2015 (8) TMI 1216 - HC - Income Tax

High Court Upholds Tribunal Decision on Seized Jewellery & Accounting Methods

Paras Shantilal Shah, Pragna R. Shah, Priti Paras Shah, Late Shri Rajendra Shantilal Shah Through His L.R. Paras Shah Versus The Dy. C.I.T.S.R. 48, Mumbai

The Tribunal's decision was upheld by the High Court in a case involving seized jewellery representing unaccounted income and the rejection of the cash ... Seized jewellery - unaccounted income of the appellant - documentary evidence found at the time of search to show that part of it belonged to the appellants father, late mother and the minor children who were wealth-tax and income-tax assessees in the earlier years - Held that:- It is not disputed that the valuation report indicates the name of the father and mother as being the persons who claim to be the owner of the jewellery. The mother of the appellant passed away far back as 1990. In the normal course of human conduct the jewellery of the mother would have been distributed amongst her children soon after her death. This is also corroborated by the statement made on 12 October 1996 wherein it is stated that the jewellery belonging to their late mother has been distributed amongst the lady members of the family. So far as the valuation report indicates that some jewellery belongs to the father and it is in their possession, it would have been so stated at the time when the excess jewellery was found in their possession. The valuation reports are dumb documents and by itself do not indicate in the absence of any other corroborative evidence that the jewellery belongs to the father and the late mother and/or the minor children of the appellants. In the above view, we find that the impugned order of the Tribunal calls for no intereference. Applicability of Section 69A of the Act is not required to be considered, as we find that the authorities have proceeded on the basis of the statement made on oath under Section 132(4) of the Act declaring that the undisclosed jewellery belonged to them. These statements of oath has not been withdrawn and/or retracted by appellant at any point of time till date. Therefore, there is no occasion for the authorities to come to the conclusion that the undisclosed jewellery belongs to the father or late mother. Consequently issuing a notice under Section 158BD of the Act to the father and to the legal heirs of the late mother does not airse. - Tribunal was right in holding that the seized jewellery represented unaccounted income of the appellant Decided against the appellants/assessees and in favour of the revenue. Undisclosed interest income - interest amount earned on the loan was chargeable to tax in the block assessment period as undisclosed income - Tribunal rejecting/ignoring the cash method of accounting followed by the appellants/assessees - Held that:- The appellants have not established before the authorities that they were following the cash system of accounting. In fact at no stage was it brought to the notice of the authorities in the return of income filed that loans have been advanced to the extent of ₹ 16 lacs and ₹ 34 lacs to Mr. and Mrs. Bajaj as a part of their assets in the balance sheet to be filed alongwith the return of income by the two appellants. In fact as the assessee was not following any method of accounting, non disclosure of giving of loan to Mr. and Mrs. Bajaj and the interest received in fact or in accrual method has not been disclosed to the authorities. In fact, the best evidence which could be produced by the appellants/assessees was the evidence of Mr. and Mrs. Bajaj to point out that they have not paid any interest during the period under consideration for the loan of ₹ 15 lacs and ₹ 34 lacs. However the appellant did not choose to produce Mr. and Mrs. Bajaj as their witnesses and/or any evidence from them indicating that no interest is paid by them. Tribunal was correct in rejecting the cash method of accounting followed by the assessee and substituting the mercantile method in relation to the accrued interest on loan advanced to the landlord - Decided in favour of the respondent/revenue and against the appellants/assessees. Issues Involved:1. Whether the Tribunal was right in holding that the seized jewellery represented unaccounted income of the appellant.2. Whether the Tribunal erred in rejecting the cash method of accounting followed by the assessee and substituting the mercantile method in relation to the accrued interest on a loan advanced to the landlord.Issue-wise Detailed Analysis:Issue 1: Seized Jewellery Representing Unaccounted IncomeThe appellants, part of a family group engaged in trading electronic items and bill discounting, faced a search and seizure operation on 11 October 1996. During this operation, gold, diamond jewellery, and silver articles were found. Statements made under oath by one appellant on 12 October 1996 and 14 November 1996 declared a total of Rs. 7.66 lacs in undisclosed gold jewellery and Rs. 4.66 lacs in undisclosed diamond jewellery, which they offered to tax due to lack of supporting documentary evidence. The appellants later attempted to explain the jewellery's ownership through valuation reports and wealth tax returns, claiming it belonged to their father, late mother, and minor children.The Assessing Officer, however, did not accept this explanation and distributed the unaccounted jewellery value among the four appellants equally, adding Rs. 3.41 lacs to each of their incomes. The Tribunal upheld this decision, noting the voluntary and un-retracted statements made under oath and the lack of evidence to support the appellants' claims. The Tribunal also emphasized that mere possession of valuation reports did not suffice to establish the source of the jewellery.The High Court agreed with the Tribunal, highlighting that the statements made on oath were not retracted or explained away by the appellants. The court found no reason to disbelieve the voluntary statements and noted that the valuation reports alone were insufficient to prove the jewellery belonged to the appellants' father and late mother. Consequently, the court answered the substantial question of law in favor of the revenue, affirming the Tribunal's decision.Issue 2: Rejection of Cash Method of Accounting and Substitution with Mercantile MethodDuring the search, documents dated 13 August 1996 revealed loans of Rs. 16 lacs and Rs. 34 lacs given to certain individuals, with a clause stipulating a 4% per annum interest. The appellants argued that they followed a cash method of accounting, implying interest should be taxed only upon receipt. However, the Assessing Officer and the Tribunal found that the appellants did not maintain regular books of account, thus no method of accounting was established. The Tribunal concluded that the interest income accrued from the loans, as per the agreement, constituted undisclosed income and should be taxed in the block assessment period.The High Court upheld the Tribunal's findings, noting that the appellants failed to demonstrate they followed the cash method of accounting. The court emphasized that the loan agreement found during the search was undisclosed and led to the conclusion that the interest income was chargeable to tax. The appellants did not disclose the loans or interest in their returns, nor did they provide evidence from the borrowers to support their claims. The court thus answered the substantial question of law in favor of the revenue, affirming the Tribunal's decision.Conclusion:Both substantial questions of law were answered in favor of the revenue, and the appeals filed by the appellants were dismissed. The court found no reason to interfere with the Tribunal's order, and no costs were awarded.