1992 (2) TMI 127 - AT - Income Tax

Appeals partially allowed: Assessee wins on interest, seized goods; additions upheld for low drawings.

The tribunal partly allowed the appeals, ruling in favor of the assessee on the levy of interest under section 217 and the addition of seized goods, while ... Interest under section 217 - treatment of seized cash as adjustment/advance tax - addition on account of low drawings - interest on delayed refund under section 214 - addition under section 69A for ownership of seized bullion/valuable articles - use of customs authority's order as persuasive material, not conclusive proof - entitlement to set off commercial/trading loss on confiscationInterest under section 217 - treatment of seized cash as adjustment/advance tax - Levy of interest under section 217 in respect of assessment year 1988-89 - HELD THAT: - The assessee had requested in writing that the tax liability be met from the cash seized from his servant and the Income-tax Officer's order under sections 132(5) and 132(7) directed retention of the seized amount for meeting the tax liability. Where advance tax so paid (or adjusted) does not fall short of the assessed tax as defined, sub-section (1A) of section 217 precludes charging interest. The Tribunal found that the advance-tax liability was met by adjustment from the seized cash and therefore interest under section 217 could not be validly levied. [Paras 4]Interest under section 217 was not leviable and the assessee succeeds on this ground.Addition on account of low drawings - Addition of Rs. 40,000 on account of low drawings for assessment year 1988-89 - HELD THAT: - Survey material and facts relating to the assessee's family possessions and lifestyle were considered by the revenue. On the totality of circumstances the Tribunal found no justification to interfere with the Assessing Officer's addition for low drawings in that year. [Paras 5]Addition of Rs. 40,000 for low drawings upheld.Interest on delayed refund under section 214 - Claim for interest under section 214 for refund period beginning 13-10-1987 - HELD THAT: - The ground was not raised before the Commissioner (Appeals) and no memorandum of grounds before the Tribunal was placed on record. Independently, the Tribunal found that the provisions of section 214 did not entitle the assessee to interest in the circumstances presented. [Paras 6]Ground fails; no interest under section 214 is allowable.Addition on account of low drawings - Addition of Rs. 80,000 on account of low drawings for assessment year 1989-90 - HELD THAT: - The basis for this addition was the same factual material as for the preceding year. The Tribunal found no ground to interfere with the Assessing Officer's and Commissioner (Appeals)'s conclusion on this addition. [Paras 7]Addition of Rs. 80,000 for low drawings upheld.Addition under section 69A for ownership of seized bullion/valuable articles - use of customs authority's order as persuasive material, not conclusive proof - entitlement to set off commercial/trading loss on confiscation - Addition of value of seized goods (gold bars, appliances and dutiable/restricted goods) as undisclosed income for assessment year 1989-90 - HELD THAT: - The Assessing Officer and Commissioner (Appeals) based the addition largely on the Customs Authorities' order without recording independent findings on ownership or discussing the evidence in sufficient detail. While orders of other statutory authorities are admissible as persuasive material, they are not binding on Income-tax authorities; an addition under section 69A requires the Income-tax authority to record an independent finding that the assessee is the owner of the seized bullion/valuable articles. Further, case law establishes that where goods are seized and confiscated the assessee may be entitled to treat the value as a commercial/trading loss and seek set off against business income; this aspect was not considered by the revenue authorities. For these reasons the Tribunal held the addition unsustainable as made and directed restoration to the Assessing Officer for fresh consideration after affording the assessee a reasonable opportunity of hearing. [Paras 8, 10, 11, 12]Addition cannot be sustained in present form; matter restored to the Assessing Officer for fresh adjudication in accordance with law after hearing the assessee.Final Conclusion: The appeals partly succeed: interest charged under section 217 for AY 1988-89 is quashed and the low-drawings additions for both years are sustained; the substantial addition in AY 1989-90 based on seized goods is set aside and the matter is remanded to the Assessing Officer for fresh decision after giving the assessee an opportunity of hearing. Issues:1. Levy of interest under section 217 for assessment year 1988-892. Addition of Rs. 40,000 on account of low drawings for assessment year 1988-893. Grant of interest under section 214 for refund for assessment year 1988-894. Addition of Rs. 80,000 on account of low drawings for assessment year 1989-905. Addition of Rs. 2,83,11,475 representing the value of seized goods for assessment year 1989-90Analysis:1. Levy of Interest under Section 217 (Assessment Year 1988-89):The appeal challenged the levy of interest amounting to Rs. 2,20,995 under section 217 of the Income-tax Act. The assessee contended that he had requested the Income-tax authorities to adjust his tax liability from the seized amount, which was directed to be retained for the same purpose. The tribunal agreed with the assessee, stating that no interest could be validly charged as the advance tax paid did not fall short of the assessed tax. The tribunal found no justification for levying interest under section 217 and ruled in favor of the assessee.2. Addition of Rs. 40,000 on Account of Low Drawings (Assessment Year 1988-89):The addition of Rs. 40,000 on account of low drawings for household expenses was upheld by the learned Commissioner(Appeals). The tribunal found that based on the survey conducted, which revealed the luxurious lifestyle of the assessee's family, the addition was justified. The tribunal concluded that the addition could not be deemed unjustified considering the circumstances.3. Grant of Interest under Section 214 (Assessment Year 1988-89):The appeal raised a ground regarding the grant of interest under section 214 for the refund of moneys by the department. However, since this ground did not arise from the impugned order of the learned Commissioner(Appeals), the tribunal did not find it necessary to pass any order on this issue. Additionally, the tribunal noted that the provisions of section 214 did not entitle the assessee to receive any interest, leading to the failure of this ground of appeal.4. Addition of Rs. 80,000 on Account of Low Drawings (Assessment Year 1989-90):Similar to the previous year, an addition of Rs. 80,000 on account of low drawings was challenged. The basis for this addition was the same as the preceding year, and the tribunal found no grounds for interference in this part of the impugned order of the learned Commissioner(Appeals). Consequently, this ground of appeal was deemed unsuccessful.5. Addition of Rs. 2,83,11,475 representing the value of Seized Goods (Assessment Year 1989-90):The tribunal addressed the challenge to the addition of Rs. 2,83,11,475, representing the value of seized goods. The assessee argued against the addition on various grounds, including lack of independent application of mind by the tax authorities and the question of ownership of the confiscated goods. The tribunal agreed with the assessee, finding that the order upholding the addition was not sustainable. It emphasized the necessity of an independent finding by the Income-tax authorities regarding ownership for a valid addition under section 69A. The tribunal directed the matter to be restored to the Assessing Officer for a fresh decision in accordance with the law.In conclusion, the tribunal partly allowed the appeals, ruling in favor of the assessee on the levy of interest under section 217 and the addition of seized goods, while upholding the additions on account of low drawings. The tribunal provided detailed reasoning for each issue, ensuring a thorough analysis of the legal aspects involved in the judgment.