Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the additions made to the net wealth by the AO for the asst. yrs. 1978-79 to 1984-85?

High Court Of Madras

Commissioner Of Wealth Tax vs. M. Rajagopal

Sections WT 27(3), WT 2(m)

Asst. Year 1978-79, 1979-80, 1980-81, 1981-82, 1982-83, 1983-84, 1984-85

Abdul Hadi & N.V. Balasubramanian, JJ.

T.C.P. Nos. 296 to 302 of 1996

31st March, 1997

Counsel Appeared

C.V. Rajan, for the Revenue : None, for the Assessee

JUDGMENT

N.V. BALASUBRAMANIAN, J. :

These are all petitions filed by the CWT, Tamil Nadu-V, Madras, to direct the Tribunal to state a case and refer the following question of law under s. 27(3) of the WT Act, 1957.

“Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the additions made to the net wealth by the AO for the asst. yrs. 1978-79 to 1984-85?”

2. The assessment years involved are 1978-79 to 1984-85. The assessee is an individual and was working as a cashier in Cholan Roadways Corpn. Ltd., Kumbakonam. The AO received certain information from Cholan Roadways Corpn. Ltd., that the assessee had misappropriated funds from the Corporation to the tune of Rs. 55 lakhs during the asst. yrs. 1978-79 to 1984-85. On the basis of the information obtained, the AO brought to tax the entire amount of Rs. 55,00,000 spread over the asst. yrs. 1978-79 to 1984-85, on the ground that the misappropriation of funds was confirmed by the employer-Corporation and the assessee was presumed to be in possession of the funds as his assets. The assessee filed appeals before the CWT(A) challenging the aforesaid inclusion representing misappropriated funds from the employer-Corporation. The case of the assessee was that it has not been proved that the assessee had actually misappropriated funds and the case was still pending before the High Court and no investment was detected by the Department. The CWT (A) held that no material was brought on record to prove that the assessee had actually misappropriated the funds and the amounts so misappropriated were available with the assessee in the form of assets. He, therefore, held that in the absence of any evidence to prove that the assessee had made any investment or the assessee was found to be in possession of the misappropriated funds, the additions made were not sustainable in law and therefore, deleted the entire additions. The Revenue filed appeals before the Tribunal. The Tribunal also held that it was not established that the assessee had any embezzled funds of the Corporation, and there was nothing to indicate that the assessee had retained the amounts on the relevant valuation dates in the form of any asset. The Tribunal also held that even if the assessee had retained any amount, it would be liable to be taken back and, consequently, the market value of such stolen goods would be practically “nil”. In this view of the matter, the Tribunal dismissed the appeals preferred by the Revenue.

The Revenue filed applications before the Tribunal to state a case and refer the question set out in para 1. The Tribunal held that its conclusion on the facts of the case did not give rise to a question of law. It is this order that is the subject-matter of the present tax case petitions.

Mr. C.V. Rajan, learned counsel for the Revenue, submitted that the Tribunal was not correct in deleting the entire additions. According to him, the assessee had misappropriated funds from the Corporation to the extent of Rs. 55 lakhs and the assessee was having some properties in the name of his mother, Mangalathammal, and the properties were held by her as a benami of the assessee. Though notice was served, the assessee remained un-represented.

5. We have carefully considered the contentions raised by learned counsel for the Revenue and perused the records. We are of the opinion that there is no referable question of law arising out of the order of the Tribunal.

The Tribunal categorically found that the assessee was accused along with several others of having embezzled large funds and both criminal and civil proceedings instituted are still pending and they have not been concluded, but they are only at the initial stage. Since it was not proved before the Tribunal that the assessee had actually embezzled any amount, the Tribunal was quite correct in holding that the additions made as if the assessee had embezzled amounts, is based on certain surmises or suspicion, is justified. That apart, the Tribunal also found that the Department has not established that it has found that the assessee had some assets of any kind on the relevant valuation dates. Therefore, we are of the view that the additions made by the WTO were based purely on surmises. Further, even if it is found that the assessee had retained embezzled money, under the law, he is liable to return the same. Therefore, in the absence of any material to show that the assessee had been found guilty of embezzlement and in the absence of any evidence to show that the assessee had some assets of any kind, the Tribunal came to the correct conclusion that the addition made by the WTO was not justified in law. That apart, we hold that even if the amount is said to be embezzled, the assessee is duty bound to return the money to the employer-Corporation. Hence, the market value of the embezzled money would be “nil” in the hands of the assessee on the relevant valuation dates. We are of the opinion that the Tribunal, has come to the correct conclusion in holding that the additions made by the WTO were not correct. Though in the petitions, there is a reference to a judgment of the Sub-Court, Kumbakonam, in O.S. No. 83 of 1984, dt. 23rd Dec., 1985, a copy of the said judgment was not placed before us. Further, there is also reference to the properties acquired in the name of the mother of the assessee in the petitions filed and that fact was also placed before the Tribunal only and no enquiry was made either by the AO or by the CWT(A) with regard to the properties standing in the name of the mother of the assessee. The finding is clear that the Department has not established that the embezzled funds were retained by the assessee. There is no material to indicate that there was any asset, available with the assessee on the relevant dates of valuation. The finding of the Tribunal that the amounts alleged to have been embezzled are not includible in the hands of the assessee is purely a finding of fact and no question of law arises out of the order of the Tribunal. Accordingly, we reject the tax case petitions. No costs.

[Citation: 236 ITR 461]

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