2017 (7) TMI 1051 - HC - Income Tax

Joint possession - addition on money in the hands of the accused - assets found during the course of search proceedings - Held that - The prosecution has not been able to lead evidence to establish that some of the money could be held in the hands of the accused. In the case of joint possession it is very difficult when one of the persons accepted the entire responsibility. The wife of the accused has not been prosecuted and it is only the husband who has been charged being a public servant. In view of the explanation given by the husband and when it has been substantiated by the evidence of the wife, the other witnesses who have been produced on behalf of the accused coupled with the fact that the entire money has been treated in the hands of the wife and she has owned it and she has been assessed by the Income Tax Department, it will not be proper to hold the accused guilty under the Prevention of Corruption Act as his explanation appears to be plausible and justifiable. Neither the investigation authorities nor the Assessing Officer have brought anything on record to prove that the above referred assets found during the course of search proceedings actually belonged to the assessee. Further, as mentioned above, the relevant source of income was already offered tot ax in the hands of the above two companies (M/s.Silver Shoes Pvt. Ltd. And M/s.Souther Rims Pvt. Ltd) and has reached finality. In view of the above, the Assessing Officer is not justified in bringing the above mentioned assets found during the course of search proceedings, to tax in the hands of the assessee. The additions of ₹ 44,91,000/- made by the Assessing Officer, for the A.Y.1994-95, are, therefore, deleted. - Decided in favor of assessee.

Summary

Issues:
Refund adjustment refusal by second respondent based on previous adjustments and criminal proceedings.

Analysis:
The petitioner challenged a proceeding by the second respondent refusing a refund in the name of M/s.Silver Shoes Pvt. Ltd. The second respondent's stand was based on adjustments made in 1996-97 and criminal proceedings against the petitioner. The Commissioner of Income Tax (Appeals) had earlier held that assets found during search proceedings did not belong to the assessee. The criminal case against the petitioner led to a conviction, later set aside by the High Court. The Supreme Court also upheld the acquittal. The petitioner argued that the second respondent's order was improper and unjustified, as the assets did not belong to them. The second respondent relied on Section 132-B (3) of the Income Tax Act, stating that assets seized should be returned to the person from whom they were seized.

The High Court noted that the criminal case was linked to the search and seizure operations conducted by the Income Tax Department. The Supreme Court's findings were crucial, stating that the prosecution failed to prove the money belonged to the petitioner. The Commissioner of Income Tax (Appeals) had already considered the impact of the criminal case judgments and ruled in favor of the assessee. The High Court emphasized that any order by the second respondent contradicting the criminal case judgments would be unlawful. The Court held that the assets did not belong to the petitioner, as established in previous judgments, and directed the second respondent to pass orders in favor of the third respondent.

In conclusion, the High Court allowed the writ petition, setting aside the impugned order and directing the second respondent to issue orders in favor of the third respondent. No costs were awarded, and the connected miscellaneous petition was closed.