2006 (9) TMI 89 - HC - Income Tax

Unexplained Investment - AO made addition in the total income of the assessee as per section 69A on the ground of no reasonable explanation given by the assessee regarding investment - Held that addition would be justified

Summary

Issues:
Interpretation of Section 69A of the Income Tax Act, 1961 in relation to the ownership of gold ornaments and jewelry found in the locker of the assessee.

Analysis:
1. The assessee applied under section 256(1) of the Income Tax Act to refer a question to the High Court regarding the ownership of gold ornaments and jewelry found in their locker. The Tribunal initially rejected the application, leading to the assessee approaching the High Court. The Court held that a question of law did arise in this case, and directed the Tribunal to refer the question proposed by the High Court. The question focused on whether section 69A could be invoked to assess the value of the gold ornaments and jewelry as the income of the assessee.
2. The assessee argued that the gold and jewelry found in the locker did not belong to them but to their directors or relatives. The Assessing Officer, however, rejected this explanation and included the value of the jewelry in the assessee's income for the previous accounting year. The CIT (Appeals) and the Tribunal upheld this decision, leading to the application under section 256(1) being rejected. The High Court intervened under section 256(2) to have the question referred to them.
3. Section 69A of the Income Tax Act provides that if the assessee is found to be the owner of valuable articles not recorded in their books of account and fails to provide a satisfactory explanation, the value of such articles may be deemed as the assessee's income for that financial year. The section allows the assessee to explain the nature and source of acquisition of the property to avoid such deeming.
4. The Court emphasized that if the explanation offered by the assessee is accepted, it would be a finding of fact. However, if the explanation is not accepted, the question arises whether the Assessing Officer was justified in rejecting it. In this case, the Assessing Officer's decision was upheld by the CIT (Appeals) and the Tribunal, indicating a positive concurrent finding of fact against the assessee.
5. The Court concluded that the Tribunal was justified in holding against the assessee's interest based on the facts and findings presented. The question referred to the Court, though framed as a question of law, depended on factual inquiries. As the facts were clear and accepted, the Court found no basis to interfere with the lower authorities' decisions.
6. The reference was answered in favor of the Revenue and against the interest of the assessee, leading to the disposal of the case with no costs incurred.