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Commissioner of Income-tax, Poona Vs. Jawanmal Gemaji Gandhi - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 177 of 1974
Judge
Reported in(1984)39CTR(Bom)127; [1985]151ITR353(Bom); [1983]15TAXMAN487(Bom)
Acts Income Tax Act, 1961 - Sections 68 and 256(2)
AppellantCommissioner of Income-tax, Poona
RespondentJawanmal Gemaji Gandhi
Excerpt:
.....carried on business of purchasing and selling gold and silver - excise authorities seized gold from assessee - revenue department construed it as income from undisclosed sources - whether tribunal justified in deleting as income from undisclosed source on ground of other intangible additions made in assessment for preceding years as in year under appeal - gold could be assumed to have come out of intangible addition on account of increased turnover - source for acquisition of gold could well be assumed to be in addition of sum to assessee's income. - - the tribunal stated that having regards to all the facts before it, it was satisfied that there was no good ground for making a separate addition of rs. 6. the supreme court has clearly stated that the secret profits or..........assessee-firm carried on the business of purchasing and selling gold and silver ornaments. for the assessment year in question, that is, 1962-63, the accounting period being s.y. 2017, the assessee showed a gross profit of rs. 42,428 on sales of rs. 3,78,064, which worked out to 11.2%. the ito had in the previous year increased the gross profit to about 14.2%, which the aac reduced to 13.8%. for the year in question, therefore, the ito estimated the sales at rs. 3,85,000 and gross profit thereon at 13.8%. it appeared that during the course of s. y. 2017, that is, on september 1, 1961, the central excise authorities had seizes gold weighing something more than 76 tolas sent to the assessee at kolhapur. the consignor had admitted in excise proceedings that he was an employee of the.....
Judgment:

Bharucha, J.

1. The assessee-firm carried on the business of purchasing and selling gold and silver ornaments. For the assessment year in question, that is, 1962-63, the accounting period being S.Y. 2017, the assessee showed a gross profit of Rs. 42,428 on sales of Rs. 3,78,064, which worked out to 11.2%. The ITO had in the previous year increased the gross profit to about 14.2%, which the AAC reduced to 13.8%. For the year in question, therefore, the ITO estimated the sales at Rs. 3,85,000 and gross profit thereon at 13.8%. It appeared that during the course of S. Y. 2017, that is, on September 1, 1961, the Central Excise authorities had seizes gold weighing something more than 76 tolas sent to the assessee at Kolhapur. The consignor had admitted in excise proceedings that he was an employee of the assessee. An explanation had been sought to be tendered by the assessee regarding this gold, but the excise authorities did not accept the explanation and confiscated the gold, which order of confiscation was confirmed by the Central Board of Excise and Customs. No further appeal had been preferred. Having regard to this, the ITO did not accept the assessee's claim that the gold that had been seized came out of the stock of gold on hand with the assessee. As no other alternative source to prove the acquisition of gold was shown by the assessee, it was held by the ITO that its value was the income of the assessee from undisclosed sources. The value worked out to Rs. 9,375. The ITO, therefore, added to the income of the assessee the sum of Rs. 10,702 on the basis of the estimated turnover and Rs. 9,375 on account of the gold.

2. The assessee preferred an appeal before the AAC and reiterated its explanation about the acquisition of gold. It did not seriously contest the addition of Rs. 10,702 on account of the estimated turnover. The AAC concluded that the ITO was justified in treating the sum of Rs. 9,375 as income from undisclosed sources. The assessee went up in further appeal before the Income-tax Appellate Tribunal. It was, inter alia, contended on behalf of the assessee that as there had been an intangible addition of Rs. 10,702 for the same assessment year, there was no reason to make a separate addition of Rs. 9,375. It was submitted that even if the assessee's explanation regarding acquisition of gold had to be held to be not true, the source of the disputed amount of Rs. 9,375 could easily be assumed to have come out of the intangible additions. The Tribunal stated that having regards to all the facts before it, it was satisfied that there was no good ground for making a separate addition of Rs. 9,375 and deleted the same.

3. The Revenue applied for a reference to the Tribunal, which was refused. An application was then made under s. 256(2) of the I.T. Act, 1961, which was granted by this court, and, accordingly, the question which we are called upon to consider is this :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 9,375 as income from undisclosed source on the ground that there were other intangible additions made in the assessment for the preceding years as in the year under appeal ?

4.Mr. Joshi, learned counsel for the Revenue, having taken us through the orders of the ITO, the AAC and the Tribunal, referred us to the judgment of the Supreme Court in Anantharam Veerasinghaiah & Co. v. CIT : [1980]123ITR457(SC) . We may go straight to the observations that Mr. Joshi stressed. The court observed that there can be no escape from the proposition that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. But it is quite another thing to say that any part of that fund must necessarily be regarded as the source of the unexplained expenditure incurred. The mere availability of such a fund could not, in all case, imply that the assessee had not earned further secret profits during the relevant assessment year. It was a matter for consideration by the taxing authority in each case whether the unexplained cash deficits and the cash credits could be reasonably attributed to a pre-existing fund of concealed profits or they were reasonably explained by reference to concealed income earned in that very year. A number of circumstances of vital significance could point to the conclusion that the cash deficit or cash credit could not reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed income earned during the assessment year under consideration. It was open to the Revenue to rely on all the circumstances pointing to that conclusion.

5. Mr. Joshi also cited the judgment of the Kerala High Court in Annamma Paul v. CIT : [1980]121ITR433(Ker) . The court relied and quoted extensively from an earlier judgment in Abraham v. CIT ILR [1975] Ker 426, and observed that the court in that judgment had been unable to accept as a general principle that in all cases where an addition had been made to the income of the assessee in making the assessment for an earlier year, the amount so added should be presumed to be available to the assessee during the subsequent years. The court also noted that it had been held by it that the burden of proof to trace the unexplained credits to the intangible additions was on the assessee.

6. The Supreme Court has clearly stated that the secret profits or undisclosed income of an assessee earned in an earlier assessment year can constitute a fund, though concealed, from which the assessee may draw subsequently. That observation is clearly contrary to the finding of the Kerala High Court. The assessee acquired the gold during the latter half of the assessment year; it could then very well be that the undisclosed income of Rs. 10,702 earned in that very year constituted the fund from which this asset was acquired.

7. Mr. Joshi was able to refer to only one circumstance, which, according to him, suggested that the gold could not have been acquired from the addition on account of turnover made by the ITO to the income of the assessee. That circumstance, in his submission, was the fact that the assessee had not so contended either before the ITO or the AAC. It was the assessee's case before the ITO that the gold had been legitimately acquired. The assessee could not then have known that the ITO would make an addition to its income on the basis income on the basis of an addition to turnover. The assessee could not have, therefore, contended in the alternative before the ITO that the source for the acquisition of the gold was such addition to the turnover. Before the AAC, the assessee's contention also was that the gold had been validly acquired. It is clear that even before the Tribunal, the assessee adopted this stand, but it was contended, in the alternative, on its behalf that the source of the gold could easily be assumed to have come out of the intangible addition on account of the increased turnover. We see nothing whatsoever in the circumstances urged by him which may lead to the contrary conclusion.

8. We are satisfied, having regard to all the circumstances that were before the Tribunal, that the source for the acquisition of the gold could well be assumed to be the addition of Rs. 10,702 to the assessee's income. This being, in our view, a reasonable conclusion, we would decline to substitute our own appreciation of the circumstances, even if we were inclined to view them differently.

9. In the circumstances, the answer to the question is given in the affirmative, that is, in favour of the assessee.

10. The Revenue shall pay to the assessee the costs of the reference.


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