1990 (3) TMI 98 - AT - Income Tax

Summary

Issues Involved:
1. Penalty for concealment of income.
2. Confiscation of gold ornaments.
3. Assessment of income from trading in gold ornaments.
4. Explanation for unexplained investment.
5. Application of Explanation 4 to section 271(1)(c) of the IT Act, 1961.

Detailed Analysis:

1. Penalty for Concealment of Income:
The appeal concerns a penalty of Rs. 45,000 imposed by the Income Tax Officer (ITO) for the concealment of income, which was upheld by the Commissioner of Income Tax (Appeals) [CIT (A)]. The assessee, a firm involved in money-lending and trading in silver, was found to be dealing in gold ornaments without a license. The ITO initiated proceedings under section 271(1)(c) of the Income Tax Act, 1961, for the concealment of income related to the investment in and dealings with gold ornaments.

2. Confiscation of Gold Ornaments:
During a search by the Gold Control Authorities, 1487.400 grams of gold ornaments were seized from the partners' premises. The main partner, in his statement, admitted the firm was dealing in gold ornaments without a license. This statement was later retracted, claiming it was made under duress. However, the Deputy Collector, Central Excise, rejected this retraction and imposed a fine of Rs. 10,000 and a penalty of Rs. 5,000 on the firm.

3. Assessment of Income from Trading in Gold Ornaments:
The ITO estimated the income from trading in gold ornaments at Rs. 15,000 by considering a turnover of Rs. 1 lakh and a gross profit rate of 15%. The unexplained investment in gold ornaments was valued at Rs. 71,365 and added to the total income. The assessee's claim of a trading loss due to defalcation of the gold ornaments by Central Excise Inspectors was accepted, and a deduction of Rs. 71,365 was allowed.

4. Explanation for Unexplained Investment:
The assessee argued that the investment in gold ornaments could be attributed to agricultural income or pawned ornaments. The CIT (A) rejected these explanations due to a lack of supportive evidence. The CIT (A) noted that the assessee had not declared any significant agricultural income except Rs. 2,000 in 1974-75, and there was no evidence to support the claim that the ornaments were pawned.

5. Application of Explanation 4 to Section 271(1)(c):
The CIT (A) held that the concealment of income was detected at the time of the search, and the subsequent loss of the ornaments did not negate the act of concealment. The CIT (A) emphasized that the act of concealment was committed and detected, and the loss of ornaments later did not affect the fact of concealment. The ITO's assessment of a business loss of Rs. 56,365 from gold ornaments was considered, and it was concluded that the net result of the business was a loss, not an income of Rs. 15,000. The penalty was justified with reference to the unexplained investment of Rs. 71,365, which was deemed to be income from undisclosed sources under section 69 of the IT Act, 1961.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the penalty concerning the unexplained investment of Rs. 71,365, applying Explanation 4 to section 271(1)(c) of the IT Act, 1961. However, it determined that no penalty was exigible with reference to the Rs. 15,000 income from trading in gold ornaments, as the net result of the business was a loss.