BIPINCHANDRA K. BHATIA vs. ASSTT.COMMISSIONER OF INCOME TAX

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TAXAP/114/2006HC GujaratGJHC24037104200604 December 2014Author: HONOURABLE MR. JUSTICE KS JHAVERI,HONOURABLE MR. JUSTICE K.J.THAKER8 pages
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What did the High Court hold?

The High Court addressed the two questions framed by it. Regarding the first question concerning the addition of Rs. 2,57,000/- for gold purchased from M/s. Nayan Jewellers, the Court found that the assessee had failed to provide a satisfactory explanation or rebut the findings despite ample opportunities. The AO, CIT(A), and the Tribunal had concurrently held against the assessee. Therefore, the Court answered this question against the assessee and in favour of the revenue, citing concurrent findings of fact and proper evaluation of facts and law. For the second question, concerning the disallowance of loss of Rs. 91,260/- and the allowability of expenditure of Rs. 75,197/-, the Court referred to its own decision in Tax Appeal No. 107 of 2004, which dealt with a similar situation of loss incurred on the sale of seized gold. The Court noted that auction expenses were reimbursed by the assessee. Based on the precedent and the facts, the Court held that the Tribunal committed no error in deciding this issue in favour of the assessee. Thus, the second question was answered in favour of the assessee and against the revenue.

What were the facts?

The assessee, Bipinchandra K. Bhatia, filed an appeal before the Gujarat High Court challenging an order of the ITAT, Rajkot Bench, for Assessment Year 2000-01. The ITAT had partly allowed the assessee's appeal against additions and disallowances made by the Assessing Officer (AO) and partly confirmed by the CIT(A). The assessee's return for AY 2000-01 had led to several additions and disallowances. The assessee had disclosed income of Rs. 10,15,797/- related to gold and Indian currency seized by the Customs Department. The appeal before the High Court focused on two specific issues: an addition of Rs. 2,57,000/- for gold purchased from M/s. Nayan Jewellers and a disallowance of loss of Rs. 91,260/-.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the addition/disallowance of Rs. 2,57,000/- made by the Assessing Officer on account of gold purchased from M/s. Nayan Jewellers, turning on Section 28 and Section 37(1) of the Income-tax Act, 1961. 2. Whether, on the facts and in the circumstances of the case, the Tribunal erred in confirming the disallowance of loss of Rs. 91,260/- without independent reasoning, while simultaneously granting relief for allowability of expenditure of Rs. 75,197/-, which was already allowed by the CIT(Appeals), turning on Section 28 and Section 37(1) of the Income-tax Act, 1961. Assessee's Contention: For issue 1, the assessee argued that all facts were disclosed truly and correctly, referring to a letter from ACIT. For issue 2, the assessee relied on a previous decision of the High Court in their own case (Tax Appeal No. 107 of 2004) and argued that the loss incidental to business is allowable under Section 28, which cannot be overridden by Section 37(1). Revenue's Contention: The revenue argued that the assessee could not explain an income of Rs. 8,81,000/-, hence the appeal deserved to be dismissed.

Which sections of the Income-tax Act were involved?

Section 28,Section 37(1),Section 143(3),Section 158BC,Section 158BFA(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
O/TAXAP/114/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 114 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER =========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ BIPINCHANDRA K. BHATIA....Appellant(s) Versus ASSTT.COMMISSIONER OF INCOME TAX....Opponent(s) ================================================================ Appearance: MR RK PATEL, ADVOCATE for the Appellant(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 04/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI)

1.

This is an appeal by the appellant- assessee, seeking to challenge the order of the learned ITAT, Rajkot Bench (for short, ‘the Tribunal’), Dated : 25.08.2005, rendered in ITA No. 881/Rjt/2003 for the A.Y. 2000-01, whereby, it allowed the appeal filed by the assessee in part.

2.

The brief facts giving rise to the present appeal are that the assessee filed his return of income for the A.Y. 2000-01. Pursuant thereto, several additions and dis-allowances came to be made by the concerned AO. Being aggrieved with the same, the assessee approached the learned CIT(A), who partly allowed the appeal of the assessee. However, since, the assessee was not satisfied with the order of the CIT(A), he carried the matter before the learned Tribunal, which passed the impugned order, as stated in Para-1, herein above. Hence, the assessee preferred the present appeal raising the following questions; “(1) Whether on the facts and in the circumstances of the case and on application of law to the facts on record in its true perspective, the Tribunal is right in law in upholding the addition / disallowance of Rs. Rs.2,57,000/- made by the Assessing Officer on account of gold purchased from M/s. Nayan Jewellers? (2) Whether on the facts and in the circumstances of the case the Tribunal has substantially erred in confirming the disallowance of loss of Rs.91,260/- without any discussion or independent reasoning by simultaneously granting relief for allowability of expenditure of Rs.75,197/- which is already allowed by the CIT(Appeals)? (3) Whether on the facts and in the circumstances of the case, the Tribunal has substantially erred in disregarding the fact that business is being carried on by the appellant and hence, the loss incidental to business is allowable under section 28 and the provisions of section 37(1) of the Income-tax Act, 1961, cannot override the provisions of section 28 of the Income-tax Act, 1961?”

3.

It, however, appears that at the time of admitting the present appeal, this Court framed only two questions for the consideration, which reads as under; “(1) Whether on the facts and in the circumstances of the case and on application of law to the facts on record in its true perspective, the Tribunal is right in law in upholding the addition / disallowance of Rs. Rs.2,57,000/- made by the Assessing Officer on account of gold purchased from M/s. Nayan Jewellers? (2) Whether on the facts and in the circumstances of the case the Tribunal has substantially erred in confirming the disallowance of loss of Rs.91,260/- without any discussion or independent reasoning by simultaneously granting relief for allowability of expenditure of Rs.75,197/- which is already allowed by the CIT(Appeals)?”

4.

Mr. Patel, learned Advocate for the appellant-assessee, invited our attention to the orders of the learned CIT(A) in connection with the proceedings under Section 143(3) of the Income Tax Act, 1961 (for short, ‘the Act’) as well as the Tribunal and more particularly to Para-4 and 4.1 of the order of the Tribunal dated 25.08.2005. He, further, invited our attention to the letter of the ACIT, Dated : 06.03.2003, addressed to the present assessee and which begins with the words that in your statement of income you have shown income of Rs.10,15,797/- being gold and Indian currency seized by Custom Department. Mr. Patel, therefore, submitted that in view of the fact that the assessee had already disclosed all the facts truly and correctly, question No.1 is required to be answered in favour of the assessee.

5.

So far as second question of law framed by this Court is concerned, Mr. Patel placed reliance on a decision of this Court in the case of the present assessee, himself, rendered in Tax Appeal No. 107 of 2004 and prayed that the second question framed by this Court also be answered in favour of the assessee and present appeal be allowed.

6.

On the other hand, Mr. Bhatt, learned Sr. Advocate for the Respondent-Revenue, invited our attention to Paras-3 and 4 of the order of the learned CIT(A, Dated : 20.11.2003, and submitted that, though, the assessee was called-upon to explain the income of Rs.8,81,000/-, he could not explain the same, and therefore, this appeal deserves to be dismissed as being without merit.

7.

Heard learned Counsels for the parties and perused the material on record, including the orders of the learned CIT(A) and the learned Tribunal. So far as the first question of law framed by this Court for consideration is concerned, from a perusal of the order of the Tribunal, more particularly, Para-4 thereof, it transpires that the appellant had claimed that he had purchased gold worth Rs.2,57,000/- from one M/s. Nayan Jewellers, which was forming part of Rs.8,81,000/-, which was seized by the Custom Authorities on 22.01.2000. From the order of the CIT(A) as well as the assessment order framed by the concerned AO it clearly transpires that despite the fact that ample opportunities being given to the assessee, he could neither offer any satisfactory explanation in that regard nor could he rebut the same. Therefore, the concerned AO, after giving detailed reasons, made addition of RS.2,57,000/- which in turn is confirmed by the CIT(A). The Tribunal, while passing the impugned order, has also considered the assessment order framed by the concerned AO as well as the reasoning given by the learned CIT(A) and has sustained the same. We are, therefore, of the opinion that there being concurrent finding of facts and proper evaluation of facts and law, the first question, herein, is answered AGAINST the appellant-assessee and in FAVOUR of the respondent-revenue.

8.

Insofar as the second question of law framed, herein, is concerned, it is the case of the assessee that on account of the sale of his gold by the Income Tax department, which was seized by it earlier, he had to bear loss of Rs.75,197/-, and therefore, the Revenue ought to have allowed the deduction of the same. In above view of the matter, here, it would be relevant to refer to a decision of this Court in Tax Appeal No. 107 of 2004, more particularly, Paras-3 and 4, thereof, wherein, this Court has held as under; “3.The facts giving rise to the Appeal are that :- The appellant – an individual deals in bullion and gold jewellery. On 12.01.1999, a search was carried out on the residential as well as the business premises

of the appellant

and substantial quantities of bullion was found and seized by the Income Tax Department. On 18.01.1999, notice under Section 158BC was issued and in response, the return for the block period was furnished on 04.03.1999 by the appellant disclosing the total undisclosed income at Rs.1,39,75,834/=. It is the case of the appellant that the Assessing Officer did not accept the figure of undisclosed income as stated in the computation of income furnished by the appellant for the block assessment

period

and additions/disallowances

were made alongwith

charging

of interest u/s.158BFA(1) of the Income Tax Act, 1961. One of the disallowance was pertaining to the claim of deduction of Rs.40,34,898/- on account of gold seized by the Custom Authorities. The appellant preferred first appeal before the learned CIT (Appeals) who confirm the allowances by rejecting the contentions of the appellant. The appellant preferred second appeal before the Tribunal and raised the contentions and explanations supported by documentary evidence on record to impress upon the Hon'ble Tribunal that claim for deduction of Rs.40,34,898/- on account of gold seized by the Custom Authorities was an allowable business expenditure under the Income Tax, 1961. However, the Tribunal dismissed the appeal of the appellant. 4.Learned Counsel for the appellant contended that in view of the decision of the Hon'ble Apex Court in the case of Dr. T.A. Quereshi v. Commissioner of Income-tax, Bhopal reported in 287 Income Tax Reports 547, the loss which was incurred during the course of business even if the same is illegal is required to be compensated and for the loss suffered by the appellant, the Court is required to answer this Tax Appeal in favour of the assessee.”

9.

In the case on hand also, it is an admitted position that, though, the expenses of auction, i.e. towards advertisement etc., were initially borne by the Revenue, later on, same was reimbursed by the assessee. We are, therefore, of the opinion that the Tribunal committed no error in deciding question No.2, i.e. Whether on the facts and in the circumstances of the case the Tribunal has substantially erred in confirming the disallowance of loss of Rs.91,260/- without any discussion

or independent

reasoning

by simultaneously granting relief for allowability of expenditure of Rs.75,197/- which is already allowed by the CIT(Appeals)?, in favour of the assessee. Accordingly, second question is answered in FAVOUR of the appellant-assessee and AGAINST the respondent-revenue.

10.

In the result, present appeal is ALLOWED to the extent stated, herein above. No order as to costs. (K.S.JHAVERI, J.) (K.J.THAKER, J) UMESH

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