1999 (8) TMI 121 - AT - Income Tax

Summary

Issues Involved:

1. Treatment of Rs. 7,59,000 as income from undisclosed sources.
2. Legitimacy of the addition under Section 69A of the Income Tax Act.
3. Applicability of principles from previous judgments and legal precedents.
4. Burden of proof and rebuttal of presumption under Section 69A.
5. Consideration of the assessee's explanation and circumstances.

Issue-wise Detailed Analysis:

1. Treatment of Rs. 7,59,000 as income from undisclosed sources:

The Assessing Officer (AO) treated Rs. 7,59,000 found in the possession of the assessee as income from undisclosed sources. The assessee was apprehended by the Directorate of Revenue Intelligence (DRI) while boarding a flight, and the currency was seized. The AO's decision was based on the assessee's inability to provide a satisfactory explanation regarding the source of the money, leading to the addition under Section 69A of the Income Tax Act.

2. Legitimacy of the addition under Section 69A of the Income Tax Act:

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that the assessee failed to prove that the money was from accounted sources. The CIT(A) noted that the assessee was punished under Sections 132 and 135(1)(a) of the Customs Act for attempting to smuggle the currency out of India without authorization. The penalty and imprisonment under the Customs Act did not provide immunity from action under the Income Tax Act, and thus, the addition was justified.

3. Applicability of principles from previous judgments and legal precedents:

The assessee's counsel argued that the confiscated amount should not be taxed as income, citing cases like CIT vs. Piara Singh and Motilal Chhadami Lal Jain vs. CIT. The counsel contended that the confiscation of the currency should be considered an expenditure related to earning the income, resulting in a net income of nil. However, the Departmental Representative countered that these judgments were not applicable as the assessee did not admit to carrying on illegal business or smuggling activities.

4. Burden of proof and rebuttal of presumption under Section 69A:

The Tribunal noted that Section 69A involves a rebuttable presumption and the onus was on the assessee to prove that the money did not belong to her. The assessee claimed that the currency was handed over by Mr. Raja to be delivered to Mr. A. Sajwani in Dubai. However, the assessee could not provide any evidence or produce these individuals to substantiate her claim. The Tribunal referenced the Supreme Court's decision in Chuharmal vs. CIT, which held that possession implies ownership unless proven otherwise. Since the assessee failed to rebut the presumption, the addition under Section 69A was upheld.

5. Consideration of the assessee's explanation and circumstances:

The Tribunal deliberated on whether the explanation provided by the assessee was satisfactory. The assessee maintained that she was unaware of the contents of the packets and was merely a carrier. The Tribunal found that this explanation was not credible given the circumstances and the lack of evidence to support her claims. The Tribunal also considered the decision in Maddi Venkataraman & Co. Ltd. vs. CIT, which stated that expenses incurred in violation of legal provisions are not deductible. Consequently, the Tribunal concluded that the assessee's explanation was insufficient to rebut the presumption of ownership under Section 69A.

Separate Judgments Delivered:

The Judicial Member and the Accountant Member had differing opinions. The Judicial Member upheld the addition, citing the assessee's failure to prove the legitimate source of the currency. The Accountant Member, however, disagreed, emphasizing that the proceedings before the DRI were under different sections of the Customs Act and did not conclusively establish ownership. The Accountant Member argued that the burden of proving ownership lay with the Department, which was not discharged.

Majority Decision:

The Third Member, J.P. Bengra, agreed with the Accountant Member, concluding that the addition under Section 69A was not justified. The Third Member highlighted that the assessee provided the address and telephone numbers of Mr. A. Sajwani and explained the circumstances, which were consistent with the nature of her job as a stewardess. The Third Member found the explanation plausible and held that the presumption under Section 69A was rebutted.

Final Order:

In view of the majority decision, the addition of Rs. 7,59,000 under Section 69A of the Income Tax Act was deleted, and the assessee's appeal was allowed.