Sri K. Madhavachary V. Income Tax Department

ITTA/105/2004

AI Insights

The case involves Sri K. Madhavachary, the appellant, who was engaged in the business of goldsmithing and trading in gold and silver. Following a search and seizure operation under Section 132 of the Income Tax Act, 1961, discrepancies were found in the appellant's financial dealings, leading to an assessment of undisclosed income for the block period from 01.04.1986 to 12.09.1996. The Income Tax Appellate Tribunal dismissed the appellant's appeal against the assessment order, which treated the cash and silver found during the search as undisclosed income. The High Court's decision affirmed the Tribunal's findings, dismissing the appeal on the grounds that the transactions were not regular business activities but clandestine operations.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 688912 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 26-10-2022
• Assessment Year: misc
• Other Referred Cases: P.R. Metrani v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: B SARMA
• Assessee Lawyers: A V KOUNDINYA
• Keywords: Block assessment; Clandestine business; Search and seizure; Undisclosed income; Unexplained investments
• Section: 143(3); 132; 260A; 158(BC)

Judgement Text

"I IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNESDAY,THE TWENTY SIXTH DAY OF OCTOBER TWO THOUSAND AND TWENTY TWO PRESENT THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HON'BLE SRI JUSTICE C.V. BHASKAR REDDY INCOME TAX TRIBUNAL APPEAL NO: 105 OF 2004 Appeal Under Section 260A of the lncome Tax Act, 1961 against the order of the lncome Tax Appellate Tribunal, Hyderabad dated 31-12-2003 in l.T. (SS) A.No. 2391 Hydl1997 for the block period 01-04-1986 to 12-09-1996 preferred against the order of the Assistant Commissioner of lncome Tax, Circle -5 (2) , lNV, dated 30-09-1997 in GIR No. M-7'16 Between: Sri K. Madhavachary, Rl/o.1-3-6 Kalasiguda, Secunderabad. ...APPELLANT ...RESPONDENT Counsel for the Appellant: SRl. A.V. KRISHNA KOUNDINYA Senior Counsel for SRI CHALLA GUNARANJAN Counsel for the Respondent: SRI B. NARASIMHA SARMA, SC for l.T Department The Court delivered the following: JUDGMENT AND Asst.Commissioner of Income Tax ( lnv ) Circle 5(2) Hyderabad. T T C AND TIIEI{ON'BLE SRI JUSTICE C.V.BHASKAR REDDY I.T.T.A.No. 105 of 2004 I {EN1' (l'* rhc Hor'bh the Chief J*tice Ujal Bhryat) Heard Mr. AV.Krishna Koundinla, leamed Senior Counsel for the appellant and Nk. B.Narsimha Sarma, leamed Standing C-ounsel, Income Tax Depanment for the respondent. 2. This appeal has been filed under Section 260A of the Income Tax Act, 1961 (briefly'the Act' hereinafter) bythe assessee as the appellant against the order dated 31.122003 passed by the Income Tax Appellate Tribunal, Hyderabad Bench 'B', Hlderabad (briefly 'the Tribunal' hereinafter) in I.T.(SS)ANo.239/H-yd/1997 for the block penod 01.04.1986 to 12.09.1996. 3. On 25.04.2005, the appeal was admitted on the following three substantial questions of law: 1. Miether on the facts and in the ctcumstances of the case, the provisions relating to unexplained investments is appliceble to an assessment made under Chapter )OV of the Acr ? T 2. X/hether the finding of the ITAT that the silver belongs to the xsessee is not perverse as there is no evidence to that effect ? 3. X4rether the ITAT without deciding the issue whether 400 kgs silver were purchased for cash or received on consignment basis, is correct in coming to the conclusion that the siiver belongs to the assessee ignoring the relevant materials on record ?\" 4. To appreciate the questions so framed, it would be apposite to adYert to the relevant facts. 5. Appellant before rs is an assessee under the Act having the status of an individual. Assessee carried on the business of goldsmith as well as trading in gold and silver. 6. A search and seizure operation under Section 132 of the Act was carried ou in the premises of the appellant on L2.09.1996 on the basis of information received that the appellant v/as canying on clandestine business of trading in silver bullion. fu per the , information, the police task force on 11.09.1996 at about 9.30 p.m. had intercepted one scooter bearing registration No.AP rc 7A35 at Kalasiguda, Secunderabad and found cash of t:2:: -l Rs.Z lakhs in the possession of I{r. J.B.Velsey and Mr. AVenkateswarlu, riders of the said scooter. On interrogation bythe police, theystated that the seized cash was given to them by the appellant to hand over the same ro one Sri lvlahendra Dubey, .'*rho was staying in a hotel in Secunderabad. They further stated before the police that an amount of Rs.3.88 lakhs and silver weighing about 30 lgs kept in two gunny bags were in the custody of the appellant at his residence. Subsequently, the police task force led by the above two persons wenr ro the residence of the appellant wherein cash to the extent oi the aforesaid amount and silver were found. Appellant did to produce any bills, documents or records with regard to possession of such cash and silver. 7. Following the aforesaid search and seizure, appellant was subjected to assessment for the block period from 01.04.1986 to 12.09.1996 whereafter, assessment order was passed on 30.09.1997 under Section 158 BC read with Section 1a3(3) of the Act. By the aforesaid order, the agsessing officer treated the amount of cash and silver found in the residence of the appellant as - nndisclosed income which was quantified at Rs.37,37,L63.00 for the block period 01.04.1986 to 12.09.199 6. 8. Against the aforesaid order of assessment for the block period 01.04.1986 to 12.09.1996, appeliant preferred the related appeal before the Tribunal. Tribunal uide the order dated 31.12.2003, dismissed the appeal of the appellant. Aggrieved, the present appeal has been preferred bythe appellant/assessee. 9. According to leamed Senior Counsel for the appellant, in view of the report of the investigation wing of the Income Tax Department, Ahmedabad, it was a case of further/deeper investigation by the assessing officer to asceftain genuineness of the transactlon. Instead of further/deeper investigation, assessing officer passed the order of assessmenr. 10. Insofar the order of the Tribunal dated 31.12.2003 1S concemed, learned Senior Counsel submits that Tribunal fell in error in relying upon the presumption under Section 132 (4) of the Act. He submits that the said proviso does not provide lor any I ii4ii such presumption that any books of account, documents,.money, bullion, jewellery. e/r., found in the possession or control of any person in the course of search may be presumed as belonging to such person. In fact, such presumption is traceable to sub-section (aA) of Section 132 of the Act. But the moot point according to him is that such presumption cannot be drawn in the course of regular assessment. It operates during search proceedings. In suppofi of such contention, leamed Senior Counsel has placed reliance on a decision of the Supreme C-oun in P.R.Metrani v. CITi. 11. On the contrary I &. B.Nanimha Sarma, leamed Standing C-ounsel, Income Tax Depanment submits that it was a clear case of unexplained investment by the appellant. The nodas operandi of the appellant was clearlyset out bythe assessing officer. No other conclusion can be drawn on the basis of the admitted facts. Insofar .drawal of presumption under Section 132(4A) of the Act is concemed, he submits that the said presumption was not acted upon in the course of assessment proceedings as the assessing /l ' lzooel zv ITR 209 (sc) I ,// ::5:: t ,/ 6 officer was clear that it was a case of unexplained investment. The case law cited by leamed Senior Crunsel is also distinguishable. 12. In the facts and circumstances of the case, leamed Standing C-ounsel submits that the questiorls framed cannot be said to be substantial questions of law inasmuch as there is no perversity in the findings recorded by the assessing officer as well as by the Tribunal. Therefore, the appeal is liable to be dismissed. 1.3. We have heard ieamed cor.msel for the parties and considered the rival submissions. 14. fle may first deal with the order of assessment dated 30.09.1997 passed by the respondent for the block period 01.04.1986 to L2.09.1996. t5. The main issue before the assessing officer was the clandestine operation in silver ban and unexplained investment of the appellant. Assessing officer found that in addition to unexplained cash of Rs.10.88 iakhs, there was consignment of silver to the extent of +OO lgs which was construed to be investment 2 ,/ from r.rnexplained sources. In this regard, assessing' officer considered the r-eport of the investigation wing of the Income Tax Depanment and thereafter recorded as follows: CLANDESTINE OPERATION IN SILVER BARS AND UNEXPLAINED INVESTMENT IN THIS BUSINESS: At the outset, it is to be mentioned here that the assessee has never disputed the receipt of 4oo,l52 lgs. of silver from Ahmedabad. The modus operandi - of the dtpatch, the subsequent delivery at the residence of the assesses has already been cliscussed in detail in the preceding paras. The point in dispute however t the claim of the assessee that he had received the said silver on consignment basis from the Ahmed.ebad party for effecting corsignment sales locally at Hflenbad. He has claimed to have indulged in such corxignment sales rougtrly for one and half years prior to the date of the search. In his swom st2temenr dated 30-9-1996 he maintained that he ras eaming commission on the clandestine business of silver @ Rs.5 per lg. of silver from both sides i-e., from the purchaser and the seller. F{e has further stated that (during the course of his deposition on 30-9-1996), he was receiving and disposing 400 lgs. of silver per week on an average, which is rougtrly 20,800 kgs. or 20 tonnes of silver per annum. Except for stating as above, the assessee has ar no point of time been able to fumish any details regarding receipt of silver by him for sale on coruignment. Despite being given ample opponunities during the course of search proceedings as well as assessment proceedings, he had not been able to i:7:: 8 fumish single address to whom he has sold sliver on consignment basis. F{e has no records regarding receipt and sale of silver ban for so-called consignment business. FIe has not been able to produce a single receipt evidencing receipt of silver by him on consignment bas; from any parry and similarly no documentary proof could be ever fumished by him regarding his claim of coruignment sale. Therefore the claim is rejected. On the contrary the assessee in unequivocal terms has admiued to have received 400.152 lgs. of silver on 77-9-1996 from I 4/s. GhanshJam Silver (Proprietor Mr. Mahesh alias Mr. Ravf , which is also evidenced by the Vay Bill and Cash Memo issued 6y W s. Gharuhlam Silver for the said transaction. To verify the claim of the assessee thar the receipt of the said silver From M/s.Ghanshlam Silver was on consignment basis, investigations were carried out by the ADI (IN .f, Ahmedabad. The repon of ADI (Inv) after conducting necessary Investigations in the matter, which is reproduced in full as an Annexure to this order. nails the claim of the assessee. The ADI (nv) in his repofi has srared rhar rhe closing of stock of silver as per books of account maintained by M/s.Ghanshlam Silver. (Proprietor Mahesh P.Patel, alias N&. Mahesh alias lvlr.Ravf on 9-9-1996 was 576.953 kgs. out of which he had sent 400.152 lgs. of silver to the assessee. The ADI (Inv) has funher reponed that it was claimed by M/s.Ghanshyan Silver that the said amount of silver was sent to Sri K.Madhavachary on consignment basis and that too on crediq although it was admitted by the Proprietor zi.. Mr. Mahesh Patel that he does not send goods on credit to a 9 unknonn parties. These statements of Mr. Mahesh P.Patel, Proprietor of M/s.Ghansh1,am Silver claiming that the impugned silver was sent on credit on consignment to Sri K.tr4adhavachary are hard to swallow inasmuch as while funher examining the Sales fugisrer- at Page No.J8 it was noticed by the ADI that against bill No.4631 the name of Sri K.Nthdhavachary was introduced by erasing the rnme of somebody else. 'ff&en the fact of erasure was confronted to the assessee eliciting his explanation on rhe issue vide lener darcd 2i-8-1997 it was replied by him that what was stated by the Ahmedabad party did not concem him, funher adding that the Ahmedabad pafty has sent rhe silver to be sold on consignment basis only. Be that it nray, the claim of consignment trading by the assessee has already been rejected in view of detailed discussion made in the preceding paras. Even the claim of the supplier of the said silver i.e., M/s.Ghanshlam Silver by making an erasure in its bools and'entering the assessee's name just for the sake of indicating saie on consignmenr in no way gives any credence to the claim of the assessee, inasmuch as, to repeat the assessee has never been able to fumish any details with documentary evidence regarding his purchase and sale of silver bars on consignment basis. The inevitable conclusion thar can be drawn from a perusal of the facts of the case, detailed out above, and in the face of the failure on the pan of the assessee to adduce any corrobortrtive evidence regarding his claim of consignment silver transaction, is that the assessee has been clandestinely purchasing and selling silver bars. Since the assessee has not maintained any stock tr:rnsaction, it can be reasonably inferred that the investment ::10:: made by the assessee with regard to purchase of the said silver o{ 4A0J52 lgs. from rhe Ahmedabad parry v/as out of his unaccor.rnted sources , the value of which is k .29 ,41 ,ll7 / - (400.152 lgs. of silver X Rs.7,350/-). Reference may be made to the connected way bill and cash memo (Pages 54 & 55 of Annexure KMC/B/5). Even the claim of Sri Mahesh P.Parel of M/s. Ghanshi.am Silver that the said silver was sent to the assessee on credit basis is unacceptable as the assessee himself has stated several dmes during tlre course of his depositions dated 27-8-1997 that such transactions were a[wa1,s conducted by him in cash. Relevant excerpts are reproduced below: Qn.No.17: X/hat is the mode of pal,rnent to the supplien? Ans: The business is mainly transacted in the form of cash. I have never paid anltody in the form of cheque or D.D. Qn.No.26: Mr.Dubey, driver of the jeep which brought 400 lgs. of silver from Ahmedabad, has stared in his swom statement that Trilokchand of Bombay instructed him to get a D.D and not cash for the said silver. X/hat do 1ou have to say about this? Ans: I always paid in cash only. I have never given D.D. to any outsradon parry. .......... Qn.No.48: Do you confirm rhat ycu have never talren a D.D for lour business purposes to be paid to the supplier? Did ycu alwap pay lour supplien in cash? Ans: Yes. Thus, as per his own admission on oath, his entire clandestine fiansactions of purchase and sale of silver has been : :11: : through the mode of cash palrnent only. Added to these swom a rernenrs is also the fact that for the impugned tnnsaction of 4AO.$2lgs. of silver, the supplier 2.r.. Mahesh P.Patel, Proprietor M/s. Ghanshyam Silver, Ahmedabad has issued a cash memo in favour of the assessee z/e cash memo dated fi-9-1996 (Page 55 of Exhibir KMC/B/5). It is interesting to note that the saicl cash memo dated fi-9-96 was faxed ro rhe assessee on L2_9_76 2.e., on the date of the Search. To a related query (the shrcmenr of rhe assessee dated 18-9-96), he has replied as under: Qn. Please state when such copy has been received by you and the number on which fax message has been sent? Ans: I have received the copy (Fax) around 9 p.rn, on 72-9-96. I do not remember the fax number as it has been delivered at my residence by some unknov\"rr persons and the same has been handed over to me by my daughter around the menrioned rime, Qr: Do you know any persons belonging/related to the Ahmedabad pary srarioned ar Hyderabad,/Sec,bad ? If not, how could y:u rely upon rhe Information received/given by unidentified/unl