IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR THURSDAY, THE 13TH MARCH 2008 / 23RD PHALGUNA 1929 ITR.No. 1 of 1998() ------------------- AGAINST THE ORDER DATED / / IN ITA 698/95 IN RA.225/1996 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPLICANT: ----------- THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) SRI.GEORGE.K.GEORGE RESPONDENTS: ------------- P. NATESAN ACHARY, GOLDSMITH, MULLACKAL, ALAPPUZHA. BY ADV. SMT.S.JASMINE SRI.P.BALACHANDRAN THIS TAX REFERENCE HAVING BEEN FINALLY HEARD ON 20/2/2008, ALONG WITH ITR NO. 274 OF 1999 THE COURT ON 13/3/2008 DELIVERED THE FOLLOWING: C.N. Ramachandran Nair & T.R. Ramachandran Nair, JJ. - - - - - - - - - - - - - - - - - - - - - - - - I.T.R.NOs.1/1998 & 274 /1999 - - - - -- - - - - - - - - - - - - - - - - - - - - Dated this the 13rd day of March, 2008. JUDGMENT T.R. Ramachandran Nair, J. These Tax Reference Cases are at the instance of the Revenue. The following two questions of law have been referred by the Income Tax Appellate Tribunal, Cochin Bench for our opinion: “1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that section 69A is not attracted? 2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the additions made under section 69A of the I.T. Act are eligible to be deleted?” 2. The short facts are the following: The Central Excise authorities had conducted a search at the residence and business premises of the assessee on 15.6.1988. They seized certain gold ornaments totalling 3770.800 grams. Out of this, 1257.300 grams were seized from his residence and this included various items like new bangles (757.300 grams), melted gold rods (170.500 grams), gold coins (84 grams) and gold wire (245.500) grams. From the business premises, they seized ornaments to the tune of 2323.500 grams which includes gold bangles (1718.800 grams), ITR 1/1998 & 274/99 -2- gold coin locket (410.200 grams), primary gold in the form of rod (186.500 grams) and melted gold rod (8 grams). Apart form that, 877.900 grams of gold ornaments were found in the residence and accepting the explanation of the appellant's wife that these ornaments belong to her and her daughter, they were not seized by the Central Excise authorities. As per order NO. 8/89 dated 10.3.89, the Collector of Central Excise, Cochin, confiscated the gold and gold ornaments and also imposed penalty. The assessee was given an option to redeem the gold and gold ornaments on payment of fine. Appeals were filed by the assessee and four other goldsmiths working with him, before the Tribunal which confirmed the order of the Collector. The Tribunal reduced the redemption fine for the release of gold ornaments and primary gold and also the amount towards the penalty imposed. 3. In the return filed by the assessee for the year 1989-90, he declared a total income of Rs.54,470/-. The assessing officer completed the assessment at a total income of Rs.9,53,450/- by making additions invoking Section 69-A of the Income Tax Act. In short, his claim before the assessing officer was that the gold and the gold ornaments seized belong to himself and other six goldsmiths working with him and also that part of the seized articles belong to M/s. Bhima & Brother, Alleppey and M/s. Laxmi Das Jewellers, Mangalore. The assessing officer summoned various persons and examined them in the process of completion of assessment. ITR 1/1998 & 274/99 -3- He considered the statements given before the Central Excise authorities and the confirmation letters furnished by the other claimants. Ultimately, he accepted the contention of the assessee only to the extent of 935.700 grams representing gold received from M/s. Bhima & Brother, Alleppey and M/s. Laxmi Das Jewellers, Mangalore. Thus, he treated the balance of 2835.100 grams as unaccounted gold and gold ornaments as belonging to the appellant. Apart from that, there were claims for 877.900 grams of gold jewellery found at the assessee's residence, which his wife claimed as her, being the jewellery given at the time of marriage. The same had been released by the Central Excise authorities accepting her claim. The assessing officer treated 77.900 grams of gold as unaccounted jewellery belonging to him. Thus, the total quantity of unaccounted gold and gold jewellery was determined at 2913 grams. Its value was assessed at the rate of Rs.300/- per gram totalling Rs.8,73,900/- and the same was treated as income under the head “other sources” by invoking Section 69A of the Act. In appeal, the matter was elaborately considered by the Commissioner of Income Tax (Appeals) and the assessment order was modified by directing the assessing officer to exclude 77.900 grams from the quantity of unaccounted gold and gold ornaments and as far as the quantity of 2835.100 grams is concerned, the appellate authority upheld the assessing officer's action. The Tribunal accepted the pleas of the assessee and ITR 1/1998 & 274/99 -4- allowed the appeal on all grounds except ground No.9. 4. We heard Shri P.K.R. Menon, learned Senior Counsel for the Revenue and Shri P. Balachandran, learned Senior Counsel for the respondent. It is contended by learned Senior Counsel for the Revenue relying upon the decision of a Division Bench of this court in Commissioner of Income Tax v. Smt. Jayalakshmi Devarajan (286 ITR 412) that the burden to prove that the articles belonged to him is on the assessee and really the Tribunal misdirected itself in casting the burden on the Revenue. It was strongly contended that the approach made by the Tribunal is totally perverse and the findings of fact have been reversed without considering the evidence available on record. It is submitted that the proceedings of the Collector of Central Excise and that of the Customs, Excise and Gold (Control) Appellate Tribunal have clearly found the claim of the assessee and others working with him unsustainable and as those proceedings have become final, they should not have been brushed aside by the Tribunal herein to find in favour of the assessee. It is pointed out that no reliable documents have been produced by the assessee in support of the said claim and therefore the findings rendered were clearly based on surmises and conjectures rather than on the evidence available in the record. It is therefore submitted by the learned Senior Counsel relying upon the dictum laid down in Jayalakshmi Devarajan's case referred to ITR 1/1998 & 274/99 -5- above, that the wrong application of law amounted to an error of law giving rise to a substantial question of law. 5. Shri P. Balachandran, learned Senior Counsel for the respondent assessee supported the findings of the Tribunal and argued that the questions raised are not questions of law, but really questions of fact and therefore there is nothing to be answered. 6. As noticed already, from the residence of the assessee, 1257.3 grams of gold were seized and from his business premises, 2323.5 grams were seized. A reference to Annexures D and E orders passed by the Collector of Central Excise and the Appellate Tribunal would be of much assistance here, to understand the case of the assessee and about the other relevant aspects. In Annexure D order, the Collector of Central Excise has dealt with elaborately the claims raised by various parties. Apart from the assessee, the other claimants were Shri C. Mohanan, Shri P.C. Gopalakrishnan, Shri K.K. Sasi and Shri V. Murugappan. It is seen that all these persons stated that the gold bangles respectively claimed by them were their life savings which were kept for safety purposes, with the assessee. After analysing their claims, it was noticed by the Collector while rejecting them, that Shri Sasi, Shri Murugappan, etc. are only of the age group 21 and 22 years and it cannot be believed that the seized gold ornaments were their life savings. As regards the claim raised by Shri ITR 1/1998 & 274/99 -6- Murukesan, it was observed that he was only an apprentice under the assessee, which also goes against his case that the said articles are life savings. Further, it was noticed that they have raised the claims only five days after the seizure which also was taken as a strong circumstance against their claims. In Annexure E order passed by the Appellate Tribunal also, these claims were elaborately dealt with. It was noticed in paragraph 10 of the order that even though the total number of bangles seized from the business premises is only 272, the claims have been put forth in respect of 336 bangles by six persons. It was found that none of the claimants had put forth the claim immediately after the seizure or at the time of recording their statements and the claims have been made belatedly, i.e., after five days from the seizure. The Appellate Tribunal found that in the absence of any acceptable evidence in regard to the acquisition of gold bangles by the above persons, the lower authority has rightly rejected their claim and the reasoning of the lower authority is well founded. 7. The assessing officer and the Commissioner of Income Tax (Appeals) have considered the effect of the above orders while considering the various aspects. In fact, the assessing officer had considered the statements given before the Central Excise authorities, confirmation letters furnished and also the statements recorded from them in detail. 8. In fact, the goldsmiths working under him uniformly have set up a ITR 1/1998 & 274/99 -7- case that the gold bangles belonged to them and were kept for safe custody with the assessee. But the assessing officer noticed that there are improbabilities in their stand, as there was no proper explanation as to why the ornaments which should have been kept in their residence, were entrusted with the assessee, especially in a case where they had set up a case that these ornaments were received from the parents, family, etc. The assessing officer found that it is difficult to believe that they had left these gold ornaments which were meant for use by their family members with the assessee. Ultimately, he summarises his findings in paragraph 12 which is extracted below: “ 12. While treating the gold and gold ornaments, explained above, as the assessee's unexplained/unauthorised investments from out of undisclosed sources, I have taken into account the following aspects also: a) All the so called six gold smiths had stated before the Central Excise Authorities that the bangles stated to be belonged to them are their “life savings”, whereas in the sworn statements each one of them stated different stories as to the source of acquisition; b) All the goldsmiths kept their gold in the form of bangles only. c) All of them have, in the confirmation letter, stated that they entrusted those bangles with the assessee for safe custody, since they have no secured place to be kept them at their residence. It may be seen from the sworn statement that those bangles were kept by them at their residences prior to entrusting them with the assessee and even after received back from the Central Excise Authorities. d) The redemption fine stated to have been paid by each of them is disproportionate to the gold said to be belonged to them. ITR 1/1998 & 274/99 -8- e) He has not maintained any record for the gold ornaments of others kept in his safe. Since this is against the Gold Control Act, he ought to have kept at least some record for these. His statement that he was not aware of the penal consequences cannot be accepted, since he is an experienced goldsmith having 28 years of service. Of course, this is not a point to be considered under the I.T. Act. However, since he has no proof other than the confirmation letter to establish that some of the seized gold belonged to others, it has to be considered that they belonged to the assessee himself, unless it is proved satisfactorily. This has not been done, as explained earlier. f) There is no proof to show that even the goldsmiths, viz. M/s. Mohanan, P.C. Gopalakrishnan, K.K. Sasi and Murugappan, who were witnesses in the Mahazar prepared by the Central Excise authorities, had claimed these bangles as belonging to them during the course of search and seizure. Their deposition that though they had informed the Central Excise authorities about this, it was not incorporated in the Mahazar, is not acceptable, in the absence of any evidence.” In fact, the above findings were rendered after considering the findings rendered by the Customs and Central Excise authorities also. 9. The Commissioner of Income Tax (Appeals) considered the contentions of the assessee in paragraph 4 of the order. The Commissioner agreed with the findings of the assessing officer while dealing with the case of the assessee that the goldsmiths working along with him are not the owners of the bangles of which ownership was claimed by them. Referring to the contentions by the claimants that they had received gold from their parents, the Commissioner rightly concluded that there is no proof or evidence regarding that. He found it difficult also to agree with the contentions raised by many of them that they were keeping the ornaments ITR 1/1998 & 274/99 -9- with the assessee even though some of them have been staying with their own family including their wives separately. Thus, the assessing officer and the Commissioner of Income Tax (Appeals) entered their findings after analysing the evidence in a deep and thorough manner. 10. In fact, none of the claimants could prove how they came into possession of those gold bangles and they merely described these are their life savings. In fact, the Commissioner agreed with the assessing officer specifically finding that there is no evidence to show the ownership of the bangles on the part of these claimants. We find that the learned Senior Counsel appearing for the Revenue is well founded in his submission that all the four authorities including the authorities under the Central Excise and Customs, have consistently found against their claims and the Tribunal herein has acted perversely in straight away accepting their contentions on their face value. 11. The Tribunal reversed the orders of the assessing officer and the Commissioner of Income Tax (Appeals) apparently taking the view that the explanations offered by the goldsmiths ought to have been accepted. The relevant findings are contained in paragraph 23. We extract the following findings contained in paragraph 23 so as to assess whether the approach made by the Tribunal is correct: “As already stated above, the assessing officer found that the gold ornaments in question were wrapped in Malayala Manorama ITR 1/1998 & 274/99 -10- newspaper of different dates. Keeping gold ornaments of these people in the Malayala Manorama newspaper does not make any difference as the appellant was handling their ornaments entrusted to him by these people. Therefore, there was every possibility of wrapping the gold and gold ornaments in the Malayala Manorama newspaper of different dates. The finding of the assessing officer was that the ornaments in question were manufactured subsequent to the dates of the publication of the above daily. This does not make any difference to infer that the gold and gold ornaments in question did not belong to those people but only belonged to the appellant. If that would have been the case, these people could not have claimed these ornaments as belonging to them before the Collector of Central Excise and the Customs, Excise and Gold (Control) Appellate Tribunal, Madras and they should not have paid any fine to redeem them. According to the appellant as well as these people, the said gold ornaments belonged to those goldsmiths and workers and the supporting facts are that these people claimed themselves to be the claimants before the Central Excise authorities, paid fine to get the ornaments redeemed. This supports the contention of the appellant against the mere presumption of the assessing officer that these people could not have acquired the gold ornaments as they were not in a position and hence the gold ornaments did not belong to them. Presumption cannot take the place of facts. The principal evidence adduced in this respect being sound has to be accepted.” Ultimately, in paragraph 28 the issue found by the Tribunal is in the following terms: “The facts and evidence lead us to draw an inference favourable to the appellant to accept his explanation and the explanation of other claimants claiming certain quantity of gold ornaments as belonging to them.” This conclusion was arrived at by relying upon the dictum laid down C.I.T. v. L.G. Ramamurthi and others {(1977) 110 ITR 453} to the effect that if there is a possibility of drawing two probable inferences from a same set of facts, in that event, the inference beneficial to the assessee should be ITR 1/1998 & 274/99 -11- accepted. What persuaded the Tribunal to accept the explanation is further evident from paragraph 30. It was held thus: “Other goldsmiths raised loans to pay fine to the Central Excise authorities for redeeming the gold and gold ornaments claimed by them as owners of the same. They have claimed certain gold and gold ornaments as their own right from the beginning and they were also appellants before the Central Excise authorities as well as the Customs, Excise and Gold (Control) Appellate Tribunal. After getting the redeemed gold and gold ornaments claimed by them, they sold certain part of the gold ornaments to repay the loans raised by them for paying fine and redeeming the ornaments. Therefore, the reasonable conclusion would be that they are the owners of the gold and gold ornaments as claimed by them and attribution of the ownership of the gold and gold ornaments claimed by them cannot be made to the appellant. To discard this version does not appear judicious. There is a version against version. The revenue's version is that whatever gold and gold ornaments found or seized and seizure belonged to the appellant himself and nobody else. This version depends on an averment or a suggestion or an allegation made by the department. Therefore, the version which is supported by evidence of the claimants need not be rejected by accepting the mere version of presumption or allegation.” Ultimately, the Tribunal held that the gold and gold ornaments claimed by other goldsmiths really belonged to them and not to the assessee and therefore the addition of the value of such gold and gold ornaments cannot be upheld and it was held that the assessee succeeds on that aspect. We are afraid that the approach made by the Tribunal is totally without any legal basis. The Tribunal has wrongly cast the burden on the Revenue. Exactly on similar facts, in Jayalakshmi Devarajan's case (286 ITR 412) a Division Bench of this court held that “the Tribunal had wrongly placed the burden of proof on the Revenue. It is trite law that a person who is in possession of ITR 1/1998 & 274/99 -12- an article has to prove its source. The wrong application of law amounted to an error of law giving rise to a substantial question of law within the meaning of Section 260A of the Income Tax Act, 1961.” We respectfully follow the above dictum laid down by this court and judged in the light of the above dictum, we hold that the approach made by the Tribunal is totally without any legal foundation. Even though Shri P. Balachandran, learned Senior Counsel for the assessee contended that the findings rendered by the Tribunal are purely on questions of fact, we find that the findings have been rendered purely on surmises and conjectures and the approach made is totally perverse and the Tribunal has ignored the evidence which was available before the assessing officer and other authorities. Therefore, as held by the Division Bench in the above quoted case, the wrong application of law amounted to an error of law giving rise to a substantial question of law. 12. Going by the provisions of Section 69-A of the Act, the additions made herein with reference to the claims raised by the other goldsmiths ought not have been deleted. We find that the reasoning adopted by the Tribunal referring to redemption of gold and gold ornaments by the claimants after availing loans and by paying fine to the Central Excise authorities, has no significance in the light of the findings rendered above. Actually, the Tribunal was persuaded to accept their version because of the ITR 1/1998 & 274/99 -13- subsequent conduct on the part of the said goldsmiths in redeeming the gold which, according to us, pales to insignificance when the claim itself could not be proved by any cogent evidence before the Central Excise authorities and before the assessing officer. Hence, the Tribunal acted perversely in arriving at the conclusion that they are the owners of the gold and gold ornaments as claimed by them and that the assessee is not the owner of the gold and gold ornaments which are claimed by those persons. It is also not true as held by the Tribunal that this is a case where it is one version against another version. In the light of the clear findings rendered by the Central Excise authorities, the assessing officer and the Commissioner of Income Tax (Appeals), the Tribunal's view that the version of the assessee is supported by evidence of the claimants, is totally perverse, as we have noticed above. As regards the claim made by the assessee that they belonged to other goldsmiths working under him, the version of the Revenue is not on the basis of any presumption or allegation, but is supported by the orders passed by the Central Excise authorities and the evidence before the assessing authority. We are of the view that evidenciary value of those orders cannot be discarded at all. Hence, the Tribunal was not right in reversing the orders, while considering the claims of other goldsmiths in respect of 272 bangles weighing 1617.800 grams. 13. The finding as above rendered by us is justified by the provisions ITR 1/1998 & 274/99 -14- of Section 69-A of the Act. This is a case where the explanation offered by the assessee cannot be accepted as satisfactory and therefore the legal fiction as provided in Section 69-A of the Act can be drawn. 14. As regards the other items of gold and gold ornaments, the Tribunal has found that the explanation as regards 77.900 grams of gold was probable and reasonable. This is so in the case of 800 grams of gold and gold jewellery held, as owned by the appellant's wife and daughter. The Tribunal also found that the total quantity of gold which was entrusted with the assessee by M/s. Bhima and Brothers. Alleppey and M/s. Laxmi Das Jewellery, Mangalore can be fixed at 970.300 grams rather limiting it to 935.700 grams. These findings do not call for any interference. As regards the remaining items like gold coins, gold lockets, melted gold rods, etc. claimed by the assessee as belonging to him, his wife and daughter which were found in favour of the assessee by the Tribunal, they do not call for any interference. 15. We, therefore, hold that the Tribunal acted perversely in accepting the explanation offered by the assessee and other gold smiths and therefore the addition of the value of such gold and gold ornaments by the assessing officer, has to be upheld. We answer the questions in favour of ITR 1/1998 & 274/99 -15- the Revenue. The Tribunal is directed to pass appropriate consequential orders. In I.T.R. No.274/1999 the following question has been referred for decision of this court: “Whether, on the facts and in