2019 (5) TMI 699 - HC - Income Tax

Perversity of order of tribunal - reliance of wrong certificate of CA - taxability of pledged gold as income u/s 28(iv) - huge stock of gold in the possession of the assessee - assessee attributed stock of gold to inheritance from his grandfather who died in 1997 - HELD THAT - We agree with their contentions. It is indeed perverse. In paragraph 4 of the impugned order the tribunal has narrated that in the year ending 31st March 1997 the audited statement of accounts of Khagendranath Nandi, the assessee s grandfather declared that he had pledged gold weighing 927.17 gms. This is even less than 1 kg. Then it goes on to rely on a chartered accountant s certificate that as on 31st March 1997 the gold in the custody of the grandfather was 27,927.17 gms. or about 28 kgs. The contradiction between the grandfather s audited accounts and the chartered accountant s certificate is so glaring that any reasonable adjudicator would have straightway discarded that certificate as false and fraudulent and taken steps against the chartered accountant. On the contrary this was accepted and acted upon by the tribunal which came to the finding that this quantity of gold was indeed pledged gold which become the property of the assessee. The question of law whether the pledged gold is taxable as income u/s 28(iv) is become secondary. We have no hesitation in setting aside this order of the tribunal dated 23rd December 2016. We remand the above issue back to the tribunal to make a proper finding on facts on it upon hearing the parties, by a reasoned order. The tribunal will then decide the question of law arising therefrom with reference to section 28(iv). The tribunal will pronounce its decision within three months of communication of this order. We also make it clear that our observation above are to be taken as tentative and the tribunal will be at liberty to draw its own conclusion in the matter.

Summary

Issues:
1. Assessment of tax liability on pledged gold stock for the assessment year 2007-2008.

Analysis:
The High Court of Calcutta heard an appeal concerning the tax liability of an assessee engaged in a jewellery business for the assessment year 2007-2008. The appellant contended that a significant stock of gold, weighing approximately 28 kgs, in their possession was previously pawned or pledged by customers and subsequently converted into their property, thereby attracting tax liability under section 28(iv) of the Income Tax Act, 1961. On the other hand, the assessee claimed that the gold stock was inherited from their grandfather, who passed away in 1997, and thus should not be considered as income.

The tribunal's order dated 23rd December 2016, which accepted the gold stock as pledged gold and subject to tax under section 28(iv), was challenged by the revenue on the grounds of perversity. The High Court found the tribunal's decision to be flawed due to a stark contradiction between the audited accounts of the grandfather, which declared a significantly lower amount of pledged gold, and a chartered accountant's certificate stating a much higher quantity of gold in possession. The court deemed this discrepancy as glaring and unreasonable, leading to the setting aside of the tribunal's order.

Consequently, the High Court remanded the issue back to the tribunal for a proper factual determination after hearing both parties. The tribunal was directed to provide a reasoned order within three months and to subsequently address the legal question of whether the pledged gold should be taxed as income under section 28(iv) of the Income Tax Act. The court clarified that its observations were tentative, allowing the tribunal to draw its own conclusions on the matter. The appeal and stay application were disposed of by this judgment and order, emphasizing the need for a fair and accurate assessment of the facts and applicable law in the case.