'; the appellant says: 'It is anunlawful one'; he is alleging his ownturpitude. It is said again: 'Is the State comingforward to take a share of unlawful gains?'It is mere rhetoric. The State is doingnothing of the kind; they are taxing theindividual with reference to certain facts.They are not partners; they are notprincipals in the illegality or sharers inthe illegality. They are merely taxing aman in respect of those resources. Itthink it is only rhetoric to say that theyare sharing in his profits, and a piece ofrhetoric which is perfectly useless for thesolution of the question which I have todecide." It is said again: 'Is the State comingforward to take a share of unlawful gains?'It is mere rhetoric. The State is doingnothing of the kind; they are taxing theindividual with reference to certain facts.They are not partners; they are notprincipals in the illegality or sharers inthe illegality. They are merely taxing aman in respect of those resources. Itthink it is only rhetoric to say that theyare sharing in his profits, and a piece ofrhetoric which is perfectly useless for thesolution of the question which I have todecide." 18. The learned counsel for the assessee relied on a decisionof a Division Bench of this court in T.C.Nos.314 & 326 of 1966 dated19[th] July, 1972 (COMMISSIONER OF INCOME TAX v. A.R. ADAIKAPPACHETTIAR & ANR.) and contended that even embezzled money does notconstitute taxable income to the embezzler although he had used itfor his own purposes. The issue in the said case was as to whetherthe use of the company's car by the assessee for their privatepurpose could be treated as the benefit obtained for the companywithin the meaning of Section 2(24)(iv) of the Income Tax Act. Whileanswering the said issue by confirming the finding of the Tribunal,the Division Bench relied on the principle laid down in IRC v.WILCOX (90 L.Ed. 752) to the effect that wrongful acquisition offunds by an embezzler cannot be included in the statutory phrase "gains or profits and income derived from any source whatever".However the issue regarding taxability of income earned throughunlawful means was not the subject matter before the Division Benchin the said case. The judgment of the Division Bench in A.R.ADAIKAPPA CHETTIAR was taken up by the department in appeal and thehttps://hcservices.ecourts.gov.in/hcservices/Supreme Court in COMMISSIONER OF INCOME TAX v. A.R. ADAIKAPPACHETTIAR (2001(10) SCC 500) while disposing the civil appealobserved that it was really unnecessary for the High Court to go into and express opinion on the question whether any benefitobtained unauthorisedly, falls within the said sub clause or not.In view of the observation of the Supreme Court we are of the viewthat the decision referred to by the learned counsel for theassessee has no application to the facts of the present case. 19. In COMMISSIONER OF INCOME TAX v. PIARA SINGH (1980 SUPP.SCC 166) , the Substantial question of law before the Supreme Courtwas as to whether the loss which arose from the confiscation of thecurrency notes was an allowable deduction under Section 10(1) ofthe Income Tax Act, 1922 and while upholding the judgment of theHigh Court and dismissing the appeal filed by the revenue, theHon'ble Supreme Court observed thus:- into and express opinion on the question whether any benefitobtained unauthorisedly, falls within the said sub clause or not.In view of the observation of the Supreme Court we are of the viewthat the decision referred to by the learned counsel for theassessee has no application to the facts of the present case. 19. In COMMISSIONER OF INCOME TAX v. PIARA SINGH (1980 SUPP.SCC 166) , the Substantial question of law before the Supreme Courtwas as to whether the loss which arose from the confiscation of thecurrency notes was an allowable deduction under Section 10(1) ofthe Income Tax Act, 1922 and while upholding the judgment of theHigh Court and dismissing the appeal filed by the revenue, theHon'ble Supreme Court observed thus:- "5. In our judgment, the HighCourt is right. The Income TaxAuthorities found that the assesseewas carrying on the business ofsmuggling. They held that he was,therefore, liable to income tax onincome from that business. On thebasis that such income was taxable,the question is whether theconfiscation of the currency notesentitles the assessee to thededuction claimed. The currencynotes carried by the assessee acrossthe border constituted the means foracquiring gold in Pakistan, whichgold he subsequently sold in Indiaat a profit. The currency notes werenecessary for acquiring the gold.The carriage of currency notesacross the border was an essentialpart of the smuggling operation. Ifthe activity of smuggling can beregarded as a business, those whoare carrying on that business mustbe deemed to be aware that anecessary incident involved in thebusiness is detection by the Customsauthorities and the consequentconfiscation of the currency notes.It is an incident as predictable inthe course of carrying on theactivity as any other feature of it.Having regard to the nature of theactivity possible detection by theCustoms authorities constitutes anormal feature integrated into allthat is implied and involved in it.The confiscation of the currencynotes is a loss occasioned inpursuing the business; it is a lossin much the same way as if the https://hcservices.ecourts.gov.in/hcservices/ currency notes had been stolen ordropped on the way while carrying onthe business. It is a loss whichsprings directly from the carryingon of the business and is incidentalto it. Applying the principle laiddown by this Court in Badridas Dagav.CIT[1]the deduction must beallowed." 20. The Supreme Court in Piara Singh's case cited suprafollowed the earlier decision in CIT.., GUJARAT v. S.C.KOTHARI (1972(4) SCC 402), wherein it was observed thus:- "If the business is illegal,neither the profits earned nor thelosses incurred would be enforceable inlaw. But that does not take the profitsout of the taxing statute. Similarly thetaint of illegality of the businesscannot detract from the losses beingtaken into account for computation ofthe amount which can be subjected to taxas "profits" under Section 10(1) of theAct of 1922. The tax collector cannotbe heard to say that he will bring thegross receipts to tax. He can only taxprofits of a trade or business. Thatcannot be done without deducting thelosses and the legitimate expenses ofthe business." 21. In T.A.Quereshi (DR.) vs. Commissioner of Income Tax 2007(2)SCC 759, the issue before the Supreme Court was as to whetherthe loss sustained by the assessee in unlawful business conducted byhim could be treated as a business loss and in the said factualcontext, the Hon'ble Supreme Court observed thus:- https://hcservices.ecourts.gov.in/hcservices/ 21. In T.A.Quereshi (DR.) vs. Commissioner of Income Tax 2007(2)SCC 759, the issue before the Supreme Court was as to whetherthe loss sustained by the assessee in unlawful business conducted byhim could be treated as a business loss and in the said factualcontext, the Hon'ble Supreme Court observed thus:- https://hcservices.ecourts.gov.in/hcservices/ "16. In our opinion, the HighCourt has adopted an emotional andmoral approach rather than a legalapproach. We fully agree with the HighCourt that the assessee was committinga highly immoral act in illegallymanufacturing and selling heroin.However, cases are to be decided by theCourt on legal principles and not onone's own moral views. Law isdifferent from morality, as thepositivist jurists Bentham and Austinpointed out." 22. The primary function of the Income Tax Act is to bring theincome of various kinds into the tax net. The Income Tax authoritiesare not concerned about the manner or means of acquiring income.The income might have earned illegally or by resorting to unlawfulmeans. Illegality tainted with the earning has no bearing on itstaxability. Income generated by engaging in liquor trade,generally called as res extra commercium, otherwise known as tradein crime, or income earned by way of selling Khadhi products, areone and the same for the tax authorities. The assessee havingacquired income by unethical manner or by resorting to actsforbidden by law, cannot be heard to say that the State cannot be aparty to such sharing of ill-gotten wealth. In case of allowingsuch income to escape the tax net would be nothing but a premium orreward to a person for doing an illegal trade. In the event oftaxing the income of only those who acquired the same through legalmanner, the tendency of those who acquired income by illegal meanswould increase. It is not possible for the income tax authoritiesto act like police to prevent the commission of unlawful acts butit is possible for the tax machinery to tax such income. Duringsuch process strict rules of evidence are not applicable to theincome tax authorities. Those piece of evidence which are notsufficient in ordinary legal proceedings to prove a particular factwould be sufficient for the tax officials to assess the income of anindividual. 23. The income tax Act considers the income earned legally aswell as tainted income alike. There is nothing like an illegalincome so far as the Tax Collector is concerned. Even if theassessee was prosecuted by Law Enforcing authorities for commissionof offence, the income earned by the offender still would be anincome liable for assessment. It is not a defence in such casesthat the State is also becoming a party to the illegal act bysharing the booty. 24. There was a clear factual finding recorded by the AssessingAuthority as well as Commissioner of Income Tax (Appeals) to theeffect that the assessee had indulged in filing bogus TDScertificates and got refund of the amount from the income taxdepartment. It was also the admitted case of the assessee beforethe income tax department as well as before the Central Bureau ofInvestigation during the course of investigation into the offencethat he had indulged in the act of fabricating TDS certificates andcollecting refund from the income tax department. It was only onaccount of the said factual matrix that the Assessing Officerassessed the income received by the assessee, by getting refundfrom the income tax department. However, the Income Tax AppellateTribunal without any basis set aside the order of the AssessingAuthority as well as Commissioner (Appeals) and as such we are ofthe considered view that the Tribunal committed a serious error byholding that the booty received by the assessee can under nocircumstances be the income of the assessee. https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ 25. In such view of the matter, we do not find any ground tosustain the order of the Income Tax Appellate Tribunal. Accordingly the order dated 25.10.2002 is set aside and both the tax cases areallowed. The substantial questions of law are decided in favour ofthe revenue and against the assessee. Consequently the order passedby the Commissioner (Appeals) dated 8.12.1993 is restored. No costs. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.Tr/To:1. The Assistant Registrar Income Tax Appellate Tribunal III Floor, Rajaji Bhavan Besant Nagar, Madras-90 2. The Commissioner of Income Tax (Appeals) Coimbatore.3. The Assistant Commissioner of Income Tax SIC, Erode.4. The Commissioner of Income Tax, Erode5. The Section OfficerVR Section,High Court, Madras2 ccs to Mr.T.S.V. Krishnan, Advocate, SR. 68510 T.C.(A) Nos.391 & 392 of 2004 RSI (CO)kk 15/12