2006 (6) TMI 87 - HC - Income Tax

Income from Unexplained Sources - assessee was in possession of unaccounted stock of gold in the form of gold bangles - source for the acquisition of the gold was not known or explained - No reliable documents such as a register under rule 16(3) of the Gold Control (Forms, etc.) Rules were kept or produced at the time of search - Since the assessee had not complied with the statutory requirement the burden was heavy on the assessee to show that the gold bangles do not belong to the assessee - Commissioner of Income-tax (Appeals) as well as the Tribunal, in our view wrongly cast the burden of proof on the Revenue - It is trite law that a person who is in possession of an article has to prove its source

Summary

Issues:
1. Burden of proof placed on Revenue by Tribunal.
2. Ownership of unaccounted gold bangles.
3. Credibility of statements from customers.
4. Compliance with statutory requirements.

Issue 1: Burden of proof placed on Revenue by Tribunal
The appeal was filed by the Commissioner of Income-tax, challenging the order of the Income-tax Appellate Tribunal that placed the burden of proof on the Revenue. The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) and accepted the statements of five customers without sufficient material to dislodge the findings. The Tribunal's reasoning was based on the status and credibility of the claimants, who were individuals of means. The court found that the burden of proof was wrongly placed on the Revenue, as the person in possession of an article must prove its source.

Issue 2: Ownership of unaccounted gold bangles
The case involved the possession of unaccounted stock of gold bangles found during a search operation at the business premises of the assessee. The Assessing Officer concluded that the gold bangles seized belonged to the assessee, as the explanation provided by the assessee regarding the ownership of the gold ornaments contradicted the sworn statement of Govindrajan. The Commissioner of Income-tax (Appeals) and the Tribunal, however, accepted the explanation provided by the assessee, considering the status of the claimants and the quantity of jewelry entrusted for remaking.

Issue 3: Credibility of statements from customers
The credibility of the statements from five customers who claimed ownership of the gold bangles was a key point of contention. The assessing authority did not believe the statement filed by the assessee, as it contradicted the sworn statement of Govindrajan. However, the Commissioner of Income-tax (Appeals) and the Tribunal found no reason to discard the evidence provided by the customers, considering their status and means. The court emphasized the importance of proving the source of possession, especially when conflicting statements exist.

Issue 4: Compliance with statutory requirements
The court highlighted the lack of compliance with statutory requirements, as no reliable documents such as a register under the Gold Control Rules were kept or produced during the search. This failure to comply with statutory obligations placed a heavy burden on the assessee to prove that the gold bangles did not belong to them. The court concluded that the burden of proof was wrongly placed on the Revenue, leading to a substantial question of law under the Income-tax Act.

In conclusion, the court allowed the appeal, set aside the orders of the Commissioner of Income-tax (Appeals) and the Tribunal, and restored the order of the assessing authority, emphasizing the importance of proving ownership and complying with statutory requirements in such cases.