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Himatlal N. Jhaveri Vs. Seventh Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1986)15ITD409(Mum.)
AppellantHimatlal N. Jhaveri
RespondentSeventh Income-tax Officer
Excerpt:
.....for jaipur/delhi/bangkok were found. besides two, three more air tickets in the name of mr. h.n.zaveri (assessee himatlal n. zaveri) for bangkok were also recovered.4. in the course of assessments the statements of the two assessees were recorded. it was admitted by both the assessees that they had been detained for a long period under the provisions of the conservation of foreign exchange and prevention of smuggling act, 1974 (the cofeposa).however, they denied that grounds for detention had been served on them. as regards the air tickets found from the residential premises, the explanation of the assessee himatlal zaveri was that they had been sent by his brother kirti zaveri who was carrying on business at london. these tickets had been sent, according to him, because of the fact.....
Judgment:
1. These two appeals were heard together with the consent of the parties and are being disposed of by this common order. The assessees are brothers and they resided together at Akhand Jyoti, Santacruz (East), Bombay. Shantilal Zavery is the elder of these two brothers.

There are other two brothers also one of whom is Kirti Zaveri while the other is Suresh Zaveri. Shri Kirti Zaveri carried on business in London and was a non-resident. Suresh Zaveri, at the relevant time, was residing at Bangkok. It is alleged that he was subsequently absconding.

The assessment year with which we are concerned is 1975-76 and the relevant accounting years of the two assessees ended on 31-3-1975.

2. A foreigner by name Vincente M. Cunnanan landed at Santacruz Air Port, Bombay on 6-5-1975. He was Third Secretary and Vice Counsel at Phillippines Embassy, Rangoon, His baggage was detained and examined on 7-5-1975. It contained wrist watches valued at Rs. 2,70,000. The investigations in that case by the customs authorities revealed Mr.

Cunnanan made a trip to Bangkok and contacted Suresh Zaveri, the brother of the present two assessees. The said Suresh Zaveri was introduced to him as Sydny Zaveri in Victory Hotel in Bangkok.

Accordingly, Mr. Cunnanan made a trip to Bangkok on 14-8-1974 on his way to Manila. He contacted Mr. Sydny (Suresh) Zaveri on telephone and Suresh Zaveri proposed to Mr. Cunnanan to make a trip to India on his behalf and on behalf of his brothers one of whom was Mr. Henry Zaveri (Himat Zaveri) one of the present two assessees. When Mr. Cunnanan agreed to the said proposition, Mr. Suresh Zaveri informed him that his brother Henry Zaveri was coming to meet him and at the same time he would accompany Mr. Cunnanan back to Bombay on the same flight which Mr. Cunnanan would take. Mr. Cunnanan made several trips from Bangkok to Bombay on behalf of Zaveri Brothers and brought smuggled goods. In the course of one of the trips dated 14-12-1974 he carried two suitcases delivered by Mr. Suresh Zaveri at Bangkok to Delhi, which contained wrist watches. He also carried packets which contained precious stones. At Ashoka Hotel, New Delhi, these suitcases and packets were delivered by Mr. Cunnanan to the assessee, Shanti Zaveri.

The photographs of the assessees had been shown to Mr. Cunnanan at Bangkok by Mr. Suresh Zaveri so the assessee would be identified by him. Similarly, on 28-3-1975 Mr. Cunnanan brought suitcases to Delhi containing contraband articles. They were handed over to the said assessee, who had informed Mr. Cunnanan that Suresh Zaveri would pay the commission for the work of transport.

3. The above facts were revealed from the statement of Mr. Cunnanan recorded on 28-5-1975 by the customs authorities. The residential flat at No. 2, Akhand Jyoti, Santacruz (East), Bombay was searched on 29-5-1975 in the presence of witness. At the time of search the assessee Henry Zaveri was present. The wife of the other assessee Smt.

Sheela Shantilal Zaveri was also present. Amongst the articles that were found there was one white envelope with the mark 'Henry' written in ink. One Indian passport issued by the Indian Embassy of Bangkok on 23-4-1974 in the name of the assessee Himatlal Zaveri along with his old passport was also found. An air ticket in the name of Mr. Zaveri for Bangkok/Delhi/Jaipur/ Bombay valid till 19-8-1975, and another air ticket in the same name valid till 19-4-1976 for Jaipur/Delhi/Bangkok were found. Besides two, three more air tickets in the name of Mr. H.N.Zaveri (assessee Himatlal N. Zaveri) for Bangkok were also recovered.

4. In the course of assessments the statements of the two assessees were recorded. It was admitted by both the assessees that they had been detained for a long period under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Act, 1974 (the COFEPOSA).

However, they denied that grounds for detention had been served on them. As regards the air tickets found from the residential premises, the explanation of the assessee Himatlal Zaveri was that they had been sent by his brother Kirti Zaveri who was carrying on business at London. These tickets had been sent, according to him, because of the fact that he was looking after the said brother's business. The ITO found that there was no evidence to show that tickets in question had been purchased by the brother residing at London and there was also no evidence to indicate that the assessee Himatlal Zaveri was looking after the business of Kirti Zaveri. The customs authorities during the search had found packets which were exclusively meant for packing precious stones. The assessees denied that they were kept for packing precious stones. According to them they were lying at home without any use.

5. Both the assessees filed copies of affidavit dated 6-9-1975 alleged to have been sworn by Mr. Cunnanan on 6-9-1975 at Manila. In this affidavit Mr. Cunnanan had retracted from his earliest statement against the assessees. He stated in his alleged second affidavit that the assessee Himatlal Zaveri had been requested by him to work for him in his smuggling operation but the assessee Himatlal Zaveri refused to co-operate and work for him. He suspected that Himatlal Zaveri had informed the authorities against him and for that reason he had been caught in while smuggling goods. Out of sheer vengeance and in hot temper he falsely implicated Himatlal Zaveri and his family in his statement to the authorities in India. The ITO observed that this document had no evidentiary value because Mr. Cunnanan was not available for cross-examination and he was out of reach of Indian authorities.

6. The assessee Himatlal Zaveri had disclosed income of Rs. 1,500 in his return being income from brokerage. No books of account were produced and assertion on his behalf was that none had been maintained.

No details had been furnished. The ITO, therefore, added Rs. 1,000 in brokerage income. The ITO came to the conclusion that he was carrying on smuggling activities for which no accounts had been furnished. He estimated income from smuggling activities at Rs. 50,000 and added this amount to the returned income.

7. The other assessee Shantilal Zaveri had disclosed income of Rs. 19,000 in the return being commission earned during the year. The ITO added Rs. 2,000 from income on investment about which details were not furnished. He also added Rs. 50,000 as estimated income from smuggling activities.

8. Both the assessees filed appeals before the AAC. In the appeal for the assessee Himatlal Zaveri, the AAC considered all the materials on record and found that the assessee had derived income from smuggling activities which have not been disclosed in the return. According to.

him, the estimate of Rs. 50,000 made by the ITO was fair and reasonable. He, therefore, confirmed the addition of Rs. 50,000 which had been challenged in the appeal by the assessee.

9. In the appeal filed by the other assessee Shantilal Zaveri, the AAC deleted the addition of Rs. 2,000 made by the ITO for the income from investments. He, however, confirmed the addition of Rs. 50,000 as income from smuggling activities. The materials produced indicated that the assessee had derived income from smuggling activities. Before him, the assessee had made a re quest that the assessment be set aside and be restored to the ITO as no reasonable opportunity had been given by the ITO to place material in support of the return. This request was rejected by the learned AAC. He observed that no account books or any record of income mentioned in the return was produced before him although opportunity to produce the same was given. The assessee admitted before the AAC that no record had been maintained by him. The learned AAC, therefore, deleted the addition of Rs. 2,000 and confirmed the addition of Rs. 50,000.

10. Both the assessees have filed appeals before us and their only grievance is against confirmation of addition of Rs. 50,000 in the assessment of each assessee.

11. Before us the submission on behalf of the two assessees was that as far as the assessee Himatlal Zaveri was concerned, there was some material on record but that material was not sufficient to come to the conclusion that the said assessee had engaged himself in the business of smuggling in the relevant accounting year. As far as the other assessee, namely, Shantilal Zaveri was concerned, according to the learned representative, there was no material to draw any inference against him.

12. We shall first deal with the case of the assessee Himatlal Zaveri.

One of the materials against him is the statement of Mr. Cunnanan recorded on 28-5-1975. In his statement he has clearly stated that the assessee's brother Suresh Zaveri alias Sydny Zaveri had contacted him at Bangkok and had made proposal to make trips to India on his behalf and on behalf of his brothers in India, namely, Himatlal Zaveri and Shantilal Zaveri. The name of Himatlal Zaveri was given as Henry Zaveri so that Mr. Cunnanan who was a foreigner and who had difficulty in remembering Indian names may easily remember the English name. He has clearly stated that the assessee Himatlal Zaveri alias Henry Zaveri came from Bombay and stayed at Shereton Hotel in Bangkok. Mr. Cunnanan gave description of the assessee as a tall man (about 6'), of dark complexion and dark straight hair with a set of protruding upper teeth.

This description has not been challenged as wrong description. He has disclosed that on 19-8-1974 and 16-9-1974 he had undertaken trips to India from Bangkok. Since he was a diplomat, he enjoyed immunity as far as checking of baggage was concerned. He has described in detail about the suitcases and packages given to him for carriage to India for being handed over to Zaveri brothers. On 20th August both of them landed at Bombay and the assessee Himatlal Zaveri went ahead and met him at Taj Hotel at Bombay. He then made trips from same hotel to take away goods from the suitcases. On the other occasion also the assessee Himatlal Zaveri had collected the goods from Mr. Cunnanan. The copy of the statement of Mr. Cunnanan was given to the assessee Himatlal Zaveri and he was asked to explain the allegations made against him. The assessee admitted that his brother Suresh Zaveri was staying at the hotel in Bangkok. He also admitted that envelope containing the word 'Henry' was found in his room. He, however, did not give any satisfactory explanation as to how the word 'Henry' was there. He also admitted that empty packages to pack precious stones were also found. He did not give any explanation as to why they had been kept in his house. He admitted in his statement that he had met Mr. Cunnanan in a hotel in Bangkok in August 1974 and that he had a talk of about one hour with him. However, according to him, the talk was innocent and was not about smuggling business. He also admitted that on 19-8-1975 he and Mr. Cunnanan travelled to India by the same flight from Bangkok. However, according to him this was merely accidental. He admitted that there was conversation on some business proposals and that he came to know at that time that Mr. Cunnanan was a diplomat. He also admitted that he had met Mr. Cunnanan at Taj Mahal Hotel where he was staying after coming to Bombay. He admitted that he carried five packets from the room of Mr. Cunnanan but according to him these packets were placed by him in the car of some unknown person. According to him Rs. 3,000 were paid to him at that time and he was told that those packets contained watches. The size of the boxes according to him was 8x5x3. He admitted that Mr. Cunnanan used to call him Henry. He also admitted that on another occasion he carried these packets from the hotel room of Mr.

Cunnanan at Bombay. However, according to him, he was paid Rs. 3,200 for that job. He admitted that he knew that those packets contained watches. He admitted that the air-tickets seized from the room were for his journey to Bangkok. The above admissions corroborate the statement of Mr. Cunnanan against the assessee. The explanation of the assessee that he carried packets from the hotel room of Mr. Cunnanan to some third party for commission of Rs. 3,000 on each of the two occasions is not acceptable. It is obvious that the packets containing contraband watches and stones had been delivered to him in the course of the smuggling business carried on by him with the assistance of his brother Suresh Zaveri and with the co-operation of Mr. Cunnanan.

13. The copy of the alleged subsequent affidavit of Mr. Cunnanan cannot be relied on. Mr. Cunnanan had left India and was out of reach of Indian authorities. He had nothing to lose by retracting the earlier statements. Besides his version in the alleged subsequent affidavit is too unnatural to inspire confidence. The story mentioned therein is wholly unbelievable. It is not possible to believe that out of sheer anger he would name the Zaveri brothers. It is obvious that the said copy was given to the assessees in order to help them in the income-tax assessments. Considering all the circumstances we are of the opinion that the assessee Himatlal Zaveri was engaged in the business of smuggling of goods from Bangkok and that Mr. Cunnanan who enjoyed diplomatic immunity assisted him in the said business. The exact amount earned from smuggling is not disclosed by the assessee Himatlal Zaveri.

Consequently, an estimate is required to be made. The estimate of Rs. 50,000 is fair and reasonable in the circumstances of the present case.

We see no reason to interfere in the order of the lower authorities.

We, therefore, confirm the order of the Commissioner (Appeals).

14. We now come to the appeal of the assessee Shantilal Zaveri. Our attention was drawn to the fact that he was discharged by the Additional Chief Metropolitan Magistrate in the criminal prosecution under Section 120B of the Indian Penal Code, 1860, read with Section 135(l)(a) and Section 135(1)(b) of the Customs Act and Section 5 of the Imports and Exports (Control) Act, 1947. Copy of the order of discharge dated 21-12-1982 was filed before us. This order indicates that the assessee Shantilal Zaveri was prosecuted before the said Magistrate along with Mr. Cunnanan,. the other assessee Himatlal Zaveri, the assessee's brother Suresh Zaveri and three others. Out of the eight accused four were found to be absconding. Mr. Cunnanan and the assessee's brother Suresh Zaveri were amongst those four who were absconding. Consequently, trial could not proceed against those four persons. As against the assessee Shantilal Zaveri the only evidence was confessional statement of Mr. Cunnanan. The learned Magistrate held that that evidence alone was not sufficient to frame charge against the assessee Shantilal Zaveri. He, therefore, discharged him. The learned Magistrate found that there was enough material on record to connect the other assessee Himatlal Zaveri with the crime and, therefore, the trial proceeded against him. The standard of proof required for criminal prosecution is different from that required to draw inferences about earning of income by the assessee. It was not the learned Magistrate's finding that the case against the assessee Shantilal Zaveri was false ; his finding was that evidence on record was not sufficient to connect him with the offence. Thus, the mere fact that the assessee Shantilal Zaveri was discharged in the criminal case would not be a conclusive proof in assessment proceeding in respect of the fact that he did not carry on activity of smuggling.

15. Our attention was also drawn to the fact that the Tribunal for forfeited property had passed an order on 10-1-1980 setting aside the order of competent authority forfeiting shares worth Rs. 3,550. We have perused that order and we find nothing contained therein is of any assistance to the assessee Shantilal Zaveri as far as the question involved in the present assessment proceeding is concerned.

16. As far as the inference of the ITO and the AAC to the effect that the assessee Shantilal Zaveri had indulged in smuggling activity in the relevant accounting year is concerned, we have first, the statement of Mr. Cunnanan recorded on 28-5-1975. He has specifically mentioned that he had entered into contract with Suresh Zaveri for carrying contraband goods to India on behalf of Suresh Zaveri and his brothers. The brothers of Suresh Zaveri mentioned by him were obviously Himatlal Zaveri and Shantilal Zaveri. We have already discussed evidence regarding Himatlal Zaveri and admission of Himatlal Zaveri in his statement before the ITO about the connection with Mr. Cunnanan. Mr.

Cunnanan has stated that he had brought on some occasions suitcases and packets to India from Bangkok which were sent by Suresh Zaveri.

Apparently they contained wrist watches and precious stones. As already stated packages for packing precious stones were found in the premises in which the assessee Shantilal Zaveri resided with Himatlal Zaveri.

This indicated that the packets had reached the residence where the assessee Shantilal Zaveri resided. Mr. Cunnanan has stated that when he came to India from Bangkok on 14-12-1974, and 28-3-1985, the assessee Shantilal Zaveri had met him in Ashoka Hotel, New Delhi and the packets containing wrist watches and two smaller packets containing precious stones were given by him to the assessee Shantilal Zaveri, who was brother of Suresh Zaveri. Mr. Cunnanan gave description of the assessee Shantilal Zaveri as a person of about middle height (about 5' 5") and receding hairline. According to him he was of plumped dark complexion, dark eyed and dark haired. This description is not challenged as incorrect. He has specifically stated that the assessee Shantilal Zaveri told him that the commission for transfer of the goods would be paid by Suresh Zaveri in Bangkok. The other assessee Himatlal Zaveri has stated in his statement before the ITO that on one occasion he had gone to meet Mr. Cunnanan along with the other assessee Shantilal Zaveri in a car. Both the brothers, according to Himatlal Zaveri, met Mr. Cunnanan. Himatlal Zaveri has no doubt stated that his brother Shantilal Zaveri had no direct contact with Mr. Cunnanan and that it was only he (Himatlal Zaveri) who had direct contact with him. However, the fact that both of them had gone together to meet Mr. Cunnanan indicated that the assessee Shantilal Zaveri had also connection with Mr. Cunnanan. As already stated, Mr. Cunnanan has expressly stated that the assessee Shantilal Zaveri had received packets from him at Delhi.

Shantilal Zaveri was detained under the COFEPOSA from August 1975 to March 1977 on the allegations that he was indulging in smuggling in conspiracy with Mr. Cunnanan. It is no doubt true that Shantilal Zaveri produced before the learned AAC the original affidavit of Mr. Cunnanan sworn in Manila. We have already referred to this affidavit while dealing with the case of the assessee Himatlal Zaveri. As stated earlier, the statement of Mr. Cunnanan in this subsequent affidavit that he implicated Zaveri brothers because of sheer vengeance is wholly unbelievable. As already stated one of the brothers, namely, Himatlal Zaveri has admitted connections with Mr. Cunnanan and to have carried packets from Mr. Cunnanan's room on two occasions. There was no question of implicating on account of anger and vengeance. Mr. Cunnanan is out of reach of Indian authorities and as such it was not unnatural on his part to resile from his earlier statement. His earlier statement which stands corroborated from other materials on record is acceptable while his subsequent affidavit is not acceptable. The very fact that the assessee Shantilal Zaveri could obtain original affidavit from Mr.

Cunnanan indicated close intimacy of the assessee Shantilal Zaveri with Mr. Cunnanan. In the absence of close intimacy he could not have been able to obtain the same. The material on record clearly proves that the assessee Shantilal Zaveri had also indulged in smuggling activity in the relevant accounting year. As regards estimate of income from smuggling activity, the estimate of Rs. 50,000 made by the ITO appears to be fair and reasonable in the circumstances of the present case. The assessee failed to produce the books of account before either the ITO or the AAC. Before the AAC he stated that he did not maintain any books of account. Even the counterfoils of cheque books or bank certificate were not produced. On the basis of all the materials on record the addition of Rs. 50,000 as uncounted income from smuggling activity was fully justified. We, therefore, confirm the order of the AAC on this point.

17. Before parting with these appeals we may mention that the learned representative of the assessees had laid stress on the fact that in the first statement dated 7-5-1975 Mr. Cunnanan had not made any reference to these two assessees and that reference to these assessees was made only in the second statement dated 28-5-1975. It is obvious to us that at the time of first statement on 7-5-1975 Mr. Cunnanan was required to explain the possession of wrist watches which had been seized from him at the air port. These wrist watches had been brought on behalf of some other smuggler. The consignments were not in respect of the transactions concerning the present assessees. Consequently, the names of the present assessees were not mentioned in that statement. On 28-5-1975 he gave details of all the smuggling activities carried on by him. In that statement the names of the assessees figured because the assessees were some of the other persons who had indulged in smuggling activities. We may also mention that reliance was placed before us on three decisions, namely, Ram Khelawan and Sahu Thakur Das, In re.

[1939] 7 ITR 607 (All.), CIT v. Bikaner Trading Co. Ltd. [1970] 78 ITR 12 (SC) and Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC).

We have gone through these decisions and none of them is of any assistance. In the first decision it is mentioned that local reputation cannot be said to be a judicial basis in assessment proceeding. We have not relied on local reputation but on the statements of the assessee, materials found during search and statement of Mr. Cunnanan as corroborated by other circumstances. The other two cases were cited in support of the proposition that particular income must be proved to have been earned during the relevant accounting year. We have come to the conclusion that both the assessees had indulged in smuggling activity in the relevant accounting year. One of them had made trips to Bangkok. From materials on record we have come to the conclusion that the income of each of the assessees from smuggling activities in the relevant accounting year must have been not less than Rs. 50,000. This estimate, according to our opinion, is fair and reasonable.

Consequently, the above decisions are of not any assistance to the assessees.


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