P.D.Abraham alias Appachan, Calicut V. ACIT, Calicut

ITA 486/COCH/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58207 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 31-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: V SATYANARAYANAN
• Keywords: Business income; Income from undisclosed sources; Deemed to accrue or arise in india
• Section: 68; 69; 263

Judgement Text

1 I.T.A. NO 486/COCH/2009 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) & SHRI B.R. BASKARA N (AM) ITA NO. 486/COCH/2009 (ASSESSMENT YEARS 2005-06) P.D. ABRAHAM ALIA APPACHAN VS THE A.C.I.T., CIR.1( 1) SWARGACHITRA, JAIL ROAD KOZHIKODE KOZHIKODE PAN : ACHPA5114C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V SATYANARAYANAN RESPONDENT BY : MS. VIJAYAPRABHA DATE OF HEARING : 05-01-2012 DATE OF PRONOUNCEMENT : 06-01-2012 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE ADMINISTRATIVE COMMISSIONER U/S 263 OF THE INCOME-T AX , DATED 06-07-2009 FOR THE ASSESSMENT YEAR 2005-06. 2. SHRI V SATHYANARAYAN, THE LD.REPRSENTATIVE FOR T HE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY T REATING THE ADDITION MADE U/S 68 OF THE INCOME-TAX ACT AS BUSINESS INCOME. H OWEVER, THE ADMINISTRATIVE COMMISSIONER FOUND THAT THE ADDITION MADE U/S 68 HA S TO BE ASSESSED AS INCOME ON STAND ALONE BASIS. ACCORDING TO THE LD.REPRESEN TATIVE, THE ADMINISTRATIVE 2 I.T.A. NO 486/COCH/2009 COMMISSIONER FOUND THAT INCOME ASSESSABLE U/S 69 OF THE INCOME-TAX IS NOT INCOME UNDER ANY HEAD OF INCOME INCLUDING INCOME F ROM OTHER SOURCES. REFERRING TO THE JUDGMENT OF THE APEX COURT IN LAKMI CHAND BAIJNATH VS COMMISSIONER OF INCOME-TAX 35 ITR 416 (SC), THE LD. REPRESENTATIVE SUBMITTED THAT WHEN THE AMOUNT IS CREDITED IN THE BOOKS OF AC COUNT, IT IS NOT UNREASONABLE TO INTERFERE THAT THE RECEIPT IS FROM BUSINESS. A SIMILAR VIEW WAS TAKEN BY THE CALCUTTA HIGH COURT IN THE CASE OF DAULATRAM RAWATM ULL VS COMMISSIONER OF INCOME-TAX 64 ITR 593(CAL) AND MANSFIELD & SONS VS COMMISSIONER OF INCOME-TAX 48 ITR 254 (CAL). BY FOLLOWING THE APEX COURT JUDGM ENT IN THE CASE OF LAKMICHAND BAIJNATH VS COMMISSIONER OF INCOME-TAX (S UPRA), THE KERALA HIGH COURT IN THE CASE OF ANNAMALAI REDDIAR VS COMMISSIO NER OF INCOME-TAX 53 ITR 601 HAS HELD THAT THE INCOME FROM UNDISCLOSED INCOM E WHICH ULTIMATELY CONNECTED WITH BUSINESS OF THE ASSESSEE SHOULD BE T REATED AS BUSINESS INCOME. THEREFORE, THE ADDITION MADE U/S 68 OF THE ACT HAS TO BE NECESSARILY TREATED AS BUSINESS INCOME, THE ASSESSEE IS ENTITLED FOR SET O FF. REFERRING TO THE JUDGMENT OF THE APEX COURT IN THE CASE OF COMMISSIONER OF IN COME-TAX VS MAX INDIA LTD 295 ITR 282 (SC) AND MALABAR INDUSTRIAL CO LTD VS C OMMISSIONER OF INCOME-TAX 243 ITR 84 (SC) THE LD.REPRESENTATIVE FOR THE ASSES SEE SUBMITTED THAT WHEN THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIE WS ON THE MATERIAL AVAILABLE ON RECORD, THE ADMINISTRATIVE COMMISSIONER CANNOT SAY THAT THERE WAS A PREJUDICE CAUSED TO THE INTEREST OF THE REVENUE. ACCORDING T O THE LD.REPRESENTATIVE, THE VIEW TAKEN BY THE ASSESSING OFFICER CANNOT BE CONTR ARY TO ANY LAW. IN FACT, THE VIEW TAKEN BY THE ASSESSING OFFICER IS IN ACCORDANC E WITH THE LAW LAID DOWN BY THE APEX COURT IN THE CASE OF LAKMICHAND BAIJNATH VS COM MISSIONER OF INCOME-TAX 3 I.T.A. NO 486/COCH/2009 (SUPRA). THEREFORE, THE LD.REPRESENTATIVE PLEADED THAT THE COMMISSIONER OF INCOME-TAX IS NOT JUSTIFIED IN REVISING THE ORDER OF THE ASSESSING OFFICER. 3. ON THE CONTRARY, MS VIJAYAPRABHA, THE LD.DR SUBMI TTED THAT THE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHAMMED HAJI HASSAN V COMMISSIONER OF INCOME-TAX 247 ITR 290 (GUJ) FOUND THAT WHEN THE ADD ITION WAS MADE U/S 69 OF THE INCOME-TAX ACT, THAT ADDITION CANNOT BE AN INCO ME UNDER ANY OF THE HEADS UNDER THE INCOME-TAX INCLUDING INCOME FROM OTHER S OURCES AND IT HAS TO BE ASSESSED AS INCOME ON STAND ALONE BASIS. THEREFORE , THE ASSESSING OFFICER IS NOT JUSTIFIED IN TREATING THE INCOME AS BUSINESS INCOME AND ALLOWING THE SET OFF AS CLAIMED BY THE ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY THE ASSES SING OFFICER MADE ADDITION U/S 68 OF THE INCOME-TAX ACT AND TREATED THE SAME AS BU SINESS INCOME AND ALLOWED SET OFF. HOWEVER, THE ADMINISTRATIVE COMMISSIONER REVISED THE ORDER OF THE ASSESSING OFFICER ON THE GROUND THAT THE ADDITION M ADE U/S 68 CANNOT BE TREATED AS BUSINESS INCOME, THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR SET OFF. 5. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF TH E GUJARAT HIGH COURT IN FAKIR MOHAMMED HAJI HASSAN V COMMISSIONER OF INCOME- TAX 247 ITR 290 (GUJ). IN THE CASE BEFORE THE GUJARAT HIGH COURT IN FAKIR M OHAMMED HAJI HASSAN V COMMISSIONER OF INCOME-TAX (SUPRA) THE ASSESSEE DER IVED INCOME FROM PARTNERSHIP FIRM IN WHICH HE WAS A PARTNER. THE INC OME-TAX OFFICER CALLED UPON 4 I.T.A. NO 486/COCH/2009 THE ASSESSEE TO GIVE PARTICULARS ABOUT THE SEIZURE OF GOLD WORTH RS.48,72,000 BY THE CUSTOMS AUTHORITIES. THE ASSESSEE EXPLAINED T O THE INCOME-TAX OFFICE R THAT THE CUSTOMS DEPARTMENT HAD CONFISCATED THE GOLD IN QUESTION AND THE PROCEEDS UNDER THE CUSTOMS ACT WERE PENDING AGAINST THE ASSE SSEE. THE COLLECTOR OF CUSTOMS IMPOSED PENALTY OF RS.25 LAKHS ON THE ASSES SEE U/S 112 OF THE CUSTOMS ACT. THE INCOME-TAX OFFICER FOUND THAT THE VALUE O F THE GOLD CONFISCATED BY THE CUSTOMS AUTHORITIES WAS LIABLE TO BE ADDED IN THE H AND OF THE ASSESSEE U/S 69A OF THE ACT. ACCORDINGLY AN ADDITION WAS MADE. IN T HOSE CIRCUMSTANCES, THE GUJARAT HIGH COURT HELD THAT WHEN THE ASSESSEE HAS N O EXPLANATION ABOUT THE NATURE AND SOURCE OF INVESTMENT OR ACQUISITION OF T HE GOLD VALUE OF SUCH GOLD WAS DEEMED TO BE THE INCOME OF THE ASSESSEE AND THERE W AS NO QUESTION OF TREATING THE VALUE AS A DEDUCTIBLE TRADING LOSS ON ITS CONFI SCATION BECAUSE SUCH INCOME DID NOT FALL UNDER THE HEAD INCOME FROM PROFIT & GAINS OF BUSINESS OR PROFESSION. IN FACT, THE GUJARAT HIGH COURT HAS OBSERVED AS FOLL OWS AT PAGE 294 OF THE ITR: IT IS, THEREFORE, CLEAR THAT, WHEN THE INVESTMENT IN OR ACQUISITION OF GOLD, WHICH WAS RECOVERED FROM THE ASSESSEE WAS NOT RECORDED IN THE BOOKS OF ACCOUNT AND THE ASSESSEE OFFERED NO EX PLANATION ABOUT THE NATURE AND SOURCE OF SUCH INVESTMENT OR ACQUISI TION AND THE VALUE OF SUCH GOLD WAS NOT RECORDED IN THE BOOKS OF ACCOUNT, NOR THE NATURE AND SOURCE OF THE ACQUISITION EXPLAINED, THE RE COULD ARISE NO QUESTION OF TREATING THE VALUE OF SUCH GOLD, WHICH WAS DEEMED TO BE THE INCOME OF THE ASSESSEE, AS A DEDUCTIBLE TRADING LOSS ON ITS CONFISCATION, BECAUSE, SUCH DEEMED INCOME DID NOT F ALL UNDER THE HEAD OF INCOME PROFITS AND GAINS OF BUSINESS OR PR OFESSION. 5 I.T.A. NO 486/COCH/2009 IN VIEW O THE ABOVE JUDGMENT OF THE GUJARAT HIGH COU RT IT IS OBVIOUS THAT THE CASE BEFORE THE GUJARAT HIGH COURT WAS IN RESPECT OF INVE STMENT MADE BY THE ASSESSEE IN SMUGGLED GOLD WHICH WAS CONFISCATED BY THE CUSTO MS AUTHORITIES. THE INVESTMENT IN GOLD IS NOT THE REGULAR BUSINESS OF T HE ASSESSEE. THE REGULAR BUSINESS IS AS A PARTNER IN THE PARTNERSHIP FIRM WH ICH HAS NO CONNECTION WITH SALE OF GOLD. HOWEVER, THE ASSESSEE WAS FOUND IN POSSES SION OF THE GOLD BY THE CUSTOMS AUTHORITY WHICH WAS CONFISCATED. IN THOSE FACTUAL CIRCUMSTANCES, IN THE ABSENCE OF ANY EXPLANATION ABOUT THE INVESTMENT MAD E BY THE ASSESSEE, THE GUJARAT HIGH COURT FOUND THAT THE LOSS SUFFERED BY T HE ASSESSEE ON CONFISCATION OF GOLD BY THE CUSTOMS AUTHORITIES CANNOT BE DEDUCT IBLE AS TRADING LOSS. 7. IN THE CASE BEFORE US, THE ISSUE IS ENTIRELY ON A DIFFERENT FOOTING. THE ASSESSEE RECEIVED UNSECURED LOAN. THE UNSECURED LO AN WAS DOUBTED AND THE ADDITION WAS MADE U/S 68 OF THE INCOME-TAX . THE Q UESTION ARISES FOR CONSIDERATION IS WHEN THE ADDITION WAS MADE U/S 68 OF THE ACT, IN THE ABSENCE OF SATISFACTORY EXPLANATION REGARDING THE SOURCE OF TH E CREDITOR, CAN WE SAY THAT THE CREDIT IS NOT A BUSINESS INCOME. ADMITTEDLY, THE A SSESSEE IS DOING BUSINESS. HE HAS NO OTHER SOURCE OF INCOME. THE VERY FACT THAT THE ADDITION WAS MADE IN THE HANDS OF THE PRESENT ASSESSEE SHOWS THAT THE ASSESS EE HAS GENERATED UNACCOUNTED INCOME IN THE COURSE OF ITS BUSINESS AC TIVITY. THE REVENUE HAS NOT FOUND ANY OTHER MATERIAL OR INVESTMENT AS IN THE CA SE BEFORE THE GUJARAT HIGH COURT. IN THE CASE BEFORE THE GUJARAT HIGH COURT, T HE INVESTMENT IN GOLD WHICH WAS CONFISCATED BY THE CUSTOMS AUTHORITY WAS CONSID ERED AND FOUND THAT IN THE ABSENCE OF ANY OTHER MATERIAL, THE PRESUMPTION IS T HAT THE INCOME WAS 6 I.T.A. NO 486/COCH/2009 GENERATED NOT FROM BUSINESS ACTIVITY OF THE ASSESSE E AND THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION AS TRADING LOSS. 8. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF TH E APEX COURT IN THE CASE OF LAKHMICHAND BAIJNATH VS COMMISSIONER OF INCOME-T AX (SUPRA). IN THE CASE BEFORE THE APEX COURT, THE ASSESSEE, AN HUF CARRYIN G ON BUSINESS AS PIECE GOODS MERCHANT. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER FOUND SIX CREDITS TO THE EXTENT OF RS.2,30,346 SHOW N IN THE ACCOUNTS AS SALE PROCEEDS OF ORNAMENTS. THE ASSESSEE EXPLAINED BEFO RE THE LOWER AUTHORITIES THAT AFTER PARTITION OF THE JEWELLERY OF THE FAMILY IT WAS SOLD IN SIX LOTS AND THE AMOUNTS REALIZED WERE INVESTED IN THE BUSINESS. TH E ITO REJECTED THE EXPLANATION OF THE ASSESSEE AND FOUND THAT THE CRED IT FOUND IN THE ACCOUNTS WERE BUSINESS INCOME OF THE ASSESSEE. ON APPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL FOUND THAT THE CREDIT FOUND IN THE ACCOUNTS TO THE EXTENT OF RS. 2,30,346 DID NOT REPRESENT THE PARTICULARS OF THE FAMILY JEWELLERIES SOLD BUT IT WAS CONCEALED BUSINESS PROFIT. ON FURTHER APPEAL BEFORE THE HIGH COURT, THE FINDING OF THE TRIBUNAL WAS CONFIRMED. THE ASSESSEE TOOK THE MATT ER BEFORE THE APEX COURT. THE APEX COURT, AFTER CONSIDERING THE FACTS OF THE CASE FOUND THAT THERE WAS NO EVIDENCE TO SHOW THAT THE FINDING OF THE TRIBUNAL WAS NOT SUPPORTED BY ANY EVIDENCE OR IT WAS PERVERSE. ACCORDINGLY, THE FIND ING OF THE TRIBUNAL WAS CONFIRMED BY THE APEX COURT. THE APEX COURT SUMMAR IZED ITS FINDINGS ON PAGE 424 OF THE ITR AS FOLLOWS: 7 I.T.A. NO 486/COCH/2009 THE POSITION MAY THUS BE SUMMED UP : IN THE BUSIN ESS ACCOUNTS OF THE APPELLANT WE FIND CERTAIN SUMS CREDITED. TH E EXPLANATION GIVEN BY THE APPELLANT AS TO HOW THE AMOUNTS CAME T O BE RECEIVED IS REJECTED BY ALL THE INCOME-TAX AUTHORITIES AS UNTENA BLE. THE CREDITS ARE ACCORDINGLY TREATED AS BUSINESS RECEIPTS WHICH ARE CHARGEABLE TO TAX. IN GOVINDARAJULU MUDALIAR V. COMMISSIONER OF I NCOME-TAX, THIS COURT OBSERVED: THERE IS AMPLE AUTHORITY FOR THE POSITION THAT WH ERE AN ASSESSEE FAILS TO PROVE SATISFACTORILY THE SOURCE A ND NATURE OF CERTAIN AMOUNT OF CASH RECEIVED DURING THE ACCOUNTING YEAR, THE INCOME-TAX OFFICER IS ENTITLED TO DRAW THE INFERENCE THAT THE RECEIPTS ARE OF AN ASSESSABLE NATURE. THAT IS PRECISELY WHAT THE INCOME-TAX AUTHORITIES HAVE DONE IN THE PRESENT CASE, AND WE DO NOT FIND ANY GROUNDS FO R HOLDING THAT THEIR FINDING IS OPEN TO ATTACK AS ERRONEOUS IN LAW . (3) LASTLY, THE QUESTION WAS SOUGHT TO BE RAISED T HAT EVEN IF THE CREDITS AGGREGATING TO RS.2,30,346 ARE HELD TO BE CONCEALED INCOME, NO LEVY OF EXCESS PROFITS TAX CAN BE MADE O N THEM WITHOUT A FURTHER FINDING THAT THEY REPRESENTED BUSINESS INCO ME, AND THAT THERE IS NO SUCH FINDING. WHEN AN AMOUNT IS CREDIT ED IN BUSINESS BOOKS, IT IS NOT AN UNREASONABLE INFERENCE TO DRAW THAT IT IS A RECEIPT FROM BUSINESS. IT IS UNNECESSARY TO PURSUE THE MAT TER FURTHER, AS THIS IS NOT ONE OF THE QUESTIONS REFERRED UNDER SECTION 66(2). 9. IN VIEW OF THE ABOVE OBSERVATION OF THE APEX COU RT IT IS NOT AN UNREASONABLE INFERENCE TO DRAW THAT THE ADDITION MA DE U/S 68 IS A RECEIPT FROM BUSINESS OF THE ASSESSEE. A SIMILAR VIEW WAS TAKEN BY THE KERALA HIGH COURT IN THE CASE OF ANNAMALAI REDDIAR VS COMMISSIONER OF INCOME -TAX 53 ITR 601 (KER). THEREFORE, THIS TRIBUNAL IS OF THE OPINION THAT THE RE IS NO JUSTIFICATION ON THE PART 8 I.T.A. NO 486/COCH/2009 OF THE COMMISSIONER OF INCOME-TAX(A) TO REVISE THE ORDER IN EXERCISE OF HIS JURISDICTION U/S 263 OF I.T. ACT. ACCORDINGLY, THE ORDER OF THE ADMINISTRATIVE COMMISSIONER IS HEREBY QUASHED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 06 TH DAY OF JANUARY, 2012 SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 06 TH JANUARY, 2012 PK/- COPY TO: 1. P.D. ABRAHAM ALIAS APPACHAN, SWARGACHITRA, JAIL ROA D, KOZHIKODE 2. THE A.C.I.T., CIR.1(1), KOZHIKODE 3. CIT, KOZHIKODE 4. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH