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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

2015 (8) TMI 1216 - BOMBAY HIGH COURT

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 n .....

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ewellery 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 th .....

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er 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 .....

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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 .....

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or the Respondent : Mr Arvind Pinto, Adv. JUDGMENT (Per M. S. Sanklecha, J. These four appeals under Section 260A of the Income Tax Act, 1961 (the 'Act') impeach the common order dated 7 December 1999 passed by the Income Tax Appellate Tribunal (the 'Tribunal') in respect of four appellants/assessees (belonging to the same group). The impugned order concerns itself with an assessment for the block period 1 April 1996 to 11 December 1996. 2. All these four appeals were admitted on .....

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and 1136/2000 (Priti Paras Shah) are concerned, besides Question A above, the appeal was admitted on the following additional substantial question of law: "(B) Whether on the facts and circumstances of the case and in law 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 loan advanced to the landlord?" Regarding Question No.A: 4. Briefly the facts leading to these appeals .....

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and silver articles were found in the possession of the appellants/assessees. (b) On 12 October 1996, Paras Shah (one of the appellants herein) made a statement on oath under Section 132(4) of the Act in response to Question 21 as under: "Q.21 During the search total gold and diamond jewellery found 2153 gms. and diamonds valuing at ₹ 7,16,930/- and for ₹ 83,075/- on person. Kindly explain to whom these items belong and the source of acquisition with relevant documentary eviden .....

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dering the gap for which I am not in a position to produce bills, etc. and declared ₹ 1 lakhs on a/c, this gap. Regd. the diamond jewellery one to two items are tallying regd. the rest I make a request that jewellery on person may not be seized, value of which is in total ₹ 1,50,195/- (Rs. One Lakh Fifty Thousand One Hundred Ninety Five), I voluntarily declare as my income in addition to the balance ₹ 4,66,560/- (Rs. Four Lakh Sixty Six Thousand Five Hundred Sixty). In the nut .....

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132(4) of the Act and in response to Question 2 replied as under: "Q.2 During the course Bank Locker Search operation of lockers No. & L 3236, gold jewellery valued as per Valuation Report of M/s S.C. Kapoor dated 14.11.96 at ₹ 4,63,280/- was found. Please explain the nature of possession and the source of acquisition of the said jewellery items? Ans. These items which are mostly ladies items have been acquired by me and my family members within the last fourfive years. Some of th .....

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hase. (d) Thereafter on 30 November 1996, Mr. Paras Shah addressed a communication to the Additional Director of Income Tax seeking to explain the jewellery found in the possession of the group on 11 October 1996 and 14 November 1996 as under: "This copy of reports were handed over to ADIT Mr. Sanjay Mishra and Department Valuer Mr. Suresh Kapoor at the time of search on 11th Oct. 1996 at my residence. This we have already informed you earlier also. The valuation was done as at 31st March 1 .....

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aring, it was submitted on behalf of the group that in case its explanation that the unaccounted/undisclosed jewellery is accounted for by valuation reports, wealth tax returns and the valuation report of the jewellery possessed by their father and their late mother who died in the year 1990 is not found acceptable, then the allegedly unexplained/undisclosed jewellery be distributed amongst the four appellants/assessees equally i.e. at 25% each. 6. The Assessing Officer by four separate orders d .....

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Being aggrieved by the order dated 31 October 1996, all the four appellants/assessees filed appeals before the Tribunal. The Tribunal by a common impugned order dated 7 December 1999 dismissed all the four appeals on this issue. This for the reason that the appellants had in a statement made on oath under Section 132(4) of the Act admitting that the jewellery recovered from them and in their locker was part of its undisclosed income and offered the same to tax. These statements on oath were vol .....

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tly the four appeals on the above account were dismissed by the common impugned order. 8. Mrs. S. Jagtiani, the learned Counsel in support of the appeals submits as under: (a) The Assessing Officer as well as the Tribunal erred in having completely ignored the documentary evidence produced by the appellant. These documents show that the part of the allegedly undisclosed jewellery belonged to the appellants' father, late mother and their minor children as seen by valuation reports of jeweller .....

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onged to their father and late mother, then the proper course for the Assessing Officer was to issue notice under Section 158BD of the Act to them. It is not open in such cases to assess jewellery belonging to other persons in the hands of the appellants/assessees; and (d) No evidence was found during the course of the search that the jewellery was acquired from undisclosed sources of income. Thus no addition on the above account could have been made by the Assessing Officer and upheld in the im .....

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ection 69A of the Act is clearly applicable to the present facts. The authorities found that the nature and source of acquisition of unexplained jewellery was not explained by the appellant. Consequently, the value of the jewellery is deemed to be an income of the assessees in terms of Section 69A of the Act as done in the present cases; (c) The documents in the nature of valuation report produced by the appellant by itself do not establish that the undisclosed jewellery belonged to the appellan .....

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nder was not found acceptable. 10. We have considered the rival submissions. From the facts as recorded hereinabove, it is clear that when the appellant's premises was searched on 11 and 12 October 1996, gold and diamond jewellery were found in their possession which they were unable to explain. It was in that context that on 12 October 1996, a statement was made on oath under Section 132(4) of the Act by the appellant that they are not in a position to produce any evidence in respect of the .....

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tely ₹ 4,60,000/- was found. The appellants on oath again stated that they are unable to produce any evidence about the purchase of the jewellery found and undertake to pay tax thereon. It was only much later i.e. on 30th November 1996 that the appellant wrote a letter to the Additional Director of Income Tax seeking to explain the jewellery seized by the department in particular the undisclosed jewellery found on 12 October 1996 and 14 November 1996 on the basis of valuation reports of th .....

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ellant to make a statement on 12 October 1996 and 14 November 1996 which are contrary to the facts. 11. In the above circumstances, the communication dated 13 November 1996 cannot supersede/replace the statement made on 12 October 1996 and 14 November 1996. This is particularly so as the statements of 12 October 1996 and 14 November 1996 were statements made on oath nor any circumstances explained which would warrant/justify ignoring the earlier statements. On the aforesaid ground alone the subs .....

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uted 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 amongs .....

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that the impugned order of the Tribunal calls for no intereference. 13. The next submission of the appellant with regard to the 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. Theref .....

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i.e. against the appellants/assessees and in favour of the revenue. Regarding Question No. B : 15. During the course of the search operation, the officers of the revenue on 11 October 1996 found documents dated 13 August 1996 indicating ₹ 16 lacs and ₹ 34 lacs were given as construction loan to Mrs. Kausalya Bajaj and Mr. Kishor Bajaj. Clause 7 thereof reads as under: "the owner shall pay to the prospective tenants interest on the amount of such construction loan paid by the pro .....

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arged to tax. The appellants in response pointed out that the interest amount had not been received. The same would be disclosed to the revenue in the year of receipt. Therefore there was no obligation to disclose the interest amount which were receivable and pay tax on it till such time as the interest is received. The Assessing Officer did not accept the submission of the appellants and held that in view of the clause in the agreement, the appellants are liable to pay interest on loan of ͅ .....

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1992 to 1996 would be payable on accrual basis. This was undisclosed income and had not been returned in their regular return of income. Therefore the same was brought to tax in block assessment of the appellants i.e. Mrs. Priti Shah and Mrs. Pragna Shah. 18. Mrs. Jagtiani, the learned Counsel appearing for the appellant in support of the impugned appeal submits as under: (a) The appellants are following a cash method of accounting i.e. receipt basis. Consequently till such time as the interest .....

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the appellant. 19. As against the above, Mr. Pinto, the learned Counsel for revenue in support of the impugned order urges: (a) The appellants/assessees did not follow the cash system of accounting i.e. receipt basis. In the present case, there is no evidence to indicate that the appellants/assessees were maintaining any account in writing so as to hold that they were following the cash system of accounting; and (b) The loan agreement dated 13 August 1992 was found during the search process und .....

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the revenue. 20. We have considered the rival submission. The loan agreement dated 13 August 1992 was found only during the course of search operation under Section 132 of the Act. Prior to the search, the revenue was unaware of the aforementioned grant of loan and accrued interest thereon. Consequently the interest amount earned on the loan was chargeable to tax in the block assessment period as undisclosed income. 21. The substantial question of law which arises for our consideration has proc .....

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efit of cash system of accounting can arise as there was no method of accounting followed by the appellant. In the above view, the finding of the Tribunal being a finding of fact is not shown to be perverse. The interest which has been received by the appellant was in terms of Clause 7 of the agreement and this being a part of the undisclosed document found during the course of the search would necessarily result in the interest being earned thereon as provided therein being added to the appella .....

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