Allahabad High Court
Bhim Raj Anand Kumar vs Income-Tax Officer. on 16 March, 1990
Equivalent citations: [1990]33ITD508(NULL)
ORDER
Per Anand Prakash A. M. - This appeal is against the order of penalty of Rs. 45,000 imposed by the ITO for concealment of income which has since been confirmed by the CIT (A).
2. The relevant facts may be noted. The assessee is a firm doing money-lending business; it also purchases and sells silver bullion and silver ornaments. The residential and business premises of the partners were searched by the Gold Control Authorities on 7-10-1977. In the course of the said search, primary gold and gold ornaments were seized, numbering in all 389 pieces weighting 1487.400 grams. In the course of the search proceedings, the statement of the main partner of the assessee firm, namely, Sri Gopi Krishna was recorded wherein it was stated by him that the firm in question was doing business in gold ornaments without licence. The aforesaid gold ornaments were thereupon seized by the custom authorities and proceedings under sections 71 and 78 of the Gold Control Act were commenced by the assessing authorities before the Deputy Collector of Customs before whom, a plea was taken by the assessee, inter alia that some of the seized ornaments were pawned by customers and that the firm was not being in gold ornaments as alleged and that earlier statement that firm was dealing in gold ornaments was recorded under duress. The above statement, which was given on 26th May, 1978, was rejected by the Deputy Collector, Central Excise as being an afterthought, as there was no evidence to suggest that at the time, when originally the statement of Sri Gopal Krishna was recorded, he was under duress. The learned Deputy Collector further found that the number and varieties of seized new gold ornaments definitely indicated their commercial nature and as such it could not be believed that the firm from whose custody the said gold ornaments had been seized, did not deal in gold ornaments.
3. After recording the finding as above, the Deputy Collector, Central Excise imposed a fine of Rs. 10,000 on the firm and the further penalty of Rs. 5,000 and directed that on payment of the aforesaid amount the gold ornaments may be released to the firm.
4. The information about the seizure and proceedings was in course of time given by the Central Excise authorities to the ITO who accordingly commenced proceedings u/s 271(1) (c) of the IT Act, 1961 with regard to the investment of gold ornaments and the dealings in gold ornaments. The plea of the assessee that it was not dealing in gold ornaments and that the statement that the firm was dealing in gold ornaments was given under duress, was rejected by the ITO more or less for the same reasons as given by the Deputy Collector, Central excise in his aforementioned order. The income from transactions in gold ornaments was taken by the ITO at Rs. 15,000 on an estimate by taking the turnover of the gold ornaments at Rs. 1 lakhs and the g. p. thereon at 15% and added to the assessees returned income. Investment in the gold ornaments was taken at Rs. 71,365 and added to the total income of the year under consideration.
5.1. During the assessment proceedings, the assessee had brought to the attention of the ITO that the said gold ornaments had been defalcated by the Central Excise Inspector, who had seized them, and that on the date of release, when the sealed packets were opened, the said packets were found containing nuts and bolts, instead of gold ornaments and, therefore according to the assessee, the aforesaid stock became a dead loss to the assessee and so the loss of stock-in-stock should be allowed as a set off against business income from business in gold ornaments.
5.2. The aforesaid plea of the assessee was accepted by the ITO and deduction of Rs. 71,365 was duly given to the assessee. The total income of the assessee was, thus, computed by the ITO as follows :
1.
Unexplained investment in stock of gold Rs. ornaments of 1324.400 gms.
71,365
2. Estimated stock lying with the Goldsmith 10,000 81,365 Business Profits :
Rs.
Rs.
Income from business as declared in the return 7,317 Sale of gold ornaments @ 15% on 1 lakh 15,000 22,317 On account of low drawings of partners 5,000 1,08,682 Less : Business loss as discussed above 71,365 37,317 The assessment as above was completed on 30th March, 1985 and simultaneously proceeding for concealment of income for the assessment year 1971-72 initiated against the assessee firm. In his penalty order the ITO has explained that the income in respect of which the particulars were allegedly concealed by the assessee consisted of the following two items.
Rs.
Income from trading in gold ornaments 15,000 Unexplained investment in trading 81,365 96,365 The assessees explanation that he had not concealed income was, however, rejected by the ITO. The plea of the assessee that penalty could not, in any case, be imposed with reference to unexplained investment in trading to the extent of Rs. 71,365 as that amount had already been allowed to be set off by the assessee on account of loss of stock-in-trade was rejected by the ITO by saying that "mere deduction would not exonerate the assessee from the guilt of concealment in acquisition of the stock of gold ornaments.....". Penalty of Rs. 45,000 in all was imposed on the assessee on the aforesaid basis.
6. The assessee challenged the aforesaid order before the CIT (Appeals) and pleaded before him that the investment in gold ornaments as above could have been out of agricultural income; that part of it could be pawned ornaments and that, in any case, no penalty could have been imposed with reference to the loss of stock-in-trade, claim of which had been accepted by the ITO while completing the assessment, and that the assessee, in fact, never dealt in gold ornaments. It was also pleaded that in any case penalty ought not to be imposed with reference to the stock of gold ornaments estimated at Rs. 10,000 allegedly lying with the goldsmiths as there was no evidence to support the above finding.
7. The learned CIT (Appeals) accepted the assessees submission with regard to the value of stock estimated at Rs. 10,000 allegedly lying with the goldsmiths, as in his opinion, "this addition is based on guess work. No such stock had been detected or its existence proved by some other record or circumstantial evidence"
8. With regard to the stock of Rs. 71,317, which had ultimately been lost, and admitted as such by the ITO, but in respect of which the ITO had imposed penalty, as in the ITOs opinion that represented concealed income to which Explanation 4 to section 271(1)(c) of the IT Act was applicable, the learned CIT (Appeals) had the following observations to make :
"The appellant contends that in view of the fact that these ornaments have subsequently been lost in custody of Customs authorities, which was allowed as trading loss by the ITO, no concealment survives. The charge of concealment can be made only if some income has been concealed and it results in loss of revenue. In the present case there is no loss of revenue because those ornaments were lost and the trading loss was allowed by the ITO. I do not find myself in agreement with the appellant. The act of concealment had been committed already and had been detected at the time of search. The subsequent happening that the items were lost in the custody of Customs authorities would not wipe out the fact that the concealment had been committed and would remain uneffected by accidental loss of items later on. Thus, the ITO was justified in rejecting this argument of the assessee also.
Again in paragraph 20, the learned CIT (Appeals) made the following observation :
"The claim of business loss of stock entry has no cor-relation with the act of concealment which had taken place much earlier. The claim of ornaments being personal have also no force which is proved from the nature of items and also from personal income in the past."
9. The assessees explanation that he had agricultural income to explain partly the investment in the gold ornaments, was rejected by the learned CIT (Appeals) as being without any supportive evidence. On the contrary, pointed out the learned CIT (Appeals) there was evidence on record to show, vide the statement of Sri Gopi Krishna dated 4th March, 1980, that income from agriculture had not been declared by the family because there was no income from agriculture in any of the years except the year 1974-75, when income of Rs. 2,000 had been declared. In the face of this evidence, the learned CIT (Appeals) observed that the assessees averment in penalty proceedings could not be accepted without there being further evidence on record on the point. His observations are contained in paragraphs 10, 11 and 12 in this regard. Similarly the assessees explanation that some of the ornaments were pawned ornaments, was rejected by the learned CIT (Appeals) as there was no evidence to support the same. The relevant observations of the learned CIT (Appeals) are contained in paragraphs 8.1 and 9. The following observations made by the learned CIT (Appeals) deserved to be noted at this stag :
"After considering all the relevant facts I am inclined to agree with the ITO that no reliance could be placed on the evidences produced by the assessee before the various authorities after lapse of 7 months. I have already observed it is just not possible to believe that the assessee would have concealed the books of account which would have prevented even the seizure of the assets later on claimed to be pawned ornaments. This clearly proves that the account books produced subsequently were fabricated books and no reliance can be placed on the evidences fabricated in order to support the version recorded in the fabricated books of account. It is not necessary to prove the affidavits to be bogus by any deep enquiry into them because such fabricated evidence is ab initio void piece of evidence. The deponent must have stated what they must have been asked to state. The Customs authorities had not seized the gold and gold ornaments which had been properly explained to be either personal or pawned ornaments. Nothing prevented the assessee from stating the truth about the remaining so called pawned ornaments if these were really so and saving the same from seizure as he had done with regard to some other ornaments by claiming them to be pawned ones. The reversal of the theory after 7 months cannot be explained. Thus, no reliance can be placed on the books of account fabricated later on. This fact is also proved by the nature and description of these ornaments showed that there were 57 pairs of Jhumkas and similarly large number of other identical ornaments. This cannot be required for family purpose or could not have represented pawned articles. These were obviously required for business purposes."
10. The explanation of the assessee that some of the gold and ornaments were personal in nature was accepted by the ITO to the extent of 163 grams of primary gold. Regarding the remaining 1324 grams, the value of which was Rs. 71,365, the evidence of the nature of the ornaments itself went to show that they were not personal ornaments but pertained to the assessees business, being entirely commercial in nature. In paragraph 20 of his order the learned CIT (Appeals) had the occasion to make the following observations after taking into account the stand taken by the assessee in different proceedings at different stages as follows :
"It is remarkable in this case that the assessee has changed all its old stands and it has produced fresh evidence regarding some contentions or the other before the CIT (Appeals). The assessee had not produced the books of account before the search party. It has also not produced any evidence regarding agricultural income before the ITO. It produced new evidence regarding business loss also before the CIT (Appeals). Although there is no legal restriction against this yet it proves the assessees style of working."
11. In view of the observations made as above, the learned CIT (Appeals) confirmed the penalty imposed on the assessee and dismissed the assessees appeal.
12. It is against the aforesaid finding of the learned CIT (Appeals) that the present appeal has been filed by the assessee before us. The same pleas, as were taken by the assessee before the authorities below, are reiterated before us and, in particular, it is stressed that the Explanation 4 to section 271(1)(c) does not apply to the facts of the present case and that penalty can only imposed, if at all, with reference to those items, which were included in the total income, and in respect of which it can be said that the income in question was concealed. Loss of stock-in-trade has been admitted both by assessing authority and the CIT (Appeals), and the income of the assessee has been worked out after deducting the loss of stock-in-trade. It would be wrong to ignore this loss which resulted from the loss of ornaments and to take into account the unexplained investment in the self same ornaments for the purpose of imposition of penalty. Only an amount of Rs. 15,000 would, if at all, remain for the purpose of imposition of penalty in this case and according to the learned counsel for the assessee penalty should not be imposed even with regard to it because the assessee had denied on oath having carried on any business in purchase and sale of gold ornaments.
13. On behalf of the revenue, the order of the learned CIT (Appeals) was stoutly supported and it was urged that the addition on account of investment amounting to Rs. 71,365 was justified. Reference was made in this connection to page 48 Statute of 110 ITR and to page 38 Statute of 162 ITR. It was also indicated in this connection by the learned departmental representative that the loss of gold ornaments was discovered on 4-6-1979 and FIR with the Police was filed after this date and, therefore, it would be wrong to say that the loss in question had become final during the year under consideration. Reliance was made in this connection to the judgment of the Honble Supreme Court in the case of Associated Banking Corpn. of India Ltd. v. CIT [1965] 56 ITR 1. Great deal of emphasis was laid by the learned departmental representative at the following observations appearing in paragraph 61.11 at page 48 of 110 ITR :
"New Explanation 4 defines the amount of tax sought to be evaded. According to the definition, this expression will ordinarily mean the difference between the tax on the total income assessed and the tax that would have been reduced by the amount of income in respect of which particulars have been concealed. In a case, however, where on setting off the concealed income against any loss incurred by the assessee under other head of income or brought forward from earlier years, the total income is reduced to a figure lower than the concealed income or even to a minus figure, the tax sought to be evaded will mean the tax chargeable on the concealed income as if it were the total income. Another exception to the general definition of the expression tax sought to be evaded given earlier is a case to which Explanation 3 applies. Here, the tax sought to be evaded will be the tax chargeable on the entire total income assessed."
14. On the basis of the aforesaid submissions, it was urged by the learned departmental a representative that the order of the CIT (Appeals), being correct should not be interfered with.
15. We have given careful consideration to the facts of the case and the rival submissions. In the present case, the facts stated above go clearly to show that, at the time of the search at the business and the residential premises of the partners of the firm, gold ornaments, which were altogether new and which were admittedly of commercial nature, were discovered. The assessee was not having licence for dealing in gold ornaments whereas it did possess licence for carrying on money-leading business and dealing in silver and silver ornaments. The assessees explanation was asked for with regard to all the items, which were available at the business and residential premises. As has been pointed out by the learned CIT (Appeals), the Customs and Gold Control authorities refrained from seizing those items in respect of which a satisfactory and prima facie explanation was forth-coming. With regard to the gold ornaments the assessee did make a confessional statement before the Gold Control authorities through its partner Gopi Krishna that the firm doing business in gold ornaments without licence. The plea that the gold ornaments which were seized also were received by it in the course of pawning business was not set up by the assessee firm or its partner Gopi Krishna at this state. The books of account of the assessee firm were not made available to the custom authorities for verification of the aforesaid claim at the time of the search, obviously because such a plea was never taken by the assessee then. This plea was raised by the assessee 7 months after the initial statement as above had been recorded, and it was then that the books of account were produced to support the plea a pawning. The learned CIT (Appeals) rightly reject the evidence of the books of account as fabricated, because if the said evidence was existent at the point of time, when the customs authorities had come, this was the easiest explanation to give to avoid seizure of the gold ornaments, for if they were pawned ornaments, apparently there was no dealing in gold ornaments in unauthorised manner, and so the question of seizing the gold ornaments in that case would simply not arise. The assessee did not produce the books of account at the relevant time to establish this nor did it set up such a plea. Apparently, adverse inference has to be drawn against the assessee on account of its aforesaid conduct. It took almost 7 months for the assessee to raise the aforesaid plea based on books and to produce the books in support of the said claim. Apparently this gap of 7 months was used to think over a proper explanation and to back it up with prima facie evidence. The conduct of the assessee, being against all human probabilities, was, in the circumstances, rightly rejected by the learned CIT (Appeals) as unworthy of credence. We entirely endorse this inference of the learned CIT (Appeals). His finding that the assessee was doing business with gold ornaments is, in our opinion, correct and it is not possible to accept the explanation of the assessee, given later, that the aforesaid confession from Sri Gopi Krishna was obtained by the custom authorities under duress. There is nothing to suggest this. The assessees plea is prima facie not only incorrect but against all human probabilities bordering on falsehood. We accordingly reject the claim.
16. As the assessee was doing business in gold ornaments, and as its income had not been disclosed by the assessee, the income, which has been estimated by the authorities below with regard to this business, namely, Rs. 15,000 is undoubtedly the concealed income of the assessee; but under the head business income, the income from dealings in gold ornaments would not be Rs. 15,000. It would be a less figure of Rs. 15,000 minus Rs. 71,365 which represents the loss in stock-in-trade of this very business. In other words, the net result of business in gold ornaments had been determined by the ITO this year to be a loss of Rs. 56,365 and not an income of Rs. 15,000 as presumed by the learned CIT (Appeals). May be that the loss in question had not occurred during the accounting period under consideration, but in the present case, we are not hearing an appeal against quantum. Quantum is the given datum for the purpose of this appeal. We have to find out as to what is the concealed income of the assessee under the head business income. It is correct to say that the ITO had assessed income from business of gold ornaments at Rs. 15,000 or it will be more appropriate to say that he had determined income from the said business at a loss of Rs. 56,365 ? In our opinion, the findings of the ITO as per his assessment order is that in the business of gold ornaments the assessee incurred, during the accounting period, a loss of Rs. 56,365. Therefore, it is a wrong assumption of facts of believe that the assessee had concealed the income of Rs. 15,000 from the business of gold ornaments. There was no income concealed under this head what was concealed was the loss of Rs. 56,365. Income from a given business may it be remembered, has to be determined at the end of the accounting period and it would be wrong to view profits embedded in different transactions at different periods of the accounting period in isolation with each other. For finding out as to whether the assessee had concealed income from the given business, we have to ascertain the results at the end of the accounting period. In this case, as noted earlier, the assessee had concealed the entire business from the view of the ITO. Therefore, the net result of this business, whatever it may be, was concealed by the assessee. As the chance would be the ITO had determined the net result to be loss of Rs. 56,365 and, therefore, it would be wrong to impose penalty with reference to Rs. 15,000 ignoring in the bargain, another item of this very business on loss of account of which the ITO conceded to the assessee a loss of Rs. 71,365. As such, no penalty with reference to Rs. 15,000 is exigible on the assessee.
17. That brings us to the question as to whether penalty ought to be imposed on the assessee with regard to the unexplained investment of Rs. 71,365 in gold ornaments which has been established in this case. The aforesaid investment is assessable in the assessees hands as income from undisclosed sources in terms of section 69 of the IT Act, 1961. That was the investment, no doubt, in the business of gold ornaments, but the initial investment nonetheless remained unexplained. The aforesaid unexplained investment is deemed to be assessees income by the statute in view of the provisions of section 69 of the IT Act, 1961. This investment, having been concealed by the assessee, was clearly an item of income different from the assessees income under the head business and as such it will have to be said of this item that it represented concealed income of the assessee other than business income. While computing the tax sought to be evaded with reference to this item, Explanation 4 to section 271(1)(c) will be clearly applicable and the CIT (Appeals) was, therefore, concealed income with reference to which penalty ought to be imposed in accordance with law taking into account the provisions of Explanation 4 to section 271(1)(c) of the IT Act, 1961 into account. We accordingly uphold this part of his order.
18. In the result, the appeal stands partly allowed.