Commissioner of Income Tax vs P. Natesan Achary

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 Tribunal. Cochin Bench, for our opinion:

(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that Section 69A is not attracted?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the additions made u/s 69A of the IT Act are eligible to be deleted?

The short facts are the following:

The central excise authorities had conducted a search at the residence and business premises of the assessee on 15th June, 1988. They seized certain gold ornaments totalling 3,770.800 gms. Out of this, 1,257.300 gms. were seized from his residence and this included various items like new bangles (757.300 gms.), melted gold rods (170.500 gms.), gold coins (84 gms.) and gold wire (245.500 gms.). From the business premises, they seized ornaments to the tune of 2,323.500 gms. which include gold bangles (1,718.800 gms.). gold coin locket (410.200 gms.), primary gold in the form of rod (186.500 gms.) and melted gold rod (8 gms.). Apart from that, 877.900 gms. of gold ornaments were found in the residence and accepting the explanation of 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 of 1989, dt. 10th March, 1989, the CCE, Cochin, confiscated the gold and gold ornaments and also imposed penalty. The assessee was given an option to redeem the gold and gold ornaments on payment of fine. Appeals were filed by the assessee and four other goldsmiths working with him, before the Tribunal which confirmed the order of the Collector. The Tribunal reduced the redemption fine for the release of gold ornaments and primary gold and also the amount towards the penalty imposed.

In the return filed by the assessee for the year 1989-90, he declared a total income of Rs. 54,470. The AO completed the assessment at a total income of Rs. 9,53,450 by making additions invoking Section 69A of the IT Act, In short, his claim before the AO was that the gold and the gold ornaments seized belong to himself and other six goldsmiths working with him and also that part of the seized articles belong to M/s Bhima & Brother, Alleppey and M/s Laxmi Das Jewellers, Mangalore. The AO summoned various persons and examined them in the process of completion of assessment. He considered the statements given before the central excise authorities and the confirmation letters furnished by the other claimants. Ultimately, he accepted the contention of the assessee only to the extent of 935.700 gms. representing gold received from M/s Bhima & Brother, Alleppey and M/s Laxmi Das Jewellers, Mangalore. Thus, he treated the balance of 2,835.100 gms. as unaccounted gold and gold ornaments as belonging to the appellant. Apart from that, there were claims for 877.900 gms. of gold jewellery found at the assessee''s residence, which his wife claimed as her, being the jewellery given at the time of marriage. The same had been released by the central excise authorities accepting her claim. The AO treated 77.900 gms. of gold as unaccounted jewellery belonging to him. Thus, the total quantity of unaccounted gold and gold jewellery was determined at 2,913 grams. Its value was assessed @ Rs. 300 per gram totalling Rs. 8,73,900 and the same was treated as income under the head ''Other sources'' by invoking Section 69A of the Act. In appeal, the matter was elaborately considered by the CIT(A) and the assessment order was modified by directing the AO to exclude 77.900 gms. from the quantity of unaccounted gold and gold ornaments and as far as the quantity of 2,835.100 gms. is concerned, the appellate authority upheld the AO''s action. The Tribunal accepted the pleas of the assessee and allowed the appeal on all grounds except ground No. 9.

We heard Shri P.K.R. Menon, learned senior Counsel for the Revenue, and Shri P. Balachandran, learned senior Counsel for the respondent. It is contended by learned senior Counsel for the Revenue relying upon the decision of a Division Bench of this Court in Commissioner of Income Tax Vs. Smt. Jayalakshmi Devarajan, that the burden to prove that the articles belonged to him is on the assessee and really the Tribunal misdirected itself in casting the burden on the Revenue. It was strongly contended that the approach made by the Tribunal is totally perverse and the findings of fact have been reversed without considering the evidence available on record. It is submitted that the proceedings of the CCE and that of the Customs, Excise and Gold (Control) Tribunal have clearly found the claim of the assessee and others working with him unsustainable and as those proceedings have become final, they should not have been brushed aside by the Tribunal herein to find in favour of the assessee. It is pointed out that no reliable documents have been produced by the assessee in support of the said claim and therefore the findings rendered were clearly based on surmises and conjectures rather than on the evidence available in the record. It is therefore submitted by the learned senior Counsel relying upon the dictum laid down in Smt Jayalakshmi Devarajan''s case (supra) referred to above, that the wrong application of law amounted to an error of law giving rise to a substantial question of law.

Shri P. Balachandran, learned senior Counsel for the respondent assessee, supported the findings of the Tribunal and argued that the questions raised are not questions of law, but really questions of fact and therefore there is nothing to be answered.

As noticed already, from the residence of the assessee, 1,257.3 gms. Of gold were seized and from his business premises, 2,323.5 gms. Were seized. A reference to Annex. D and E orders passed by the Collector of Central Excise and the Tribunal would be of much assistance here, to understand the case of the assessee and about the other relevant aspects. In Annex. D order, the Collector of Central Excise has dealt with elaborately the claims raised by various parties. Apart from the assessee, the other claimants were Shri C. Mohanan, Shri P.C. Gopalakrishnan, Shri K.K. Sasi and Shri Murugappan. It is seen that all these persons stated that the gold bangles respectively claimed by them were their life savings which were kept for safety purposes, with the assessee. After analysing their claims, it was noticed by the Collector while rejecting them, that Shri Sasi, Shri Murugappan, etc., are only of the age group of 21 and 22 years and it cannot be believed that the seized gold ornaments were their life savings. As regards the claim raised by Shri Murukesan, it was observed that he was only an apprentice under the assessee, which also goes against his case that the said articles are life savings. Further, it was noticed that they have raised the claims only five days after the seizure which also was taken as a strong circumstance against their claims. In Annex. E order passed by the Tribunal also, these claims were elaborately dealt with. It was noticed in para 10 of the order that even though the total number of bangles seized from the business premises is only 272, the claims have been put forth in respect of 336 bangles by six persons. It was found that none of the claimants had put forth the claim immediately after the seizure or at the time of recording their statements and the claims have been made belatedly, i.e., after five days from the seizure. The Tribunal found that in the absence of any acceptable evidence in regard to the acquisition of gold bangles by the above persons, the lower authority has rightly rejected their claim and the reasoning of the lower authority is well founded.

The AO and the CIT(A) have considered the effect of the above orders while considering the various aspects. In fact, the AO had considered the statements given before the central excise authorities, confirmation letters furnished and also the statements recorded from them in detail.

In fact, the goldsmiths working under him have uniformly set up a case that the gold bangles belonged to them and were kept for safe custody with the assessee. But the AO noticed that there are improbabilities in their stand, as there was no proper explanation as to why the ornaments which should have been kept in their residence, were entrusted with the assessee, especially in a case where they had set up a case that these ornaments were received from the parents, family, etc. The AO found that it is difficult to believe that they had left these gold ornaments which were meant for use by their family members with the assessee. Ultimately, he summarises his findings in para 12 which is extracted below:

While treating the gold and gold ornaments, explained above, as the assessee''s unexplained/unauthorised investments from out of undisclosed sources, I have taken into account the following aspects also:

(a) All the so-called six goldsmiths had stated before the Central excise authorities that the bangles stated to be belonged to them are their ''life savings'', whereas in the sworn statements each one of them 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 they entrusted those bangles with the assessee for safe custody, since they have no secured place to be kept them at their residence. It may be seen from the sworn statement that those bangles were kept by them at their residences prior to entrusting them with the assessee and even after received back from the central excise authorities.

(d) The redemption fine stated to have been paid by each of them is disproportionate to the gold said to be belonged to them.

(e) He has not maintained any record for the gold ornaments of others kept in his safe. Since this is against the Gold Control Act, he ought to have kept at least some record for these. His statement that he was not aware of the penal consequences cannot be accepted, since he is an experienced goldsmith having 28 years of service. Of course, this is not a point to be considered under the IT Act. However, since he has no proof other than the confirmation letter to establish that some of the seized gold belonged to others, it has to be considered that they belonged 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. Ms. Mohanan, P.C. Gopalakrishnan, K.K. Sasi and Murugappan, who were witnesses in the Mahazar prepared by the Central excise authorities, had claimed these bangles as belonging to them during the course of search and seizure. Their deposition that though they had informed the Central excise authorities about this, it was not incorporated in the Mahazar, is not acceptable, in the absence of any evidence.

In fact, the above findings were rendered after considering the findings rendered by the customs and central excise authorities also.

The CIT(A) considered the contentions of the assessee in para 4 of the order. The CIT(A) agreed with the findings of the AO while dealing with the case of the assessee that the goldsmiths working along with him are not the owners of the bangles of which ownership was claimed by them. Referring to the contentions by the claimants that they had received gold from their parents, the CIT(A) rightly concluded that there is no proof or evidence regarding that. He found it difficult also to agree with the contentions raised by many of them that they were keeping the ornaments with the assessee even though some of them have been staying with their own family including their wives separately. Thus, the AO and the CIT(A) entered their findings after analysing the evidence in a deep and thorough manner.

In fact, none of the claimants could prove how they came into possession of those gold bangles and they merely described these are their life savings. In fact, the CIT(A) agreed with the AO specifically finding that there is no evidence to show the ownership of the bangles on the part of these claimants. We find that the learned senior Counsel appearing for the Revenue is well founded in his submission that all the four authorities including the authorities under the central excise and customs, have consistently found against their claims and the Tribunal herein has acted perversely in straightaway accepting their contentions on their face value.

The Tribunal reversed the orders of the AO and the CIT(A) apparently taking the view that the explanations offered by the goldsmiths ought to have been accepted. The relevant findings are contained in para 23. We extract the following findings contained in para 23 so as to assess whether the approach made by the Tribunal is correct:

As already stated above, the AO found that the gold ornaments in question were wrapped in Malayala Manorama newspaper of different dates. Keeping gold ornaments of these people in the Malayala Manorama newspaper does not make any difference as the appellant was handling their ornaments entrusted to him by these people. Therefore, there was every possibility of wrapping the gold and gold ornaments in the Malayala Manorama newspaper of different dates. The finding of the AO was that the ornaments in question were manufactured subsequent to the dates of the publication of the above daily. This does not make any difference to infer that the gold and gold ornaments in question did not belong to those people but only belonged to the appellant. If that would have been the case, these people could not have claimed these ornaments as belonging to them before the CCE and the Customs, Excise and Gold (Control) Tribunal, Madras, and they should not have paid any fine to redeem them. According to the appellant, as well as these people, the said gold ornaments belonged to those goldsmiths and workers, and the supporting facts are that these people claimed themselves to be the claimants before the central excise authorities, paid fine to get the ornaments redeemed. This supports the contention of the appellant against the mere presumption of the AO that these people could not have acquired the gold ornaments as they were not in a position and hence the gold ornaments did not belong to them. Presumption cannot take the place of facts. The principal evidence adduced in this respect being sound has to be accepted.

Ultimately, in para 28 the issue found by the Tribunal is in the following terms:

The facts and evidence lead us to draw an inference favourable to the appellant to accept his explanation and the explanations of other claimants claiming certain quantity of gold ornaments as belonging to them.

This conclusion was arrived at by relying upon the dictum laid down in Commissioner of Income Tax, Central Vs. L.G. Ramamurthi and Others, to the effect that if there is a possibility of drawing two probable inferences from a same set of facts, in that event, the inference beneficial to the assessee should be accepted. What persuaded the Tribunal to accept the explanation is further evident from para 30. It was held thus:

Other goldsmiths raised loans to pay fine to the central excise authorities for redeeming the gold and gold ornaments claimed by them as owners of the same. They have claimed certain gold and gold ornaments as their own right from the beginning and they were also appellants before the central excise authorities as well as the Customs, Excise and Gold (Control) Tribunal. After getting the redeemed gold and gold ornaments claimed by them, they sold certain part of the gold ornaments to repay the loans raised by them for paying fine and redeeming the ornaments. Therefore, the reasonable conclusion would be that they are the owners of the gold and gold ornaments as claimed by them and attribution of the ownership of the gold and gold ornaments claimed by them cannot be made to the appellant. To discard this version does not appear judicious. There is a version against version. The Revenue''s version is that whatever gold and gold ornaments found or seized belonged to the appellant himself and nobody else. This version depends on an averment or a suggestion or an allegation made by the Department. Therefore, the version which is supported by evidence of the claimants need not be rejected by accepting the mere version of presumption or allegation.

Ultimately, the Tribunal held that the gold and gold ornaments claimed by other goldsmiths really belonged to them and not to the assessee and therefore the addition of the value of such gold and gold ornaments cannot be upheld and it was held that the assessee succeeds on that aspect. We are afraid that the approach made by the Tribunal is totally without any legal basis. The Tribunal has wrongly cast the burden on the Revenue. Exactly on similar facts, in CIT v. Smt. Jayalakshmi Devarajan (supra), Division Bench of this Court held that "the Tribunal had wrongly placed the burden of proof on the Revenue. It is trite law that a person who is in possession of an article has to prove its source. The wrong application of law amounted to an error of law giving rise to a substantial question of law within the meaning of Section 260A of the IT Act, 1961". We respectfully follow the above dictum laid down by this Court and judged in the light of the above dictum, we hold that the approach made by the Tribunal is totally without any legal foundation. Even though Shri P. Balachandran, learned senior Counsel for the assessee, contended that the findings rendered by the Tribunal are purely on questions of fact, we find that the findings have been rendered purely on surmises and conjectures and the approach made is totally perverse and the Tribunal has ignored the evidence which was available before the AO and other authorities. Therefore, as held by the Division Bench in the above-quoted case, the wrong application of law amounted to an error of law giving rise to a substantial question of law.

Going by the provisions of Section 69A of the Act, the additions made herein with reference to the claims raised by the other goldsmiths ought not have been deleted. We find that the reasoning adopted by the Tribunal referring to redemption of gold and gold ornaments by the claimants after availing loans and by paying fine to the central excise authorities, has no significance in the light of the findings rendered above. Actually, the Tribunal was persuaded to accept their version because of the subsequent conduct on the part of the said goldsmiths in redeeming the gold which, according to us, pales to insignificance when the claim itself could not be proved by any cogent evidence before the central excise authorities and before the AO. Hence, the Tribunal acted perversely in arriving at the conclusion that they are the owners of the gold and gold ornaments as claimed by them and that the assessee is not the owner of the gold and gold ornaments which are claimed by those persons. It is also not true as held by the Tribunal that this is a case where it is one version against another version. In the light of the clear findings rendered by the central excise authorities, the AO and the CIT(A), the Tribunal''s view that the version of the assessee is supported by evidence of the claimants, is totally perverse, as we have noticed above.

The next contention raised by the assessee based on the decision of this Court referred to above, is that a reassessment u/s 41(1) is permissible only if there is a regular assessment. We cannot accept this contention because Section 41(1) with the proviso extracted hereunder does not say so.

Income escaping assessment. - (1) If for any reason agricultural income chargeable to tax under this Act has escaped assessment in any financial year or has been assessed at too low a rate, the Agrl. ITO may at any time within ten years of the end of that year and subject to the provision of Sub-section (2), serve on the person liable to pay the tax, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 35 and may proceed to assess or reassess such income and the provisions of this Act, shall, so far as may be apply accordingly as if the notice were a notice issued under that sub-section:

Provided that the tax shall be charged at the rate at which it would have been charged if such income had not escaped assessment or full assessment, as the case may be:

Provided further that the Agrl. ITO shall not issue a notice under this sub-section unless he had recorded his reasons for doing so.

It is clear from the opening words of the section that an income escaping assessment u/s 41 of the Act is permissible, if the income chargeable to tax under the Act has escaped assessment for any reason. The legislature has not confined the authority of the officer to make income escaping assessment to any particular situation or impose any condition for it. On the other hand, assessment is authorised in all situations where income chargeable to tax under the Act has escaped assessment. Escapement of income can happen when there is no assessment at all or when there is an underassessment or an assessment involving granting of excessive relief in the form of rebate, reduction or exemption. We are, therefore, of the view that all situations where agricultural income chargeable to tax have escaped assessment, are covered by Section 41(1) of the Act. So much so, it is not a requirement that for making an assessment u/s 41 of the Act, there should be an earlier underassessment or wrong assessment. In short, an assessment u/s 41 of the Act can be made as a first assessment which only means that entire income would have escaped assessment, but for the income escaping assessment made u/s 41 of the Act. We, therefore, hold that the assessment in this case, is in substance, one made u/s 41(1) of the Act which is within time and is not barred by limitation.

The next issue raised pertains to the claim of exemption as a charitable institution, u/s 16 of the Act. We find from the Tribunal''s order that the petitioner neither produced the original certificate of registration for claiming exemption u/s 16 or the later order of the Dy. CIT, as claimed by him. It is further stated in the Tribunal''s order that the petitioner has filed the return not as a charitable institution but an AOP. Therefore, we are of the view that the claim of exemption u/s 16 of the Act does not really arise from the Tribunal''s order, as the petitioner has not established compliance of the procedure for getting exemption. Besides, the benefit which the charitable trust constituted by the petitioner enures only to members of the Jain community and it is to be noted that the Supreme Court in State of Kerala v. M.P. Shanthi Varma Jain (1998) 149 CTR (SC) 279 : (1998) 6 KTR 461 (SC), held that a charitable institution constituted for the benefit of a community, is not entitled to exemption.

In view of the above findings, the contentions raised by the petitioner are ynot tenable and consequently the revision petition is dismissed.