Manharlal C. Soni vs Commissioner of Income Tax

Rajesh Balia, J.—The following questions of law arising out of the order dated July 20, 1981, have been referred to this court by the Income Tax Appellate Tribunal, Ahmedabad Bench "C" :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in sustaining the addition of Rs. 85,000 as income of the assessee from undisclosed sources ?

(2) Whether, on the fact and in the circumstances of the case, the assessee was entitled to a deduction of Rs. 84,000 being the cash amount confiscated by the customs authorities as business loss ?"

During the previous year, relevant to the assessment year 1965-66, the Central excise and customs authorities raided the room in a hotel occupied by the assessee on January 26, 1965, and recovered a sum of Rs. 84,000. According to the first explanation furnished by the assessee before the customs authorities, the amount formed part of Rs. 1,60,185 realised on the sale of smuggled gold. Before the customs authorities, the assessee stated that he was a partner in a firm Chhaganbhai Desaibhai of Ahmedabad and had visited Delhi a month prior to that date and had fixed up with one Allaudin for the sale of smuggled gold to him. It was also stated by the assessee that he had received a sum of Rs. 1,50,000 from his father out of which the gold was purchased at Bombay and on return to Delhi on January 24, 1965, 111 bars of gold were sold to Allaudin and a sum of Rs. 84,000 was received in cash and the balance amount of Rs. 76,185 was to be recovered from him Rs. 84,000 were confiscated by the custom authorities and a penalty of Rs. 10,000 was also imposed on the assessee. The Income Tax Officer found that the assessee''s father denied having given any amount to the assessee for the purchase of gold. In the subsequent statement, the assessee changed his stand and stated that he had received Rs. 84,000 by way of loan from Hirani Brothers owned by his brother. On the basis of the aforesaid information, proceedings against the assessee were initiated. Before the Income Tax Officer, the stand taken by the assessee was that the first statement taken after the raid by the customs authorities was taken under duress and did not represent the correct factual position. According to the assessee, the correct position was as indicated by him in the second statement which was stated to have been supported by the books of account of Hirani Brothers that he had taken a loan of Rs. 85,000 from the firm. The Income Tax Officer ordered an addition of Rs. 1,50,000 in the assessment as income from undisclosed sources and estimate of profit of Rs. 10,185 from gold business by rejecting the explanation of the assessee, which in appeal were confirmed by the Commissioner (Appeals).

The Tribunal, after considering the rival submissions, held that raid in the assessee''s premises had fetched a sum of Rs. 84,000 which is neither disputed nor disputable because the said amount stood confiscated. The Tribunal, after taking into consideration the alleged statements an stand taken before the customs authorities and the assessing authority came to the conclusion that the addition of Rs. 1,60,185 on the ground of established smuggling business being carried on is not supported. However, it also come to the conclusion that the real facts before the Income Tax Officer were that the assessee had a sum of Rs. 84,000 and two air tickets to Bombay and possession thereof has not been satisfactorily explained and in that view of the matter, treated the said amount as the assessee''s income from undisclosed sources. On these findings, the correctness of which is not disputed, the aforesaid questions have been referred to this court by the Tribunal.

The undisputed state of affairs on the admitted facts before the Tribunal was that the assessee was found in possession of Rs. 84,000 and two air tickets worth Rs. 10,185. The immediate statement of the assessee was that it was part of the sale price of smuggled gold and the source for purchase of the smuggled gold was Rs. 1,50,000 which he received from his father as a loan amount. The father of the assessee gave a statement before the customs authorities and denied any loan having been given to the assessee. The assessee then retracted his earlier statement under alleged duress by the customs authorities and as per his second statement, the amount represented loan received from the firm of his brother, and that Rs. 84,000 were confiscated by the customs authorities. In these circumstances, in our opinion, there is no legal infirmity in the conclusion of the Tribunal that the explanation furnished by the assessee about possession of cash worth Rs. 84,000 and expenses for purchase of two air tickets is not satisfactory. The said conclusions are neither perverse nor have they been arrived at contrary to legal principles.

So far as the second question is concerned, in our opinion, that does not survive for an answer. As the addition of Rs. 85,000 has not been made as income from any particular business activities of the assessee, but merely on the ground that he has been found in the possession of cash amount and two air tickets the source of which has not been satisfactorily explained. Therefore, the further question of allowing any loss or expenditure as incidental to and arising directly as a result of its distinct business activities does not arise.

We accordingly answer the first question in the affirmative, that is to say, in favour of the Revenue and against the assessee and the second question in the negative, that is to say, against the assessee and in favour of the Revenue. The respondent shall be entitled to costs which are quantified at Rs. 1,000 (Rs. one thousand only).