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TMI Blog1999 (8) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... rities she stated that the Indian currency was handed over to her by a person named Mr. Raja at her residence when she was about to leave for the airport. It was also stated by her that this was to hand over to one Shri A. Sajwani, aDubaibased party. It was claimed by her that Shri A. Sajwani asked her to carry packets toHong Kongwhich was to be collected by him there from her. She also claimed that she did not know that the packets contained the Indian currency. The assessee also did not know the address and whereabouts of Mr. Raja as well as Mr. A. Sajwani. The AO on these facts has made the addition of Rs. 7,59,000 as income for undisclosed sources in her hands. Assessee challenged this action of AO in appeal before first appellate authority and while reiterating the facts as stated before the AO she further stated that she has already been convicted for the possession of currency under the Customs Act and suffered imprisonment as per the order of the Court. It was, therefore, contended by her that she should not be punished again for the same offence under the provisions of the IT Act. 3. While deliberating upon this issue the learned CIT(A) noted that assessee was punished u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices also. So relying upon CIT vs. Piara Singh (1980) 17 CTR (SC) 111 : (1980) 124 ITR 40 (SC), Shri Vishnukumar Soni vs. CIT (1985) 46 CTR (MP) 280 : (1985) 155 ITR 34 (MP) and C. Krishna Lal Jain vs. CIT (1987) 60 CTR (Kar) 90 : (1987) 163 ITR 747 (Kar) it was pleaded that even if it is taken that amount confiscated is that of assessee, deduction on account of confiscation is to be allowed in view of above-said judgment because for earning income of smuggling currency notes has to be set off with the amount confiscated treating it to be expenditure relatable to earning of the business. So net resultant has to be nil. It was also pleaded that it is the Revenue's case that assessee is the owner of the money. So corresponding expenditure has to be allowed. Assessee's counsel further relied upon Motilal Chhadami Lal Jain vs. CIT (1991) 94 CTR (SC) 195 : (1991) 190 ITR 1 (SC) on the proposition that very source has been wiped away as income has not been received at all and paramount title is with the State. Therefore, applying the ratio of the judgment of Supreme Court (1991) 94 CTR (SC) 195 : (1991) 190 ITR 1 (SC), and CIT vs. Sital Das Tirath Das (1961) 41 ITR 367 (SC) for diversion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this was to be handed over to one Shri A. Sajwani, a Dubai based party and the assessee did not know the address and whereabouts of either Mr. Raja or Mr. Sajwani. Similar situation arose before the Hon'ble Supreme Court in the case titled Chuharmal vs. CIT (1988) 70 CTR (SC) 88 : (1988) 172 ITR 250 (SC) where facts and circumstances as recorded in the judgment of Hon'ble Supreme Court are as under: "It appears that the petitioner had submitted his return of income for the asst. yr. 1974-75 showing a total income of Rs. 3,113 in response to a notice issued under s. 143(2) of the IT Act, 1961 (hereinafter called "the Act"). According to the petitioner, he had derived his income from 2 stores, i.e. M/s Mohanani Fancy General Stores and M/s Roopkala General Stores, Durg. It, however, appears that on19th Jan., 1974on the basis of the order passed by the Superintendent, Central Excise, Jagpur, dt.25th Dec, 1975, there was confiscation of foreign watches from the house of the petitioner and levy of penalty of Rs. 2 lakhs under the Customs Act., 1962. Accordingly, the ITO issued a notice calling upon the assessee to show cause why the value of the watches seized from his residence s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show cause why the aforesaid sum of Rs. 87,455 should not be treated as the petitioner's concealed income. The ITO further directed issuance of notice under s. 271(1)(c) of the Act. Being aggrieved by the said order, the petitioner preferred an appeal before the AAC against the order dt.20th Feb., 1976. The AAC dismissed the appeal and held that in view of the order passed by the Collector of Customs, the ITO was justified in including the cost of the watches in the income of the assessee for the asst. yr. 1974-75. Thereafter, on 29th March, 1978, the IAC issued notice of penalty under s. 271(1)(c) of the Act imposing a penalty of Rs. 90,000, the minimum imposable being Rs. 87,455 and the maximum imposable being Rs. 1,74,910. Being aggrieved thereby, the petitioner filed two appeals before the Tribunal. The Tribunal, by its order dt.19th Aug., 1980dismissed these appeals. The petitioner has further stated that in the meanwhile, the State ofMadhya Pradeshinitiated criminal proceedings under s. 125 r/w s. 111 of the Customs Act, 1962, and the learned Chief Judicial Magistrate, Durg, by his order convicted the petitioner and awarded one year's rigorous imprisonment. Thereafter, on2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner was the owner of the gold seized, though there was no direct evidence placed before the taxing authorities to prove that the petitioner had actually invested moneys for purchasing the gold in question, the inference of the ownership of the gold in the petitioner in that case rested upon circumstantial evidence. There also gold was seized from a motor launch belonging to the petitioner in that case. There, a contention was raised that the provision in s. 110 of the Evidence Act. where a person was found in possession of anything, the onus of proving that he was not the owner was on the person who affirmed that he was not the owner, was incorrect and inapplicable to taxation proceedings. This contention was rejected. The High Court of Bombay held that what was meant by saying that the Evidence Act did not apply to proceedings under the Act was that the rigour of the rules of evidence contained in the Evidence Act was not applicable but that did not mean that when the taxing authorities were desirous of invoking the principles of the Act in proceedings before them, they were prevented from doing so. Secondly, all that s. 110 of the Evidence Act does is that it embodies a salu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to amount involved in acquisition of 565 wrist watches of foreign make valued at Rs. 87,455 which were seized by the customs authorities. 7. As the facts of the case in hand and those of the case decided by the Hon'ble Supreme Court as referred to supra are almost similar, we are of the considered opinion that since assessee has not been able to show or prove acquisition of currency seized from any legitimate source, the action of AO for treating the same as income from other sources, during the year under consideration, as currency has been found and confiscated on 2nd Nov., 1987 which falls in the relevant accounting year, is held to be valid and proper. From the facts emerging from the record available it is admitted fact that assessee has nowhere admitted having conducted any activity pertaining to smuggling of currency. As regards setting off of confiscated amount is concerned, we, after having considered case law as cited and in view of facts and circumstances, are of the view that such set off cannot be allowed as assessee has nowhere admitted having carried on business of smuggling of currency notes and moreover in view of latest judgment of Hon'ble Supreme Court of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Supreme Court: Held, dismissing the appeal, that the assessee had indulged in transactions in violation of the provisions of the Foreign Exchange. (Regulation) Act. The assessee's case was that it would have incurred a loss. This cannot be a justification for contravention of law." 8. In the case in hand, the assessee when confronted by AO in assessment, proceedings about the source of acquisition of Indian currency of Rs. 7,59,000 seized by DRI on 2nd Nov., 1987, along with foreign currency equivalent to Rs. 3,500 from her possession when she was about to board the British airways flight No. BA-019 fromNew DelhitoHong Kong, she stated that abovesaid currency did not belong to her and this was delivered to her by one Shri Raja for handing over the same to Mr. A Sajwani atDubaiand whereabouts of either of these two persons are not known to her. She also denied to have knowledge of even of contents of packets handed over to her by Mr. Raja for further handing them over to Mr. Sajwani ofDubai. Except denial of ownership or of knowledge of contents of packets, no other evidence or material was adduced and neither either of so-called Mr. Raja or Mr. Sajwani were ever produced wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, stated that about 4 years back she met a gentleman called Mr. A Sajwani in Dubai at a party. Shri A. Sajwani had a company called "Sajwani Exchange Co.,P.O. Box 178,Dubai". His telephone numbers inDubaiwere : office 282315 and tel: 227897. After their social acquaintance the assessee had been asked for favours off and on which she had declined. He, however, called her on Sunday mid-day 1st November and asked for a favour to carry some goods for him toHong Kongwhich he would personally pick up from her inHong Kong. It was further stated that the agent of Mr. A Sajwani inDelhiby the name of Mr. Raja would deliver the goods to her at her residence. Accordingly the said Raja arrived at her residence at approximately 21.30 hrs. On Sunday night after calling her on telephone and ascertaining her address and delivered two packages saying the contents of these packages were food stuff, personal effects and some Indian currency which she put in her brown diplomat suitcase and one in her leather bag. This Indian currency was seized by the DRI officers on examination of her baggage on2nd Nov., 1987as described in the Panchnama. The Judicial Magistrate took cognizance and recorded a finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it while upholding the imposition of penalty, Government reduces its amount to Rs. 2,500 (Rs. two thousand five hundred only) in the facts of the case particularly that she has been in prison for about nine months and must have come out as new person." On the basis of these facts, the AO treated the Indian currency of Rs. 7,59,000 as income from undisclosed sources of the assessee as she was not able to give proper explanation regarding the whereabouts of Mr. A Sajwani nor that of Mr. Raja. 4. On appeal, the learned CIT(A) upheld the addition observing as follows: "5.2. I have considered the facts and the circumstances of the case and arguments of the appellant. The appellant was punished under ss. 132 and 135(1)(a) of the Customs Act, 1962 for trying to smuggle out of India the Indian currency worth Rs. 7,59,000 without any authorisation. Therefore, the penalty and the imprisonment suffered on that account will not give her immunity for the evidence under the provisions of IT Act. It is a fact that she was found in the possession of Indian currency worth Rs. 7,59,000 during the financial year relevant to the asst. yr. 1988-89. Under the provisions of s. 69A of the IT Act, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the facts on record and in the line of this type of business, it cannot be said to be a totally false contention. In the black market and smuggling business, the carrier normally does not have direct access to the principal i.e. the seller nor to the buyer. Arrangements are normally made in such a way that the seller and the buyer could not be traced out. The AO in this case treated the assessee as the owner on the reasoning that she could not give details of one Mr. Raja who delivered the parcel. Similarly the whereabouts of Shri A. Sajwani were not known to the assessee. On these findings of fact, it was presumed by him that the money belonged to her. Apparently the provisions of s. 69A of the IT Act are applied. 7. It is seen that the provisions of s. 69A are not conclusive presumptions. It is rebuttable presumption and the same is to be applied only in a case where the assessee offers no explanation about the nature and source of acquisition of the money, etc. or such explanation was not satisfactory in the opinion of the AO. The assessee in this case right from the beginning stated that it was Shri A. Sajwani whose address and telephone numbers were given before the DRI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reform herself. He, therefore, took a lenient view to help the assessee to rehabilitate herself and revert to honourable life. The presumption, therefore, is that the assessee has been indulging in illegal activities which is an offence under the Customs Act. Since the assessee has been acting as carrier for this illegal and prohibited items under the law, such activities can safely be treated as business of the assessee and, therefore, the loss has to be allowed if the amount is treated as income of the assessee. I hold accordingly and delete the addition. J.P. BENGRA, J.M. (AS THIRD MEMBER): 31st May, 1999 On a difference of opinion between the Members constituting the Division Bench, the following point of difference has been referred to me as Third Member by the Hon'ble President of the Tribunal under s. 255(4) of the IT Act: "Whether the addition of Rs. 7,59,000 is liable to be deleted or not." 2. The admitted facts of the case are that the assessee Mrs. Reena H. Mirchandani was a stewardess in British Airways. On2nd Nov. 1987the Directorate of Revenue Intelligence (DRI) seized Indian currency worth Rs. 7,59,000 and foreign currency equivalent to Rs. 3,500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds against the accused under ss. 132 and 135(1)(a) of the Customs Act, 1962 vide order dt.30th Sept., 1988. Hence the accused Ms. Reena Mirchandani, the assessee, was held guilty of offences punishable under the above sections and she was convicted accordingly. 3. In the meanwhile the Dy. Collector (ADJ), IGI, New Delhi confiscated the currency totalling worth Rs. 7,62,500, including the Indian currency of Rs. 7,59,000 seized from Ms. Mirchandani vide order dt.21st Dec, 1988. 4. The assessee filed revision application before the Competent Authority under s. 129DD of the Customs Act and the Competent Authority vide order dt.9th July, 1991reduced the penalty to Rs. 2,500. 5. On the basis of these facts, the AO treated the Indian currency of Rs. 7,59,000 as income of the assessee from undisclosed sources as she was not able to give proper explanation regarding the whereabouts of Mr. A. Sajwani nor that of Mr. Raja. Aggrieved by that order, the assessee filed appeal before the CIT(A). The learned CIT(A) upheld the addition observing that the assessee was punished under ss. 132 and 135(1)(a) of the Customs Act, 1962 for trying to smuggle Indian currency out ofIndiawithout any au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Sec. 132 of the Customs Act is in regard to false declaration and s. 135(1)(a) of Customs Act is offence in relation to any goods (sic) way knowingly concerned in any fraudulent evasion or attempt at evasion of any duty chargeable thereon, or of any prohibition for the time being imposed under this Act or any other law for the time being in force with respect to such goods. For punishment under the above sections it is not necessary for the Customs authorities to prove ownership of the goods. It is enough if there is any attempt by a person found in possession is a carrier and evading any duty chargeable under the Customs Act. The assessee, therefore, was convicted for false declaration and evasion of duty or prohibitions as contemplated under the above sections. The burden of proving the ownership is entirely on the Department as per the provisions of s. 69A of the IT Act. The provisions of s. 69A are not conclusive presumptions. It is rebuttable presumption and the same is to be applied in a case where the assessee offers no explanation about the nature and source of acquisition of money or such explanation was not satisfactory, in the opinion of the AO. The assessee had given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed ownership of these items, including the Indian currency right from the beginning, when her statement was recorded on2nd Nov., 1987. The presumption under the provisions of s. 69A are not conclusive presumption. It is rebuttable presumption and the same is to be applied only in a case where the assessee offers no explanation about the nature and source of the acquisition of the money, etc. or such explanation was not satisfactory in the opinion of the AO. It is highlighted that in proceedings under ss. 132 and 135(1)(a) of the Customs Act there is no question of ownership. Anyone found in possession of goods or is found carrier, the penalty can be imposed under those sections. The learned counsel for the assessee further pointed out that the learned Judicial Member was guided by the fact that at the time of arrest, she could not state whereabout of either of Mr. A. Sajwani ofDubaior that of Mr. Raja, who delivered these packets and she has also denied to have knowledge of its contents. But this fact is not correct. In her statement she has clearly mentioned that about four years back she met a gentleman called Mr. A. Sajwani inDubaiat a party who had a company, called Sajwani Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned Judicial Member are distinguishable on its facts. Therefore, the ratio laid down in those decisions cannot be applied to the facts of the present case. 10. The learned Departmental Representative accepted that for making addition under s. 69A of the IT Act, it is necessary to prove the ownership of the goods in order to attract this provision. However, it is submitted that the possession of the goods is indicative of the fact that the person carrying it is the owner. Her explanation that one Mr. A. Sajwani is the owner has not been substantiated by any evidence. Therefore, the explanation given by her was not found satisfactory and presumption was rightly drawn that she is the owner of the goods for making addition under s. 69A of the IT Act. The learned Departmental Representative tried to distinguish the decision of Mr. Rose Ben. Ultimately it was submitted if it is found that enquiry of ownership has not been made by the AO, the matter could be set aside for making further enquiry. 11. I have considered the rival submissions and have gone through the relevant material available on record. Sec. 69A of the IT Act, 1961 reads as under: "Where in any financial ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any duty chargeable thereon or of any prohibition for the time being imposed under the Customs Act. Therefore, I find that the assessee was convicted for false declaration and evasion of duty for prohibition as contemplated under those sections. The Customs authorities has no occasion to consider the issue of ownership nor it has been adjudicated upon by the Customs authorities. Therefore, the finding given by the Directorate of Revenue Intelligence cannot be made basis for presumption of ownership against the assessee, contemplated under s. 69A of the IT Act for making addition under that section. 11.3. In the present case right from the beginning the assessee was claiming that she was only a carrier on behalf of Mr. A. Sajwani of Sajwani Exchange Co., P.O. Box No. 178, Dubai, whose telephone numbers were 282315 and 287897 of Dubai. Therefore, it is clear that the assessee never claimed ownership of these items, including the Indian currency. From this statement, it is clear that the assessee disclosed the name of Mr. A. Sajwani and his address with telephone numbers known to her at the first occasion when her statement was recorded. Therefore, the observation of the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New Delhi to Hong Kong. There is no reason to carry such amount when she have been taken care of by the employer. Under the circumstances, it is most probable that the assessee was victim of circumstances. Therefore, the explanation given by the assessee that she was carrying the packets on behalf of somebody to be delivered at Hong Kong is most probable in the given facts and circumstances of the case. I cannot ignore the facts that friends and acquaintance, including the person who are not directly friends, approach the air-crew for carrying parcel or items from destination to abroad and abroad to destination. Therefore, in all probabilities, Mr. Sajwani took advantage of this practice and requested the assessee to carry the packets toHong Kong. 11.4. The AO made addition on the basis of finding given by the Customs authorities only and there is no independent finding of the AO, much less the enquiry that there was no such person as Mr. Sajwani at the given address. Therefore, it cannot be said that the presumption under s. 69A has not been rebutted by the assessee or the explanation given by her is not probable in the given facts and circumstances of the case. 11.5. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to his house. In that case witness was not cross-examined by petitioner in whose presence Panchnama was drawn. Therefore, it was presumed that the petitioner was owner because of possession, in view of s. 110 of the Evidence Act. In that case, conviction was upheld under s. 125 of the Customs Act. 11.9. In the present case, the proceedings were undertaken under ss. 132 and 135(1)(a) of the Customs Act, where the question of ownership has not to be adjudicated upon by the Customs authorities, nor by the Magistrate, who convicted the assessee. Further a statement was recorded at the time of arrest, in which she denied the ownership and claimed that she carried the goods of one Mr. Sajwani ofDubaiand whose address and telephone numbers were given in the statement. 11.10. The facts in the case of Maddi Venkataraman Co. (P) Ltd. vs. CIT (1998) 144 CTR (SC) 214 : (1998) 229 ITR 534 (SC), relied on by the learned Judicial Member, are also distinguishable on the fact that that was a case for violation of FERA in which the assessee was carrying a lawful business, in which expenditure for unlawful activities were claimed. The amount claimed was the money sent abroad through illegal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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