1988-VIL-66-ITAT-AHM
Equivalent Citation: ITD 028, 386, TTJ 032, 282,
Income Tax Appellate Tribunal AHMEDABAD
Date: 12.07.1988
INCOME-TAX OFFICER
Vs
NAGARDAS JASHRAJ.
BENCH
Member(s) : R. M. MEHTA., M. A. A. KHAN.
JUDGMENT
Per Shri M. A. A. Khan, Judicial Member - This is an appeal from an order dated April 16, 1985 passed by the Commissioner of Income-tax (Appeals) [CIT (A)]. Rajkot, whereby he deleted an addition of Rs. 1,05,000 made by the Income-tax Officer (ITO) under section 69A of the Income-tax Act, 1961 (the Act) to the total income of the assessee for the assessment year under consideration from undisclosed sources.
2. The relevant facts are that the assessee is an individual deriving income from salary and shares of profit from three firms including one M/s. Jagdish Export Industries, Junagadh. The assessee had filed the return of his income on 30th December, 1982 at Rs. 48,679. During the course of assessment proceedings, the ITO, Ward-A, Junagadh noted that a search operation under section 132 of the Act had been carried out on 27th August, 1981, a date falling within the financial year 1981-82, at the residential premises of the assessee at Junagadh. In that search operation the assessee was found in possession of cash amounting to Rs. 1,05,000; and gold ornaments valued at Rs. 2,40,090. The gold ornaments were, however, later on released to the assessee as per orders made by the ITO under section 132(5) as well as the order made under section 132(12) by the Commissioner of Income-tax. With regard to his possession of Rs. 1,05,000 the assessee had denied his ownership therein and had contended that a sum of Rs 45,000 out of the aforesaid sum of Rs. 1,05,000 belonged to S/Shri Rasiklal Mohanlal, Mohanlal Parbat and Hirji Parbat in equal shares and the rest of the amount of Rs. 60,000 similarly belonged to S/Shri Kantilal Devraj, Devraj Shamjid, Prabhudas Devraj and Bhagwanji Devraj in equal shares. The statement of the assessee to that effect was recorded on 27th August, 1981 under section 132(2) of the Act.
3. At the assessment proceeding the assessee was required to explain the possession of Rs. 1,05,000 by him on 27th August, 1981. The assessee tried to explain the possession of the said money with him on 27th August, 1981 on the lines indicated above and also relied upon the affidavits of the persons concerned as also the statement recorded by the ITO of those persons under section 132(2) of the Act. All the seven persons had deposed on oath that the money belonged to them and that they had left the same with the assessee a few days prior to the search operation for the purpose of the being deposited in bank. The said persons had further explained that they were mainly agriculturists by profession and had sufficient means to possess that much of amount which was stated to be belonging to them by the assessee before the income-tax authorities. The ITO, however, rejected the contentions of the assessee on the following lines :
"(i) The cash memos produced before me only show that various amounts equivalent to the amounts in size intended to be deposited with M/s Jagdish Export Inds., were received by these parties against the sale of groundnuts. The assessee stated that these persons do not have any bank account nor did they make any other investment in the past. According to him, it is for the first time that they intended to place their surplus lying in cash in deposit with M/s Jagdish Export Inds. If the agricultural activity carried on by these persons is lucrative, it is not understood why no investments were made in the past. It is also not clear how such savings of the past were invested or kept. A point was made that since M/s Jagdish Export Inds. were not in a position to accept the investment, the amount was lying at their residence. It is surprising that anybody should have brought such a large amount of Rs. 45,000 from any place in cash without ascertaining whether the other party would accept the deposit. The conduct of the alleged depositors is not ascertaining the position in advance runs counter to one's experience in life.
(ii) After M/s Jagdish Export Inds. refused to accept the deposit, it was claimed that this amount could not be deposited in the bank as well as the three parties were not available to append their signatures for opening the bank account. This argument also does not advance the case of the assessee. It is admitted that the amount of Rs. 45,000 did not belong to single person but was owned equally by Shri Rasiklal Mohanlal, Shri Mohanlal Parbat and Shri Hirji Parbat. These three persons are independent of one another and is not understood as to why the signatures of all the three persons are required to open a bank account. In fact, Shri Rasiklal Mohanlal, who was present could have straightway deposited his money in the bank account.
(iii) Another circumstance which has to be remembered is that these persons are closely related to the partners of M/s. Jagdish Export Inds. In fact, one of them was an employee of M/s Jagdish Export Inds. In view of these facts, it would appear that the story of intended deposits was made up only to back up the statement made by the assessee for explaining possession of a portion of the cash of Rs. 1,05,000."
The ITO, therefore, added the sum of Rs. 1,05,000 to the total income of the assessee under section 69A of the Act.
4. The assessee approached the CIT (A) in appealed. The learned CIT (A) examined the entire evidence on record quite elaborately and objectively and found sufficient force in the contention of the assessee. After having critically examined the matter before him the learned CIT (A) came to the conclusion that the amount of Rs. 1,05,000 found in possession of the assessee during the course of search operation under section 132 on 27th August, 1981 was not of the ownership of the assessee himself but in fact belonged to the seven persons as named above. The learned CIT (A) further held that the seven persons were very well known to the assessee and were rich agriculturists having sufficient income from agricultural produce. He further found that the said seven persons had in fact approached the assessee to get their amounts deposited with the firm M/s. Jagdish Export Industries, Junagadh but since that firm did not stand in need of money they had left the same with the assessee for being deposited in bank. The learned CIT (A) further held that simply because of the fact the said seven persons, being illiterate or semi-literate agriculturists, could not keep their money in bank, their statements should not have been discarded. Being of that opinion the learned CIT (A) cancelled the addition.
5. Challenging the order under appeal very seriously Mr. V. S. Banthia, the learned Departmental Representative, vehemently urged that the learned CIT (A) has not appreciated the evidence on record in right perspective. Mr. Banthia submitted that the learned CIT (A) failed to take note of the fact that the assessee had obtained no receipts from the seven person were stated to have left their money with him. The learned departmental representative further urged that it was quite strange that all the seven persons who were stated to be owing Rs. 15,000 each and in all the cases there was further identity of fact that all of them had brought their money to be deposited with the firm wherein the assessee was a partner. Mr. Banthia pointed out that the main persons who are stated to have brought money were Shri Kantilal Devraj and Shri Rasiklal Mohanlal and both of them were or had been servants in assessee's firm at one time or the other. All the seven persons were close relations of the assessee being his cousins and that was another reason that their version should not have been lightly accepted by the learned CIT (A). Mr. Banthia vehemently urged that the status and sources of the seven persons must have been judged by the learned CIT (A) in right perspective before accepting their version in respect of their having saved Rs. 15,000 each during the year under consideration. Mr. Banthia submitted that it was no doubt true that there was ample evidence on record to show that not only agricultural land existed in the names of the said seven persons but also that they had income from such land. But before accepting their version of the point that their income from the land had enabled them to save Rs. 45,000 in the case of Rasiklal Mohanlal, Mohanlal Parbat and Hirji Parbat and Rs. 60,000 in the case of Kantilal Devraj, Devraj Shamji, Prabhudas Devraj and Bhagwanji Devraj the learned CIT (A) should have considered that in computing the agricultural income no concession was given to the expenditure incurred in connection with raising the crops. Mr. Banthia further urged that it should not be lost sight of that none of the seven persons were having any deposits in any bank and, therefore, it could be legitimately inferred from that circumstance that they were having no savings at all. It was also submitted that if the family of Kantilal Devraj was having sufficient earnings from agriculture there would have been ordinarily no necessity for two members of that family, Kantilal Devraj and Bhagwanji Devraj serving Jagdish Oil Industries, Junagadh and Jagdish Cake Industries at Baroda for petty salaries. Mr. Banthia thus asked us to disbelieve the story of ownership of the money seized from the possession of the assessee on 27th August, 1981, as being vested in the seven persons named above. Mr. Banthia stressed that in the case falling under section 69A of the Act, the burden of proving that the money seized from his possession did not belong to him heavily dies on the assessee and in the present case the assessee had miserably failed to discharge that burden. The order under appeal was, therefore, on the face of it, bad in law and on facts, urged Mr. Banthia.
6. Supporting the order under appeal, Mr. K. C. Patel, the learned advocate appearing for the assessee, submitted that the facts of the case were required to be appreciated in the way they had happened. Mr. Patel pointed out that his is a case to which section 68 does not apply and obviously revenue has sought to make the addition of Rs. 1,05,000 to the income of the assessee under section 69A as assessee's income of the financial year from undisclosed sources. Whether the said money seized from the possession of the assessee by the ITO on 27th August, 1981, was or could be deemed to be his income of the financial year under consideration could better be judged on having a dispassionate look at the things as they happened. Mr. Patel then pointed out that a team of more than one Income-tax Inspectors had conducted the search operations and as is not in dispute that ornaments valued over Rs. 2 lakhs, besides the cash under consideration, had also been seized. The assessee had offered an explanation with regard to both, i.e. the cash amounting to Rs. 1,05,000 and the gold ornaments worth Rs. 2,40,090. It is not disputed that his explanation with regard to the possession of gold ornaments was accepted by the apartment. Mr. Patel urged that it was thus accepted by the department that the ownership of the said god ornaments valued at Rs. 2,40.090 did not vest in the assessee. Mr. Patel then pointed out that at the time job search operations the assessee was examined by the ITO concerned on that very day and in his statement recorded under section 132(2) the assessee had clearly stated not only the source of the amount of Rs. 1,05,000 but also the manner in which he came to possess that. The assessee had clearly told the names of the persons who had brought their money to him for being deposited in the firm wherein he was a partner but had to leave the same with him for being deposited in bank as the said firm did not stand in need of money. Mr. Patel pointed out that a bad look at the list of the names of sevens persons would go to show that two of them were residing in Junagadh itself. If the ITO doubted the version given by the assessee in his statement dated 27th August, 1981 he could have very well summoned at least the said two persons who resided in Junagadh and could have been readily available to him. But that was not done. It was after some time that the ITO had begun to doubt the version given by the assessee on his statement dated 27th August, 1981 whereupon the assessee had filed the affidavits of all the seven persons. Not satisfied with the version given by the seven persons, and which fully corroborated the version of the assessee given in his statement dated 27th August, 1981, the ITO issued summons to all the seven persons and examined them on oath. All the seven persons stood the test of cross-examined by the learned ITO and fully supported the version given by the assessee. Not only that they had stated on oath that they were the owners of the money found in the possession of the assessee on 27th August, 1981 but also that they supported their version by producing the extracts from revenue record as also the bills of sale of agricultural produce from their land copies of which are filed in the paper book at pp. 56 to 79 and 107 to 128). When these facts are read in right perspective, urged Mr. Patel, it would be quite clear that the assessee had fully proved that the ownership of Rs. 1,05,000 found in his possession on 27th August, 1981 during the course of search operations did not vest in him but in reality vested in the seven persons named above. Mr. Patel further challenged the statement of Mr. Banthia that the cases had failed to discharge the burden of proof that was thrown on his shoulder under section 69A of the Act. Mr. Patel thus submitted that in rebuttal of the oral and documentary evidence produced on behalf of the assessee in the instant case there was no iota of evidence from the side of revenue. Under these circumstances, therefore, the learned CIT (A) was fully justified to have arrived at the conclusion that addition of Rs. 1,05,000 to assessee's income in this case cannot be sustained on facts and in law, urges Mr. Patel.
7. The trend of arguments advanced on behalf of the parties before us on the points under consideration raises some important questions relating to the applicability of section 69A to the facts of the case and also the degree or standard of poor equate by as assessee to shift the burden of poor which is there on his should under that section. This necessarily requires us to study section 69A quite critically.
8. Section 69A reads as under :
"69A, Where in any financial year the assessee is found to be the owner of any money. bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is 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 acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. "
A bare study of the provisions of section 69A would inform that for the applicability of this provision the following requirements should be established:
(i) the assessee should be found to be the owner of any money, bullion, jewellery or other valuable article;
(ii) Such money, bullion, jewellery or other valuable article should not be recorded in the books of accounts, if any, maintained by the assessee for any source of income; and,
(iii) the assessee had failed to offer any explanation about the nature and source of acquisition of the money, billion, jewellery or other valuable article or the explanation offered by him is found unsatisfactory in opinion of the ITO.
When all the above three ingredients are established in a given case, then the provisions of section 69A would stand attracted. It means that in orders to attract the provisions of section 69A the revenue shall have, prima facie, to prove all the three above ingredients. That having been done there would arise a legal fiction by virtue of which the money and the value of the bullion, jewellery or other valuable article would be deemed to be the income of the assessee for such financial year.
9. It is noteworthy that section 69A is, in a sense, a deeming provision creating a legal fiction as the use of the words "may be deemed to be the income of the assessee" indicate. The question is as to what is the legal fiction created by this section and to what extent does it run. The words "may be deemed to be the income of the assessee" have been used in relation to a financial year. It is by virtue of the legal fiction created by the section that the money, bullion..... etc. of which the assessee is found to be the owner, is to be deemed to be his income for the financial year in which he has been so found to be the owner of that money, bullion... etc, It means that in reality the money, bullion, etc. might be the income of the assessee of by preceding year but it is by virtue of the legal fiction crated by section 69A that such money, bullion, etc. is treated as assessee's income for that financial year in which such money, bullion, etc. are found in his possession and in respect of which he had failed to offer a satisfactory explanation. It is thus clear that the fiction has been created on the point of treating the money, bullion, etc. found in the possession of an assessee as owner thereof in a particular financial year to be his income of that financial year. This section does not create any legal fiction on the point that the assessee would be deemed to be the owner of the money, bullion, etc. found in his possession. It follows, therefore, that before reaching the legal fiction created in the section revenue shall have to prove all the three ingredients which have been mentioned above. In other words it is for the revenue to prove that an assessee was found to be the owner of any money, bullion, etc. which was not recorded in his books of account. If any, maintained by him for any source of his income and he had failed to offer any satisfactory explanation about the nature and source of acquisition of such money, bullion, etc.
10. It is significant to note in the language of section 69A that the words "found to be the owner of " and not the words "found to be in possession of" money, bullion etc. have been used. The expression "found to be the owner of any money, bullion, etc. " used in the language of section 69A cannot be equated in meaning with the expression "found to be in possession of money, bullion, etc. " The former expression suggests that it is the ownership of the money, bullion, etc. found in the possession of the assessee which is material to attract the provisions of section 69A, whereas the latter expression would point to the fact that possessing of money, bullion, etc. by an assessee, without necessitating the proof of ownership also vesting in the assessee, would be sufficient for attracting the provisions of section 69A. But that is not obviously the intention of the Legislature. By the use of the expression "found to be the owner of" money, bullion, etc. the Legislature clearly intended that the ownership of the unacquainted and unexplained money, bullion, etc. should fall within the purview of section 69A and be deemed to be the income of the assessee for that financial year in which an assessee has been found to be in possession of such money, bullion, etc. It is no doubt true that the possession of money, bullion, etc. by an assessee in a financial year would give rise to a presumption of his being owner of that money, bullion, etc. This is so because of the principle enunciated in section 110 of the Evidence Act. Section 110 of the Evidence Act, which embodies that principle, is based on one of the Common Law principles which is to the effect that one generally owns the property one possesses and, therefore, proof of possession is presumptive proof of ownership. It can hardly be disputed that the rule of evidence as enunciated in section 110 of the Evidence Act can be invoked in any proceedings where the given set of circumstances satisfies its conditions of applicability. In other words proof of possession would be proof of ownership unless it has been satisfactorily explained in any other manner. It necessarily follows that where an assessee is found to be in possession of any money, bullion, etc. in any financial year he may be presumed to be the owner of such money, bullion, etc. by virtue of the principle embodied in section 110 of the Evidence Act and which is applicable to the proceedings under the Act also. But again, we stress, the burden of proving that the assessee was found to be the owner of any money, bullion, etc. initially lessen revenue and not on the assessee. To discharge its burden the revenue may rely upon the presumptive force of proof of possession coupled with the absence of entries of the money, bullion, etc. in the books of account of the assessee, if any, maintained by him for any source and absence of explanation about the nature and source of acquisition of money, bullion, etc. This would be a rebuttable presumption and can conveniently be discharged by an assessee by leading some proof or even on relying on the lacunae in the proof brought on record by the revenue and which, in the opinion of the assessee, help his cause.
11. Here we would further like to point out that the proceedings before the tax authorities are not in the nature of criminal proceedings but are proceedings of civil nature where the question of ownership of money, bullion, etc. is required to be decided not beyond all reasonable shadows of doubt, as is required in criminal law, but by adopting the test of preponderance of probabilities. In deciding disputes under the tax law by that standard it is all the more necessary that the entire evidence and material on record be read in the totally of circumstances and in the normalcy of human behaviour. If the explanation offered by an assessee fits in the facts and circumstances of the case and is reasonably supported by other evidence, then such explanation deserves to be accepted.
12. The above discussion leads us to conclude that section 69A certainly creates a legal fiction by the deeming phrase "may be deemed to be the income of the assessee" but such legal fiction is restricted to treating the money, bullion, etc., of which an assessee has been found to be the owner in any financial year, to be the income of the assessee of such financial year. That legal fiction does not create any presumption to the effect that the assessee would also be deemed to be the owner of any money, bullion, etc. which he has been found in his possession in the financial year. No doubt the proof of possession of money, bullion, etc. by an assessee in a financial year would give rise to presumption of ownership of the assessee of that money, bullion, etc. but such a presumption cannot be claimed to have been created by the deeming clause of section 69A. Such a presumption arises by virtue of the principle of common law embodied in section 110 of the Evidence Act and which is in general applicable to the proceedings under the Act. It follows, therefore, that the initial burden of providing that the assessee was found to be the owner of any money, bullion, etc. in a financial year, so that such money, bullion, etc. may be treated as his income for that financial year, lies on the revenue.
13. Now coming to the merits of the case we find the position like this. It is an admitted fact that on 27th August, 1981 the assessee was found in possession of cash amounting to Rs. 1,05,000. By virtue of the principle of common law that proof of possession would be presumptive proof of ownership, the provisions of section 69A, prima facie, stood attracted to assessee's case. For, it is also the admitted position that the aforesaid amount was not recorded in his books of account also. But as the third ingredient of the applicability of section 69A requires the assessee had given an explanation which no doubt was rejected by the ITO in the proceedings under section 132 as also in the proceedings under section 143(3) but it has been found to be quite satisfactory and convincing by the learned CIT (A). We have referred to such explanation of the assessee at the earlier stage of our order and need not repeat the same. What we would like to stress is that it cannot be lost sight of that the explanation had come forth from the assessee at the time of the search operations itself when presumably any person faced with such circumstances is likely to get depressed. In those moments of distress and depression the assessee had come forth with the spontaneous version that the money found in his possession in fact belonged to the seven persons named above. It may be noted that he was subjected to a very close cross-examination by the ITO and as many as 52 questions were asked from him. The assessee does not appear to have failed on any question. In his said spontaneous statement made at the first available opportunity the assessee had clearly stated not only the source of money found in his possession but also the credit worthiness of the persons to whom such money was stated to be belonging. As has been pointed out by Mr. Patel two of the seven persons resided in Junagadh and the search team consisted of more than one IT Inspectors. If the ITO had any reasons to doubt the trustworthiness in the statement given by the assessee at that time he could have easily called for those two persons for his satisfaction. Here we may stress that spontaneity in one's version is the indication of truthfulness in the version given. Spontaneity in a statement suggests absence of deliberation on the part of the deponent. Bereft of such deliberate attempt in making the spontaneous statement on 27th August, 1981 the assessee has made his credit worthy and reliable. It may further be noted that later on the affidavits of the seven persons had been placed before the ITO and when the ITO chose to examine all those seven persons none of them could materially contradict the assessee on any relevant point. The only objection of Mr. Banthia that all the persons spoke in the same language which suggests that theirs was a cramped testimony and, therefore, it should be rejected, does not convince us. As has been pointed out by Mr. Patel all the seven persons had given all the informations to the ITO regarding their source of income. It may be noted that in the amount of Rs. 60,000 brought by Kantilal Devraj for investment with or through the assessee the source of income of the four persons concerned could hardly be doubted. Shri Devraj Shamji, the father and his three sons owned 60 bighas of land at village Bhimora, Taluka Upleta and 25 to 30 bighas of such land was irrigated land. The extract from the revenue record clearly show that they had sown agricultural produce in their land and the same had been sold through the commission agents viz. M/s Harsukhlal & Co., Patel Gordhandas Narshibhai's Co. That apart Kantilal Devraj and Bhagwanji Devraj, as stated above, were also earning from other sources like service. This family could, therefore, have an amount of Rs. 60,000 in their possession to invest the same. Likewise Rasiklal Mohanlal and two others were possessed of sufficient means so as to be able to invest Rs. 15000 each. A microscopic approach to their income and expenditure account is not required to be done in the facts and circumstances of the present case, particularly when the statement of the assessee inspired confidence and the same was further corroborated not only by the sworn statements of the seven persons concerned but also by the entries in the revenue record and the sale of agricultural produce by the seven persons to the commission agents. We agree with Mr. Patel that if the ITO wanted to know about the household or agricultural expenditure of the seven persons concerned, it was for him to put questions to them to that effect. For such a fault on the part of the ITO the assessee cannot be allowed to suffer.
14. To sum up, we are clearly of the opinion that the ITO had no material with him which could prove the ownership of the seized amount of Rs. 1,05,000 in the possession of the assessee and in his turn the assessee had satisfactorily explained his possession thereof. The learned CIT (A) has taken quite a reasonable view of the circumstances available in this case. It was not unwise on his part to observe that as the rustic villagers had not yet developed investment habits by keeping their money in banks the testimony of the seven persons was not to be rejected on the ground that they did not keep their money in banks. In our opinion, the learned CIT (A) has given very cogent reasons for cancelling the addition and we fully agree with his views. We, therefore, see no good cause to upset his findings and conclusions.
15. In the result this appeal fails and is dismissed.
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