Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the addition made under s. 69 of the IT Act as unexplained investment ?

High Court Of Madras

CIT vs. Smt. V. Prema

Section 69

Asst. Year 1988-89

P.D. Dinakaran & Mrs. Chitra Venkataraman, JJ.

Tax Case No. 29 of 2002

29th January, 2007

Counsel Appeared :

J. Narayanasamy, for the Applicant : R. Vijayaraghavan, for the Respondent

JUDGMENT

P.D. Dinkaran, J. :

At the instance of the Revenue, the Tribunal has stated a case and referred the following question of law under s. 256(1) of the IT Act, 1961 (hereinafter referred to as ‘the Act’) for our consideration :

“Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the addition made under s. 69 of the IT Act as unexplained investment ?”

2. The brief facts of the case are as under :

2.1. The assessment year with which we are concerned is 1988-89. The assessee, an individual, filed her return of income admitting a net income of Rs. 92,872. For the same assessment year in the wealth-tax return filed, the assessee admitted 3659 gms. of gold jewellery. However, during the course of search in the residence of assessee and her husband on 14th Dec., 1987, 953 gms. of gold jewellery belonging to the assessee were found.

2.2. In respect of missing jewellery to the tune of 2706 gms., the assessee explained that she handed over the same to her husband about three years back. Her husband also by letter dt. 21st Feb., 1988 confirmed the same stating that the jewellery of 2706 gms. belonging to his wife had been sold to meet his financial commitments. The AO, therefore, worked out the capital gains at Rs. 3,36,094 on the basis of the market value prevailing during the previous year relevant to the assessment year.

2.3. The AO also treated the difference of jewellery of 2706 gms. as having been purchased by the assessee after 14th Dec., 1987, date of search and before 31st March, 1988. In the absence of any explanation offered by the assessee, the value of 2706 gms. of jewellery was treated as unexplained investment of the assessee.

2.4. On appeal, the CIT(A) confirmed the order of the AO.

2.5. On further appeal, the Tribunal, while holding that the Revenue was justified in treating the jewellery of 2706 gms. as having been sold and bringing the capital gains to tax, accepted the case of assessee that the jewellery could have been sold at the price adopted and directed the AO to redo the same after giving reduction of 25 per cent for distress sales, wastages, etc.

2.6. As regards unexplained investment to the tune of Rs. 9,49,806, the Tribunal accepted the case of assessee that the jewellery was given by her to her husband. The Tribunal further held that even though the said jewellery was treated to be sold, there was no material to show that the assessee again purchased the same quantum of jewellery, and accordingly, deleted the addition towards undisclosed income.

2.7. Aggrieved by the same, the Revenue sought for a reference. The AM of the Tribunal rejected the reference application, whereas the JM was of the opinion that the application of provisions of ss. 69 and 69A being involved besides its interpretation, the question of law arose out of the order of Tribunal.

2.8. Since there was difference of opinion, the matter was referred to a Third Member who agreed with the view expressed by the JM. accordingly, the Tribunal has stated case and referred the question of law referred to above.

3. The only point to be decided is whether the Tribunal was right in deleting the addition made under s. 69 of the Act. The Tribunal found that the said jewellery was given by the assessee to her husband according to whom the same was pledged and even if the Department was to treat the jewellery as being sold, there was no material to show that the assessee again purchased the same quantum of jewellery.

4. When the Revenue sought for a reference, the JM was of the view that there arose a question of law, which was agreed by the Third Member, and for better appreciation of the point, it is apposite to extract the relevant portion of the order of Third Member of the Tribunal, which reads as follows : “Sec. 69A starts with, ‘where in any financial year the assessee is found to be the owner of any money, bullion, jewellery, etc.’. In the instant case as the facts have been brought out earlier, the assessee had claimed that the jewellery to the tune of 2706 gms. was given by her to her husband and the husband admitted as having received it and disposed it of in settlement of his financial commitments. No doubt, proof in that regard was not furnished. The assessee’s husband’s letter dt. 21st Feb., 1988 states as having pledged the jewellery, for which again there was no evidence available. Therefore the action of the Revenue on levying capital gains treating 2706 gms. of jewellery as sold was upheld by the Tribunal. Consequent to treating 2706 gms. as sold and the assessee showing at 3569 gms. as on 31st March, 1988, the AO had proceeded to apply ss. 69 and 69A as an admission on the part of the assessee as owning jewellery to the extent of 3569 gms. requiring her to explain to the tune of 2706 gms. The words ‘found to be owner’ may require interpretation. I am therefore of the view that the question as raised by the Revenue would be a mixed question of facts and law. I would therefore agree with the view expressed by the JM that a question of law as raised by the Department does arise and deserves to be referred for the valued opinion of the Hon’ble High Court of Madras.”

5. Concededly, in the wealth-tax return for the asst. yr. 1987-88 the assessee admitted gold jewellery to the extent of 3569 gms. and on 14th Dec., 1987 during the search in the residence of the assessee, gold jewellery to the extent of 953 gms. was found. When asked, the assessee explained that she had handed over the remaining jewellery to her husband. The husband also confirmed the same. Though the case of the assessee is that the jewellery of 2706 gms. were pledged by her husband to meet his commitments, the jewellery was found to be sold by her husband and accordingly, the difference of jewellery, viz., the difference between the wealth-tax return for the asst. yr. 1987-88 and the jewellery on hand on the date of search, was treated as having been purchased by the assessee after 14th Dec., 1987 and before 31st March, 1988. Accordingly, the AO added the value of the unexplained investment.

6. However, the Tribunal found that no material was provided to show that even though the assessee mechanically returned the jewellery in her wealth-tax return, such excess jewellery was found in her possession to the extent declared and the addition was based on the presumption of the Department and deleted the addition.

7. Though the JM referred to s. 69A of the Act, the question revolves on s. 69 of the Act and hence, before going further, it is apt to refer s. 69 of the Act : “69. Unexplained Investments : Wherein in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the AO, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.”

8. A reading of the above section goes to show that the AO may treat the value of investment as income only when the explanation offered by the assessee is not satisfactory. The Tribunal has rendered a finding that there was no material for the assessing authority to conclude that the exact quantity of missing jewellery had been acquired at a subsequent date. As observed by the Gujarat High Court in Ushakant N. Patel vs. CIT (2006) 201 CTR (Guj) 501 : (2006) 282 ITR 553 (Guj), the Revenue must establish that there was investment not recorded in books of account and that such investment was made in the relevant financial year. The Gujarat High Court also held that in the first instance it is incumbent upon the authority to establish that there were investments made by the assessee. In the instant case, the Tribunal has rendered a finding of fact that there was no material to show that the assessee again purchased the same quantum of jewellery and that there was no material to show that even though the assessee mechanically returned the jewellery in her wealth-tax return, such excess jewellery was found in her possession to the extent declared and the addition was based on the presumption of the Department. Further, in the order in WTA No. 326/Mds/1991 dt. 14th Dec., 2004 which arose out of wealth-tax assessment of the assessee for the asst. yr. 1988-89, the Tribunal rendered a finding that there was no material to show that the assessee again purchased the same quantum of jewellery and as no appeal had been preferred against the said order dt. 14th Dec., 2004, the same had become final.

9. We are therefore of the view that when the Tribunal has rendered a finding of fact that there is no material to show that the assessee had again purchased the jewellery, it is not open to the Court to disturb the same as, when the Tribunal based its findings on facts, no question of law much less a substantial question of law arises for consideration [vide : CIT. vs. P.V. Bhoopathy (2006) 205 CTR (Mad) 495 : (2006) 283 ITR 365 (Mad)].

We, therefore, hold that the Tribunal was correct in deleting the addition made under s. 69 of the IT Act as unexplained investment. Accordingly, we answer the question of law in the affirmative and against the Revenue. No costs.

[Citation : 292 ITR 151]

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