COMMR. OF INCOME TAX, TVM. vs. P.NATESAN ACHARY

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.

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 -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.

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.

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 -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 -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 -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.

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 -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.

The finding as above rendered by us is justified by the provisions -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.

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.

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 -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 the circumstances of the case, was the Tribunal right in deleting the interest levied under Sec.234B and 234C?” The question is answered in favour of the Revenue, in the light of our findings as above, as levy of interest is automatic. But the assessee will be at liberty to move for waiver of interest and subject to the above, the question is answered in favour of the Revenue. The Tax Reference Cases are disposed of as above. (C.N. Ramachandran Nair, Judge.) (T.R. Ramachandran Nair, Judge.) kav/ -16- C.N. Ramachandran Nair & T.R. Ramachandran Nair, JJ. - - - - - - - - - - - - - - - - - - - - - - . No. - - - - - - - - - - - - - - - - - - - - - - JUDGMENT 6th February, 2008. -17-