Itr/1/1998 Of Commr. Of Income Tax, Tvm v. P.natesan Achary

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR THURSDAY, THE 13TH MARCH 2008 / 23RD PHALGUNA 1929 ITR.No. 1 of 1998() ------------------- AGAINST THE ORDER DATED / / IN ITA 698/95 IN RA.225/1996 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPLICANT: ----------- THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) SRI.GEORGE.K.GEORGE RESPONDENTS: ------------- P. NATESAN ACHARY, GOLDSMITH, MULLACKAL, ALAPPUZHA. BY ADV. SMT.S.JASMINE SRI.P.BALACHANDRAN THIS TAX REFERENCE HAVING BEEN FINALLY HEARD ON 20/2/2008, ALONG WITH ITR NO. 274 OF 1999 THE COURT ON 13/3/2008 DELIVERED THE FOLLOWING: C.N. Ramachandran Nair &T.R. Ramachandran Nair, JJ. - - - - - - - - - - - - - - - - - - - - - - - - I.T.R.NOs.1/1998 & 274 /1999 - - - - -- - - - - - - - - - - - - - - - - - - - - Dated this the 13rd day of March, 2008. JUDGMENT T.R. Ramachandran Nair, J. These Tax Reference Cases are at the instance of the Revenue. The following two questions of law have been referred by the Income TaxAppellate Tribunal, Cochin Bench for our opinion: “1) Whether, on the facts and in the circumstances of the case, theTribunal is right in law in holding that section 69A is not attracted? 2) Whether, on the facts and in the circumstances of the case, theTribunal is right in law in holding that the additions made undersection 69A of the I.T. Act are eligible to be deleted?” 2. The short facts are the following: The Central Excise authorities had conducted a search at the residence and business premises of theassessee on 15.6.1988. They seized certain gold ornaments totalling3770.800 grams. Out of this, 1257.300 grams were seized from hisresidence and this included various items like new bangles (757.300 grams),melted gold rods (170.500 grams), gold coins (84 grams) and gold wire(245.500) grams. From the business premises, they seized ornaments to thetune of 2323.500 grams which includes gold bangles (1718.800 grams), ITR 1/1998 & 274/99 gold coin locket (410.200 grams), primary gold in the form of rod (186.500grams) and melted gold rod (8 grams). Apart form that, 877.900 grams ofgold ornaments were found in the residence and accepting the explanationof the appellant's wife that these ornaments belong to her and her daughter,they were not seized by the Central Excise authorities. As per order NO.8/89 dated 10.3.89, the Collector of Central Excise, Cochin, confiscated thegold and gold ornaments and also imposed penalty. The assessee wasgiven an option to redeem the gold and gold ornaments on payment of fine.Appeals were filed by the assessee and four other goldsmiths working withhim, before the Tribunal which confirmed the order of the Collector. TheTribunal reduced the redemption fine for the release of gold ornaments andprimary gold and also the amount towards the penalty imposed. 3. In the return filed by the assessee for the year 1989-90, he declareda total income of Rs.54,470/-. The assessing officer completed theassessment at a total income of Rs.9,53,450/- by making additions invokingSection 69-A of the Income Tax Act. In short, his claim before theassessing officer was that the gold and the gold ornaments seized belong tohimself and other six goldsmiths working with him and also that part of theseized articles belong to M/s. Bhima & Brother, Alleppey and M/s. LaxmiDas Jewellers, Mangalore. The assessing officer summoned variouspersons and examined them in the process of completion of assessment. ITR 1/1998 & 274/99 3. In the return filed by the assessee for the year 1989-90, he declareda total income of Rs.54,470/-. The assessing officer completed theassessment at a total income of Rs.9,53,450/- by making additions invokingSection 69-A of the Income Tax Act. In short, his claim before theassessing officer was that the gold and the gold ornaments seized belong tohimself and other six goldsmiths working with him and also that part of theseized articles belong to M/s. Bhima & Brother, Alleppey and M/s. LaxmiDas Jewellers, Mangalore. The assessing officer summoned variouspersons and examined them in the process of completion of assessment. ITR 1/1998 & 274/99 He considered the statements given before the Central Excise authoritiesand the confirmation letters furnished by the other claimants. Ultimately, heaccepted the contention of the assessee only to the extent of 935.700 gramsrepresenting gold received from M/s. Bhima & Brother, Alleppey and M/s.Laxmi Das Jewellers, Mangalore. Thus, he treated the balance of 2835.100grams as unaccounted gold and gold ornaments as belonging to theappellant. Apart from that, there were claims for 877.900 grams of goldjewellery found at the assessee's residence, which his wife claimed as her,being the jewellery given at the time of marriage. The same had beenreleased by the Central Excise authorities accepting her claim. Theassessing officer treated 77.900 grams of gold as unaccounted jewellerybelonging to him. Thus, the total quantity of unaccounted gold and goldjewellery was determined at 2913 grams. Its value was assessed at the rateof Rs.300/- per gram totalling Rs.8,73,900/- and the same was treated asincome under the head “other sources” by invoking Section 69A of the Act.In appeal, the matter was elaborately considered by the Commissioner ofIncome Tax (Appeals) and the assessment order was modified by directingthe assessing officer to exclude 77.900 grams from the quantity ofunaccounted gold and gold ornaments and as far as the quantity of2835.100 grams is concerned, the appellate authority upheld the assessingofficer's action. The Tribunal accepted the pleas of the assessee and ITR 1/1998 & 274/99 allowed the appeal on all grounds except ground No.9. 4. We heard Shri P.K.R. Menon, learned Senior Counsel for theRevenue and Shri P. Balachandran, learned Senior Counsel for therespondent. It is contended by learned Senior Counsel for the Revenuerelying upon the decision of a Division Bench of this court inCommissioner of Income Tax v. Smt. Jayalakshmi Devarajan (286 ITR412) that the burden to prove that the articles belonged to him is on theassessee and really the Tribunal misdirected itself in casting the burden onthe Revenue. It was strongly contended that the approach made by theTribunal is totally perverse and the findings of fact have been reversedwithout considering the evidence available on record. It is submitted thatthe proceedings of the Collector of Central Excise and that of the Customs,Excise and Gold (Control) Appellate Tribunal have clearly found theclaim of the assessee and others working with him unsustainable and asthose proceedings have become final, they should not have been brushedaside by the Tribunal herein to find in favour of the assessee. It is pointedout that no reliable documents have been produced by the assessee insupport of the said claim and therefore the findings rendered were clearlybased on surmises and conjectures rather than on the evidence available inthe record. It is therefore submitted by the learned Senior Counsel relyingupon the dictum laid down in Jayalakshmi Devarajan's case referred to ITR 1/1998 & 274/99 above, that the wrong application of law amounted to an error of law givingrise to a substantial question of law. ITR 1/1998 & 274/99 above, that the wrong application of law amounted to an error of law givingrise to a substantial question of law. 5. Shri P. Balachandran, learned Senior Counsel for the respondentassessee supported the findings of the Tribunal and argued that thequestions raised are not questions of law, but really questions of fact andtherefore there is nothing to be answered. 6. As noticed already, from the residence of the assessee, 1257.3grams of gold were seized and from his business premises, 2323.5 gramswere seized. A reference to Annexures D and E orders passed by theCollector of Central Excise and the Appellate Tribunal would be of muchassistance here, to understand the case of the assessee and about the otherrelevant aspects. In Annexure D order, the Collector of Central Excise hasdealt with elaborately the claims raised by various parties. Apart from theassessee, the other claimants were Shri C. Mohanan, Shri P.C.Gopalakrishnan, Shri K.K. Sasi and Shri V. Murugappan. It is seen that allthese persons stated that the gold bangles respectively claimed by themwere their life savings which were kept for safety purposes, with theassessee. After analysing their claims, it was noticed by the Collector whilerejecting them, that Shri Sasi, Shri Murugappan, etc. are only of the agegroup 21 and 22 years and it cannot be believed that the seized goldornaments were their life savings. As regards the claim raised by Shri ITR 1/1998 & 274/99 Murukesan, it was observed that he was only an apprentice under theassessee, which also goes against his case that the said articles are lifesavings. Further, it was noticed that they have raised the claims only fivedays after the seizure which also was taken as a strong circumstanceagainst their claims. In Annexure E order passed by the Appellate Tribunalalso, these claims were elaborately dealt with. It was noticed in paragraph10 of the order that even though the total number of bangles seized from thebusiness premises is only 272, the claims have been put forth in respect of336 bangles by six persons. It was found that none of the claimants had putforth the claim immediately after the seizure or at the time of recordingtheir statements and the claims have been made belatedly, i.e., after fivedays from the seizure. The Appellate Tribunal found that in the absence ofany acceptable evidence in regard to the acquisition of gold bangles by theabove persons, the lower authority has rightly rejected their claim and thereasoning of the lower authority is well founded. 7. The assessing officer and the Commissioner of Income Tax(Appeals) have considered the effect of the above orders while consideringthe various aspects. In fact, the assessing officer had considered thestatements given before the Central Excise authorities, confirmation lettersfurnished and also the statements recorded from them in detail. 8. In fact, the goldsmiths working under him uniformly have set up a ITR 1/1998 & 274/99 case that the gold bangles belonged to them and were kept for safe custodywith the assessee. But the assessing officer noticed that there areimprobabilities in their stand, as there was no proper explanation as to whythe ornaments which should have been kept in their residence, wereentrusted with the assessee, especially in a case where they had set up acase that these ornaments were received from the parents, family, etc. Theassessing officer found that it is difficult to believe that they had left thesegold ornaments which were meant for use by their family members with theassessee. Ultimately, he summarises his findings in paragraph 12 which isextracted below: “12. While treating the gold and gold ornaments, explainedabove, as the assessee's unexplained/unauthorised investments fromout of undisclosed sources, I have taken into account the followingaspects also: “12. While treating the gold and gold ornaments, explainedabove, as the assessee's unexplained/unauthorised investments fromout of undisclosed sources, I have taken into account the followingaspects also: a) All the so called six gold smiths had stated before the CentralExcise Authorities that the bangles stated to be belonged to them aretheir “life savings”, whereas in the sworn statements each one ofthem stated different stories as to the source of acquisition; b) All the goldsmiths kept their gold in the form of bangles only. c) All of them have, in the confirmation letter, stated that theyentrusted those bangles with the assessee for safe custody, since theyhave no secured place to be kept them at their residence. It may beseen from the sworn statement that those bangles were kept by themat their residences prior to entrusting them with the assessee and evenafter received back from the Central Excise Authorities. d) The redemption fine stated to have been paid by each of them isdisproportionate to the gold said to be belonged to them. e) He has not maintained any record for the gold ornaments of otherskept in his safe. Since this is against the Gold Control Act, he oughtto have kept at least some record for these. His statement that he wasnot aware of the penal consequences cannot be accepted, since he isan experienced goldsmith having 28 years of service. Of course, thisis not a point to be considered under the I.T. Act. However, since hehas no proof other than the confirmation letter to establish that someof the seized gold belonged to others, it has to be considered that theybelonged to the assessee himself, unless it is proved satisfactorily.This has not been done, as explained earlier. f) There is no proof to show that even the goldsmiths, viz. M/s.Mohanan, P.C. Gopalakrishnan, K.K. Sasi and Murugappan, whowere witnesses in the Mahazar prepared by the Central Exciseauthorities, had claimed these bangles as belonging to them duringthe course of search and seizure. Their deposition that though theyhad informed the Central Excise authorities about this, it was notincorporated in the Mahazar, is not acceptable, in the absence of anyevidence.” In fact, the above findings were rendered after considering the findings rendered by the Customs and Central Excise authorities also. 9. The Commissioner of Income Tax (Appeals) considered the contentions of the assessee in paragraph 4 of the order. The Commissioneragreed with the findings of the assessing officer while dealing with the caseof the assessee that the goldsmiths working along with him are not theowners of the bangles of which ownership was claimed by them. Referringto the contentions by the claimants that they had received gold from their parents, the Commissioner rightly concluded that there is no proof orevidence regarding that. He found it difficult also to agree with thecontentions raised by many of them that they were keeping the ornaments ITR 1/1998 & 274/99 with the assessee even though some of them have been staying with theirown family including their wives separately. Thus, the assessing officerand the Commissioner of Income Tax (Appeals) entered their findings afteranalysing the evidence in a deep and thorough manner. 10. In fact, none of the claimants could prove how they came intopossession of those gold bangles and they merely described these are theirlife savings. In fact, the Commissioner agreed with the assessing officerspecifically finding that there is no evidence to show the ownership of thebangles on the part of these claimants. We find that the learned SeniorCounsel appearing for the Revenue is well founded in his submission thatall the four authorities including the authorities under the Central Exciseand Customs, have consistently found against their claims and the Tribunalherein has acted perversely in straight away accepting their contentions ontheir face value. 10. In fact, none of the claimants could prove how they came intopossession of those gold bangles and they merely described these are theirlife savings. In fact, the Commissioner agreed with the assessing officerspecifically finding that there is no evidence to show the ownership of thebangles on the part of these claimants. We find that the learned SeniorCounsel appearing for the Revenue is well founded in his submission thatall the four authorities including the authorities under the Central Exciseand Customs, have consistently found against their claims and the Tribunalherein has acted perversely in straight away accepting their contentions ontheir face value. 11. The Tribunal reversed the orders of the assessing officer and theCommissioner of Income Tax (Appeals) apparently taking the view that theexplanations offered by the goldsmiths ought to have been accepted. Therelevant findings are contained in paragraph 23. We extract the followingfindings contained in paragraph 23 so as to assess whether the approachmade by the Tribunal is correct: “As already stated above, the assessing officer found that the goldornaments in question were wrapped in Malayala Manorama ITR 1/1998 & 274/99 newspaper of different dates. Keeping gold ornaments of thesepeople in the Malayala Manorama newspaper does not make anydifference as the appellant was handling their ornaments entrustedto him by these people. Therefore, there was every possibility ofwrapping the gold and gold ornaments in the Malayala Manoramanewspaper of different dates. The finding of the assessing officerwas that the ornaments in question were manufactured subsequentto the dates of the publication of the above daily. This does notmake any difference to infer that the gold and gold ornaments inquestion did not belong to those people but only belonged to theappellant. If that would have been the case, these people could nothave claimed these ornaments as belonging to them before theCollector of Central Excise and the Customs, Excise and Gold(Control) Appellate Tribunal, Madras and they should not havepaid any fine to redeem them. According to the appellant as well asthese people, the said gold ornaments belonged to thosegoldsmiths and workers and the supporting facts are that thesepeople claimed themselves to be the claimants before the CentralExcise authorities, paid fine to get the ornaments redeemed. Thissupports the contention of the appellant against the merepresumption of the assessing officer that these people could nothave acquired the gold ornaments as they were not in a position andhence the gold ornaments did not belong to them. Presumptioncannot take the place of facts. The principal evidence adduced inthis respect being sound has to be accepted.” Ultimately, in paragraph 28 the issue found by the Tribunal is in the following terms: “The facts and evidence lead us to draw an inference favourable tothe appellant to accept his explanation and the explanation of otherclaimants claiming certain quantity of gold ornaments as belongingto them.” This conclusion was arrived at by relying upon the dictum laid down C.I.T. v. L.G. Ramamurthi and others {(1977) 110 ITR 453} to the effect that if there is a possibility of drawing two probable inferences from a same set offacts, in that event, the inference beneficial to the assessee should be ITR 1/1998 & 274/99 accepted. What persuaded the Tribunal to accept the explanation is further evident from paragraph 30. It was held thus: Ultimately, in paragraph 28 the issue found by the Tribunal is in the following terms: “The facts and evidence lead us to draw an inference favourable tothe appellant to accept his explanation and the explanation of otherclaimants claiming certain quantity of gold ornaments as belongingto them.” This conclusion was arrived at by relying upon the dictum laid down C.I.T. v. L.G. Ramamurthi and others {(1977) 110 ITR 453} to the effect that if there is a possibility of drawing two probable inferences from a same set offacts, in that event, the inference beneficial to the assessee should be ITR 1/1998 & 274/99 accepted. What persuaded the Tribunal to accept the explanation is further evident from paragraph 30. It was held thus: “Other goldsmiths raised loans to pay fine to the Central Exciseauthorities for redeeming the gold and gold ornaments claimed bythem as owners of the same. They have claimed certain gold andgold ornaments as their own right from the beginning and they werealso appellants before the Central Excise authorities as well as theCustoms, Excise and Gold (Control) Appellate Tribunal. Aftergetting the redeemed gold and gold ornaments claimed by them,they sold certain part of the gold ornaments to repay the loans raisedby them for paying fine and redeeming the ornaments. Therefore,the reasonable conclusion would be that they are the owners of thegold and gold ornaments as claimed by them and attribution of theownership of the gold and gold ornaments claimed by them cannotbe made to the appellant. To discard this version does not appearjudicious. There is a version against version. The revenue's versionis that whatever gold and gold ornaments found or seized andseizure belonged to the appellant himself and nobody else. Thisversion depends on an averment or a suggestion or an allegationmade by the department. Therefore, the version which is supportedby evidence of the claimants need not be rejected by accepting themere version of presumption or allegation.” Ultimately, the Tribunal held that the gold and gold ornaments claimed byother goldsmiths really belonged to them and not to the assessee andtherefore the addition of the value of such gold and gold ornaments cannotbe upheld and it was held that the assessee succeeds on that aspect. We areafraid that the approach made by the Tribunal is totally without any legalbasis. The Tribunal has wrongly cast the burden on the Revenue. Exactlyon similar facts, in Jayalakshmi Devarajan's case (286 ITR 412) a DivisionBench of this court held that “the Tribunal had wrongly placed the burdenof proof on the Revenue. It is trite law that a person who is in possession of ITR 1/1998 & 274/99 -12- an article has to prove its source. The wrong application of law amountedto an error of law giving rise to a substantial question of law within themeaning of Section 260A of the Income Tax Act, 1961.” We respectfullyfollow the above dictum laid down by this court and judged in the light ofthe above dictum, we hold that the approach made by the Tribunal is totallywithout any legal foundation. Even though Shri P. Balachandran, learnedSenior Counsel for the assessee contended that the findings rendered by theTribunal are purely on questions of fact, we find that the findings have beenrendered purely on surmises and conjectures and the approach made istotally perverse and the Tribunal has ignored the evidence which wasavailable before the assessing officer and other authorities. Therefore, asheld by the Division Bench in the above quoted case, the wrong applicationof law amounted to an error of law giving rise to a substantial question oflaw. 12. Going by the provisions of Section 69-A of the Act, the additionsmade herein with reference to the claims raised by the other goldsmithsought not have been deleted. We find that the reasoning adopted by theTribunal referring to redemption of gold and gold ornaments by theclaimants after availing loans and by paying fine to the Central Exciseauthorities, has no significance in the light of the findings rendered above.Actually, the Tribunal was persuaded to accept their version because of the ITR 1/1998 & 274/99 subsequent conduct on the part of the said goldsmiths in redeeming the goldwhich, according to us, pales to insignificance when the claim itself couldnot be proved by any cogent evidence before the Central Excise authoritiesand before the assessing officer. Hence, the Tribunal acted perversely inarriving at the conclusion that they are the owners of the gold and goldornaments as claimed by them and that the assessee is not the owner of thegold and gold ornaments which are claimed by those persons. It is also nottrue as held by the Tribunal that this is a case where it is one version againstanother version. In the light of the clear findings rendered by the CentralExcise authorities, the assessing officer and the Commissioner of IncomeTax (Appeals), the Tribunal's view that the version of the assessee issupported by evidence of the claimants, is totally perverse, as we havenoticed above. As regards the claim made by the assessee that theybelonged to other goldsmiths working under him, the version of theRevenue is not on the basis of any presumption or allegation, but issupported by the orders passed by the Central Excise authorities and theevidence before the assessing authority. We are of the view thatevidenciary value of those orders cannot be discarded at all. Hence, theTribunal was not right in reversing the orders, while considering the claimsof other goldsmiths in respect of 272 bangles weighing 1617.800 grams. 13. The finding as above rendered by us is justified by the provisions ITR 1/1998 & 274/99 of Section 69-A of the Act. This is a case where the explanation offered bythe assessee cannot be accepted as satisfactory and therefore the legalfiction as provided in Section 69-A of the Act can be drawn. 14. As regards the other items of gold and gold ornaments, theTribunal has found that the explanation as regards 77.900 grams of goldwas probable and reasonable. This is so in the case of 800 grams of goldand gold jewellery held, as owned by the appellant's wife and daughter.The Tribunal also found that the total quantity of gold which was entrustedwith the assessee by M/s. Bhima and Brothers. Alleppey and M/s. LaxmiDas Jewellery, Mangalore can be fixed at 970.300 grams rather limiting itto 935.700 grams. These findings do not call for any interference. Asregards the remaining items like gold coins, gold lockets, melted gold rods,etc. claimed by the assessee as belonging to him, his wife and daughterwhich were found in favour of the assessee by the Tribunal, they do not callfor any interference. 15. We, therefore, hold that the Tribunal acted perversely inaccepting the explanation offered by the assessee and other gold smiths andtherefore the addition of the value of such gold and gold ornaments by theassessing officer, has to be upheld. We answer the questions in favour of ITR 1/1998 & 274/99 the Revenue. The Tribunal is directed to pass appropriate consequential orders. In I.T.R. No.274/1999 the following question has been referred for decision of this court: “Whether, on the facts and in the circumstances of the case, was theTribunal right in deleting the interest levied under Sec.234B and234C?” The question is answered in favour of the Revenue, in the light of our findings as above, as levy of interest is automatic. But the assessee will be at liberty to move for waiver of interest and subject to the above, thequestion is answered in favour of the Revenue. ITR 1/1998 & 274/99 the Revenue. The Tribunal is directed to pass appropriate consequential orders. In I.T.R. No.274/1999 the following question has been referred for decision of this court: “Whether, on the facts and in the circumstances of the case, was theTribunal right in deleting the interest levied under Sec.234B and234C?” The question is answered in favour of the Revenue, in the light of our findings as above, as levy of interest is automatic. But the assessee will be at liberty to move for waiver of interest and subject to the above, thequestion is answered in favour of the Revenue. The Tax Reference Cases are disposed of as above. (C.N. Ramachandran Nair, Judge.) (T.R. Ramachandran Nair, Judge.) kav/ -16- C.N. Ramachandran Nair &T.R. Ramachandran Nair, JJ. - - - - - - - - - - - - - - - - - - - - - -. No.- - - - - - - - - - - - - - - - - - - - - - JUDGMENT 6[th] February, 2008.