TaxTMI 
TaxTMI 
1999 (8) TMI 984
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....he IT Department in September, 1982 the jewellery under reference was neither found at their premises, nor was it mentioned in their depositions. The CIT(A) has thus clearly erred in deleting the addition of Rs. 1,53,02,266 made on accounts of alleged purchase consideration credited to the accounts of the partners and their family members." 3. The assessee in this case is a partnership firm with a leadership position in the line of gold jewellery. For the asst. yr. 1988-89, it filed its return declaring an income of Rs. 33,18,400. It is claimed that in the year of account relevant for the asst. yr. 1988-89 the assessee had made purchases of gold ornaments of Rs. 1,53,02,266 weighing 54,803,250 gms (54,803 kgs.) from the partners of the firm and their family members. In the audit report furnished under s. 44AB, the said purchases were shown as the purchases of old ornaments. However, the purchase memos showed them as new ornaments and they were taken directly to GS-12 Register, which is prescribed under the Gold Control Act for recording the purchase and sale or receipt and disposal of new ornaments. The purchases also indicated payment of making charges at more than the normal r....
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.... (14) Vijay A. Zaveri (son of No. 11). The remaining 4 persons belong to the family of his third brother Shri Natwarlal T. Zaveri including his wife, sons and HUF. All those persons who attended in response to summons admitted : (i) they sold the jewellery in question to the firm T.B.Z., Zaveri Bazar, (ii) that the jewellery was acquired by them out of their income from undisclosed sources, (iii) this income was earned during asst. yr. 1978-79, (iv) the income so earned was invested in purchase of these jewellery, (v) this was disclosed under the Amnesty Scheme, 1985 by filing a return for asst. yr. 1978-79 in March, 1987, and (vi) all the persons who sold the jewellery have offered capital gains on such sale of jewellery in their IT returns for asst. yrs. 1988-89. 12. In addition to the information collected above, the following information, in respect of the 14 persons examined was collected, through the statement recorded under s. 131 of the IT Act, and their IT records. It is described as under : (1) Shri Gopaldas T. Zaveri as individual and HUF.'Shri Gopaldas Tribhuvandas Zaveri is son....
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....years, presently student. He is assessed to tax from asst. yr. 1986-87. He claims to have acquired jewellery worth 3,969.100 gms. valued at Rs. 2,24,305 in 1978-79. (6) Miss Priyanka N. Zaveri.'She is a minor aged 15 years, presently student. She is assessed to income-tax from asst. yr. 1986-87. She claims to have acquired jewellery worth 3948.850 gms. valued at Rs. 2,23,175 in 1978.79. (7) Shri Shrikant G. Zaveri.'He is 31 years old. He is a partner in T.B.Z. from 1980-81 and assessed to tax from 1978-79 income from interest. He claims to have acquired jewellery worth 1429.350 gms. valued at 80,795 in 1978-79. (8) Smt. Bindu S. Zaveri.'She is 26 years old and is a housewife. She is not regularly assessed to tax, but filed Amnesty Return in 1978-79 and first regular return of income was filed in asst. yr. 1986-87. She claims to have acquired jewellery worth 3,837.950 gms. valued at Rs. 2,48,210 in 1978-79. (9) Shri Arvind T. Zaveri.'Both as individual and HUF. He is 60 years old and assessed to tax in HUF capacity since 1959-60 and as individual from 1964-65. The sources of income for HUF share of profit from T.B.Z., Zaveri Bazar,....
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....the records, it is noticed that the assessee is seldom purchasing ready-made gold ornaments in substantial quantity from anyone, other than actual dealers. This the first occasion of such substantial purchase. (b) The assessee normally purchases standard bars from which jewellery is manufactured by Karigar as per the trend and fashion. The old ornaments purchased are also converted into standard bars through the Government mint and utilised for manufacturing ornaments. (c) On verification of the making charges, paid by the assessee to its Karigars, it came to Rs. 5 to 10 per gms. However, the charges paid to the partners and family members were between Rs. 20 to Rs. 25 per gm. The charge paid by the firm for concerned manufacturers is as follows : S. No. Name of the jewellers Date of purchase Weight Majuri paid Rate of Majuri for 10 gms. Rs. (1) Chandrakant jewellers 5-3-1987 433.450 1,991 46 (2) Kharsandas Lakhman Jhaveri 25-4-1987 5,019.650 14,155 120 (3) Kishore Bhimji Zaveri 4-7-1987 3,114.250 31,115 100 (d) All the purchase con....
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....from the firm T.B.Z., Zaveri Bazar prior to asst. yr. 1978-79 in HUF capacity. In individual capacity their income from valuation fees was very negligible. When all these facts were considered, a conclusion was drawn that this transaction of declaration of additional income by the partners in the form of jewellery under the Amnesty Scheme and their subsequent sale to the firm is a clear device to introduce the assessee's own unaccounted monies in the form of purchase of new jewellery from the partners and family members, who in their own capacity were not in a position to acquire this jewellery during asst. yr. 1978-79 as is evident from the fact that none of these persons were having independent sources to earn income from undisclosed sources. In fact some of them were not even knowing what an income is leaving apart earning it, as they were minors. All of them have stated that they earned income from undisclosed source, but were not able to give the nature of the source, the person from whom the jewellery was purchased. This conclusion is further supported by the fact that though the jewellery was allegedly acquired in asst. yr. 1978-79, it was not found in any perso....
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....is seen that most of the persons were minors or ladies having no independent source of income to generate unaccounted income, which can be invested. (3) It is claimed that these jewelleries were acquired out of undisclosed income. However, the deponents were not able to give the exact nature of the source of income as well as the names of the jeweller from which the jewellery was purchased. (4) There was an action under s. 132 in the residential premises of the partners of T.B.Z. and family members in September, 1982, however these jewelleries acquired in asst. yr. 1978-79 were not found by the search party at any place. It may be stated that the firm however offered substantial additional income for asst. yr. 1983-84 in the form of all undisclosed stock of gold ornaments. These items of jewellery are not part of the jewellery disclosed by the firm. (5) It is also seen that none of the persons have been paid in cash towards the purchase consideration, and the sale proceeds are credited either in their capital account or loan. (6) From the statement and other relevant evidences collected from them it is noticed that the jewellery weighing about 54....
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....d over to Member (L) while he was on a tour to Kathmandu. It appears that Smt. Sudershan Kumar, wife of Shri Prakash Munjal is being regularly assessed by ITO, C.C.I., Ludhiana under her Permanent Account No. 38-18-PT-4797. For the asst. yr. 1977-78, she has declared an addition income, amounting to Rs. 90,500, represented by jewellery. It has been stated that : (a) assessment for the year 1977-78 has been regularised by reopening the assessment under s. 148; (b) that additional tax amounting to Rs. 59,730 has been paid before 31st March, 1986; (c) that corresponding wealth-tax returns for the asst. yrs. 1977-78 to 1985-86 by valuing the disclosed assets at the market rates on the relevant dates have been filed; and (d) that the wealth-tax amounting to Rs. 91,286 for the said nine years has already been paid and the assessments have been regularised under s. 17 of WT Act. (2) It has, however, now been alleged that the AO had required the assessee to adduce documentary evidence for proving that the disclosed investment in jewellery actually pertained to the asst. yr. 1977-78. It has also been stated that the IT assessment for 1977-78.........
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....rculars and instructions of the CBDT. The true import of the Amnesty Scheme has therefore to be understood from such circulars and instructions. As the letter, dt. 17th Dec., 1986, shows, it was view of the CBDT that no inquiry into the true nature and a source of the disclosed amount was to be made unless positive material existed. This is in contradistinction to the interpretation of the Supreme Court of the VDS wherein, as explained earlier, the Supreme Court have said that such an inquiry was possible. The second point of distinction is regarding the invocation of the spirit of the Amnesty Scheme. The same letter shows that the CBDT had stressed that the Scheme should be applied in its spirit. No appeal to such a spirit was made under the VDS Scheme. Lastly it has also to be noted that the interpretation of the Supreme Court of the VDS was prompted by the anxiety to ensure that assessee in the higher income groups should not escape the tax net by arranging disclosures through near relatives. In the case before me such is obviously not the case. It has been pointed out that there is not much difference between the tax borne by the appellant and the tax that could have legitimate....
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....sty Scheme the tax effect would have been the same as that borne by the group now. Shri D.M. Harish stated that the firm could have disclosed additional income in asst. yr. 1978-79 to cover the gold. The relevant gold ornaments could have been taken out by the partners by debiting their capital accounts. The partners could have paid wealth-tax on it from year to year and they could have sold back the same ornaments to the firm in asst. yr. 1988-89. This arrangement was perfectly feasible under the Amnesty Scheme and had the appellant firm chosen to do so the Department could not have raised any objection to it at any stage. The price of this arrangement, as calculated by Shri D.M. Harish, would have come to approximately Rs. 60 lacs. The AO has not challenged the correctness of this tax computation, since by either route the tax would have been practically the same amount, I see no reason why the AO should attempt to go back on what the Department has already accepted. This is not in keeping with the spirit of the Amnesty Scheme." The CIT(A) has also summarised the various taxes paid by the declarants under the Amnesty Scheme and mentioned that the declarants have paid income-ta....
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.... not found by the Department in an action under s. 132 which had taken place in September, 1982. (g) The appellant firm never purchases ready ornaments in any substantial quantity. This is the first instance where the appellant firm has purchased ready ornaments in such a large quantity. (h) It has been stated that all sellers had converted their old ornaments into new ornaments a little before selling these new ornaments to the appellant firm. The sequence dates involved in the conversion creates doubt about this version. (i) While the sellers had allegedly paid Rs. 2 to 3 per gm to Karigars as making charges for converting old ornaments into new, the appellant firm had paid the sellers Rs. 25 to Rs. 30 per gm. towards the making charges. (j) The alleged price of the gold ornaments was not paid to the sellers in cash but was credited to their accounts maintained by the appellant firm. (k) the jeweller allegedly purchased by the appellant firm in such a large quantity exactly fitted its requirement. This coincidence is strange." We may mention that the CIT(A) has not controverted the above factual findings given by the AO but he has d....
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....the declarants under the Voluntary Disclosure Scheme considered by the apex Court in that case did not have any source of income, whereas in the present case the partners of the assessee-firm are doing well and so it is for them to furnish any explanation regarding the gold declared by them or their family members and not by the assessee-firm. It is also pleaded that as the declarants had already declared the gold in their returns and as they had also paid wealth-tax on their declared gold and as the assessee-firm had paid purchase tax on the purchases of gold from them, the assessee-firm has clearly discharged its onus of proving the purchases and any further question in the matter, if at all, can be directed only to the declarants. It is also claimed that it is for the Department to prove that the assessee-firm had made any unexplained purchases of gold and there is no such material with the Department as it is not the case of the Department that the purchases in question are not recorded in the books. It is, therefore, claimed that the impugned addition of Rs. 1,53,02,266 is not warranted. It is also emphasised that the provisions of ss. 68, 69 etc., of the IT Act are not attrac....
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..... All these common features cannot be simple coincidences. That the entire affairs is a tax planning device is writ large on its face. Now the only question is whether the Department, while processing the return of the assessee-firm for the asst. yr. 1988-89, could go behind the returns filed by the declarants in question under the Amnesty Scheme, 1985, for the asst. yr. 1978-79. As already mentioned, the Department's stand is that it so entitled in view of the decision of the apex Court in the case of Jamnaprasad Kanhaiyalal (supra). The CIT(A) negatived the contention on the ground that this decision of the apex Court does not apply to the returns filed under the Amnesty Scheme. We are not convinced about the reasoning of the CIT(A) in this regard. We do not see how the assessee-firm can get out of the ratio of this decision. There is nothing in the Amnesty Scheme, 1985, which conferred any explicit or implicit benefit on third parties. The benefits under the scheme are restricted only to the declarants. In this regard we do not see any difference between the Voluntary Disclosure Scheme, 1965, considered by the apex Court and the Amnesty Scheme, 1985. Simply because the Vo....
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....ments were really owned by the firm all along. I would have agreed that the Amnesty returns of the ladies etc., would not have helped the appellant firm. I must stress that evidence for this purpose would have to come from sources external to the affairs of the ladies and minors. Roving inquiries into these affairs are not to be permitted to enable the Department to gather negative evidence. Such roving inquiries have been specifically barred by the CBDT. In the instant case I notice that the Department does not have any such positive evidence gathered from an external source. Its attempt has been only to discredit the amnesty returns filed by the ladies and minors." We have already extracted the contents of the CBDT's letter, dt. 17th June, 1986 referred to by the CIT(A) in the course of his above remarks. We do not see anything in that letter which restricts the power of the Department to enquire into a return filed by a third party in the way the CIT(A) has mentioned. The Board, to our mind, has explicitly cautioned that black money cannot be introduced by taxpayers in the names of ladies or minors in the guise of amnesty returns. The benefits of the amnesty returns are c....
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....t satisfied with the explanation of an assessee about the genuineness or source of an amount found credited in his books, in spite of its having already been made the subject of a declaration by the creditor and taxed under the scheme, from investigating the true nature and source of the credits. (iv) That the legal fiction created by s. 24(3) of the Finance (No. 2) Act, 1965, was limited in its scope and could not be invoked in assessment proceedings relating to any person other than the person making the declaration under that Act so as to rule out the applicability of s. 68 of the IT Act, 1961. (v) That, in a case of this description, there was no question of double taxation. Once it was found that the income declared by the creditors did not belong to them there was nothing to prevent the same being taxed in the hands of the assessee to whom it actually belonged. Held, also, (by Sen and Venkataramiah, JJ.) that the ITO was justified in treating the cash credits appearing in the books of account of the assessee amounting to Rs. 46,250 as the assessee's income from undisclosed sources since the assessee failed to discharge the burden of proof placed....
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.... to the assessee because the partners and their relatives have already paid tax on the gold declared by them and it seems a case of double taxation to again hold the assessee-firm answerable for the acquisition of gold from those declarants. It would appear that equity dictates that, having accepted the declarations in the case of the partners and their relatives, no further question should be asked about the genuineness of those declarations while doing the assessment of the assessee-firm. However, this view is contrary to the decision of the apex Court in the case of Jamnaprasad Kanhaiyalal (supra) which has clearly held that a bogus declaration is not a protection to third parties. In this view of the matter, we have to hold that the assessee-firm is hit by the ratio of the said decision of the apex Court. 9. We find that the decisions cited by the learned counsel for the assessee are all distinguishable. They have not dealt with the case of a party dealing with the declaration under the Amnesty Scheme, as in the present case. In the case of Narayandas Kedarnath (supra), the jurisdictional High Court held that in a case where credits stood in the names of partners, the assess....
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....s case is not of any assistance to the assessee-firm. Similar is the position in the cases of Girdhari Lal Nannelal (supra) considered by the apex Court and Sukhdayal Rambilas (supra) considered by the jurisdictional High Court. None of these cases, as already mentioned, are indicative of any thought-out manipulative tax saving device. The facts considered by the apex Court in the case of Jamnaprasad Kanhaiyalal (supra) comes, to our mind, nearest to the facts of the present case, as both involve returns filed under concessional schemes granting amnesty and the impact of such declarations on third parties dealing with the declarants. 10. The learned counsel for the assessee argued before us that the assessee did not derive any particular advantage in the present case. If the gold really belonged to the assessee-firm, nothing prevented it from disclosing it under the Amnesty Scheme, 1985, instead of, as alleged by the AO, getting it declared by the partners and their relatives. 11. It is claimed that the tax effect would have been of the same order. The CIT(A) also mentioned this point and we have already reproduced his comments wherein he referred to the calculation given by ....
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....s are reflected in its sales or closing stock, the purchases in question could be doubted. In other words, the plea is that if the purchases in question are held to be bogus, corresponding debit for purchases from other parties should be allowed, because the assessee-firm could not have sold without purchasing the gold in question and as it is not the case of the Department that there is no quantitative tally. This argument is plausible but we are of the view that it cannot detract from the validity of the addition made by the AO. 13. It has to be stressed that in the present case, the purchases of gold of Rs. 1,53,02,266 represents only credit purchases and not cash purchases. As already mentioned, the accounts of the partners and their relatives from whom the gold in question has been bought have only been credited in the books of the assessee-firm. In other words, no money had flown out of the books by the end of the accounting year towards the purchases. If it had been a case of cash purchases, the argument of the learned counsel for the assessee-firm that in case the purchases from the specified parties are doubted, as an alternative measure, deduction for purchases from th....