1987 (9) TMI 66 - AT - Income Tax

Summary

Issues Involved:
1. Appropriation of seized assets against tax liability.
2. Ownership of seized assets.
3. Valuation of closing stock.
4. Deletion of interest account.

Issue-wise Detailed Analysis:

1. Appropriation of Seized Assets Against Tax Liability:
The Income-tax Officer (ITO) argued that the seized assets were retained as security and not appropriated against any tax liability. The ITO emphasized that the retention of assets did not equate to payment of tax, as income-tax can only be paid in cash. The Appellate Assistant Commissioner (AAC) found that the seized assets were appropriated against the tax liability as per the order under section 132(5) and thus should be excluded from the closing stock. The Tribunal, however, held that the assets retained under section 132(5) cannot be considered as appropriated towards tax liability and should remain part of the closing stock for valuation purposes.

2. Ownership of Seized Assets:
The ITO maintained that the ownership of the seized assets remained with the assessee, as mere retention did not deprive the assessee of ownership. The AAC disagreed, stating that the seized assets ceased to be the stock-in-trade of the assessee once appropriated against tax liability. The Tribunal supported the ITO's view, citing that the assessee continued to be the owner of the seized assets, as they were retained to secure tax liability and not confiscated. The Tribunal referenced the Hon'ble Kerala High Court's decision in Assainar v. ITO, which held that seized assets are retained by the department as a bailee and must be returned once proceedings are over.

3. Valuation of Closing Stock:
The ITO argued that the appreciation in closing stock is not hypothetical and must be considered for determining business profit. The AAC excluded the value of the seized stock from the closing stock, which was contested by the revenue. The Tribunal concluded that the seized assets should be included in the closing stock for valuation, as they remained part of the trading stock. The Tribunal referenced the Hon'ble Supreme Court's decision in Chianrup Samoatram v. CIT, emphasizing that valuation of unsold stock is necessary for determining trading results.

4. Deletion of Interest Account:
The AAC deleted Rs. 5,000 from the interest account, relying on a previous Tribunal decision. The revenue contended that the decision was not accepted. The Tribunal reviewed the submissions and previous Tribunal orders, finding no substantial material to support the revenue's appeal on this point. Consequently, the deletion of the interest account was upheld.

Conclusion:
The Tribunal partly allowed the appeals for both assessment years, restoring the ITO's additions regarding the valuation of seized stock while dismissing the revenue's appeal on the deletion of the interest account. The Tribunal emphasized that the seized assets retained under section 132(5) should be included in the closing stock for valuation purposes, as the ownership remained with the assessee and the assets were not confiscated.