9911796707
TMI Blog1999 (8) TMI 984X X X X Extracts X X X X X X X X Extracts X X X X ..... y under reference was neither found at their premises, nor was it mentioned in their depositions. The CIT(A) has thus clearly erred in deleting the addition of ₹ 1,53,02,266 made on accounts of alleged purchase consideration credited to the accounts of the partners and their family members." 3. The assessee in this case is a partnership firm with a leadership position in the line of gold jewellery. For the asst. yr. 1988-89, it filed its return declaring an income of ₹ 33,18,400. It is claimed that in the year of account relevant for the asst. yr. 1988-89 the assessee had made purchases of gold ornaments of ₹ 1,53,02,266 weighing 54,803,250 gms (54,803 kgs.) from the partners of the firm and their family members. In the audit report furnished under s. 44AB, the said purchases were shown as the purchases of old ornaments. However, the purchase memos showed them as new ornaments and they were taken directly to GS-12 Register, which is prescribed under the Gold Control Act for recording the purchase and sale or receipt and disposal of new ornaments. The purchases also indicated payment of making charges at more than the normal rate. As the purchases involved we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warlal T. Zaveri including his wife, sons and HUF. All those persons who attended in response to summons admitted : (i) they sold the jewellery in question to the firm T.B.Z., Zaveri Bazar, (ii) that the jewellery was acquired by them out of their income from undisclosed sources, (iii) this income was earned during asst. yr. 1978-79, (iv) the income so earned was invested in purchase of these jewellery, (v) this was disclosed under the Amnesty Scheme, 1985 by filing a return for asst. yr. 1978-79 in March, 1987, and (vi) all the persons who sold the jewellery have offered capital gains on such sale of jewellery in their IT returns for asst. yrs. 1988-89. 12. In addition to the information collected above, the following information, in respect of the 14 persons examined was collected, through the statement recorded under s. 131 of the IT Act, and their IT records. It is described as under : (1) Shri Gopaldas T. Zaveri as individual and HUF.'Shri Gopaldas Tribhuvandas Zaveri is son of Shri Tribhavandas Zaveri, founder of this firm. He is 63 years old and is carrying on business as partner in T.B.Z., Zaveri Bazar in his capacity as Kartha of his HUF. His sources of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N. Zaveri.'She is a minor aged 15 years, presently student. She is assessed to income-tax from asst. yr. 1986-87. She claims to have acquired jewellery worth 3948.850 gms. valued at ₹ 2,23,175 in 1978.79. (7) Shri Shrikant G. Zaveri.'He is 31 years old. He is a partner in T.B.Z. from 1980-81 and assessed to tax from 1978-79 income from interest. He claims to have acquired jewellery worth 1429.350 gms. valued at 80,795 in 1978-79. (8) Smt. Bindu S. Zaveri.'She is 26 years old and is a housewife. She is not regularly assessed to tax, but filed Amnesty Return in 1978-79 and first regular return of income was filed in asst. yr. 1986-87. She claims to have acquired jewellery worth 3,837.950 gms. valued at ₹ 2,48,210 in 1978-79. (9) Shri Arvind T. Zaveri.'Both as individual and HUF. He is 60 years old and assessed to tax in HUF capacity since 1959-60 and as individual from 1964-65. The sources of income for HUF share of profit from T.B.Z., Zaveri Bazar, as individual, income from valuation fees and interest income. He claims to have acquired jewellery in the individual capacity jewellery worth 3,909.300 gms. Valued at ₹ 2,20,950 and as HUF 1,238.90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs from which jewellery is manufactured by Karigar as per the trend and fashion. The old ornaments purchased are also converted into standard bars through the Government mint and utilised for manufacturing ornaments. (c) On verification of the making charges, paid by the assessee to its Karigars, it came to ₹ 5 to 10 per gms. However, the charges paid to the partners and family members were between ₹ 20 to ₹ 25 per gm. The charge paid by the firm for concerned manufacturers is as follows : S. No. Name of the jewellers Date of purchase Weight Majuri paid Rate of Majuri for 10 gms. Rs. (1) Chandrakant jewellers 5-3-1987 433.450 1,991 46 (2) Kharsandas Lakhman Jhaveri 25-4-1987 5,019.650 14,155 120 (3) Kishore Bhimji Zaveri 4-7-1987 3,114.250 31,115 100 (d) All the purchase consideration including making charges are credited to the loan/capital account of these persons, and not paid in cash as is done in respect of other purchases. (e) It is strange that the jewellery purchased from these persons were exactly the same as per the requirement of the firm for its showroom for sale purposes; it appears that in fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm is a clear device to introduce the assessee's own unaccounted monies in the form of purchase of new jewellery from the partners and family members, who in their own capacity were not in a position to acquire this jewellery during asst. yr. 1978-79 as is evident from the fact that none of these persons were having independent sources to earn income from undisclosed sources. In fact some of them were not even knowing what an income is leaving apart earning it, as they were minors. All of them have stated that they earned income from undisclosed source, but were not able to give the nature of the source, the person from whom the jewellery was purchased. This conclusion is further supported by the fact that though the jewellery was allegedly acquired in asst. yr. 1978-79, it was not found in any person's case during the search on 20th Sept., 1982. When their residens were searched the jewellery acquired during asst. yr. 1978-79 was 54 Kgs. and it is quite surprising how such huge quantity can be kept undisclosed to the Department at the time of search. The fact that the entire jewellery of 54 Kgs. was valued by one approved valuer on one day, thereafter this jewellery was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was an action under s. 132 in the residential premises of the partners of T.B.Z. and family members in September, 1982, however these jewelleries acquired in asst. yr. 1978-79 were not found by the search party at any place. It may be stated that the firm however offered substantial additional income for asst. yr. 1983-84 in the form of all undisclosed stock of gold ornaments. These items of jewellery are not part of the jewellery disclosed by the firm. (5) It is also seen that none of the persons have been paid in cash towards the purchase consideration, and the sale proceeds are credited either in their capital account or loan. (6) From the statement and other relevant evidences collected from them it is noticed that the jewellery weighing about 54 Kgs. was valued by one valuer on one day i.e., 27th March, 1987 determining the value as on 31st March, 1978 and 31st March, 1987. This very jewellery was given on the same day 27th March, 1987 to different jewellers for remaking. The jewellers in their turn gave these jewellery to numerous small Karigars in quantities ranging from 200 gms. to 300 gms. per person on the very day i.e. 27th March, 1987. The Karigars returned them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by reopening the assessment under s. 148; (b) that additional tax amounting to ₹ 59,730 has been paid before 31st March, 1986; (c) that corresponding wealth-tax returns for the asst. yrs. 1977-78 to 1985-86 by valuing the disclosed assets at the market rates on the relevant dates have been filed; and (d) that the wealth-tax amounting to ₹ 91,286 for the said nine years has already been paid and the assessments have been regularised under s. 17 of WT Act. (2) It has, however, now been alleged that the AO had required the assessee to adduce documentary evidence for proving that the disclosed investment in jewellery actually pertained to the asst. yr. 1977-78. It has also been stated that the IT assessment for 1977-78...... and the substantive assessment would be made for the asst. yr 1986-87 in terms of s. 69 of IT Act, on the ground that the investment in jewellery remained unexplained. The assessee's application for waiver of penalty and penal interest has also not been disposed of. (3) This matter was considered in a meeting of the Board which was strongly of the view that if such voluntary returns are made the basis of roving enquiries to find out the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said that such an inquiry was possible. The second point of distinction is regarding the invocation of the spirit of the Amnesty Scheme. The same letter shows that the CBDT had stressed that the Scheme should be applied in its spirit. No appeal to such a spirit was made under the VDS Scheme. Lastly it has also to be noted that the interpretation of the Supreme Court of the VDS was prompted by the anxiety to ensure that assessee in the higher income groups should not escape the tax net by arranging disclosures through near relatives. In the case before me such is obviously not the case. It has been pointed out that there is not much difference between the tax borne by the appellant and the tax that could have legitimately acceptable to the Revenue authorities had the disclosure been made by the firm itself. These three points of distinction show that the ratio of (1981) 23 CTR (SC) 146: (1981) 130 ITR 244(SC) (supra) is not applicable in the facts of the appellant's case. The invocation to the spirit also emerges from the repeated assurances of a liberal treatment promised to the assessees. In this connection Circulars No. 432 and 439 in (1986) 50 CTR (St.) 1: (1986) 156 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Amnesty Scheme and had the appellant firm chosen to do so the Department could not have raised any objection to it at any stage. The price of this arrangement, as calculated by Shri D.M. Harish, would have come to approximately ₹ 60 lacs. The AO has not challenged the correctness of this tax computation, since by either route the tax would have been practically the same amount, I see no reason why the AO should attempt to go back on what the Department has already accepted. This is not in keeping with the spirit of the Amnesty Scheme." The CIT(A) has also summarised the various taxes paid by the declarants under the Amnesty Scheme and mentioned that the declarants have paid income-tax for the asst. yr. 1988-89, wealth-tax for the asst. yrs. 1978-79 to 1987-88 and capital gains tax on the sale of the jewellery to the assessee-firm in the year of account relevant for the asst. yr. 1988-89 and also purchase tax under the Bombay Sales-tax Act, 1959, aggregating to ₹ 57,64,659. He also mentioned that the assessee-firm paid purchase tax at 1 per cent under the BST Act, 1959, on the purchases in question of ₹ 1,53,02,266 of ₹ 1,71,386 and thus the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reates doubt about this version. (i) While the sellers had allegedly paid ₹ 2 to 3 per gm to Karigars as making charges for converting old ornaments into new, the appellant firm had paid the sellers ₹ 25 to ₹ 30 per gm. towards the making charges. (j) The alleged price of the gold ornaments was not paid to the sellers in cash but was credited to their accounts maintained by the appellant firm. (k) the jeweller allegedly purchased by the appellant firm in such a large quantity exactly fitted its requirement. This coincidence is strange." We may mention that the CIT(A) has not controverted the above factual findings given by the AO but he has deleted the addition on the legal ground that the Department should not have gone back on the promise extended to the declarants under the amnesty scheme and also on the ground that the tax effect would be the same even if the amnesty had been available of in the hands of the assessee-firm. 5. Before us, the learned Departmental Representative strongly relied on the order of the AO and pleaded that the CIT(A) has held that the decision of the apex Court in the case of Jamnaprasad Kanhaiyalal (supra), on which the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase tax on the purchases of gold from them, the assessee-firm has clearly discharged its onus of proving the purchases and any further question in the matter, if at all, can be directed only to the declarants. It is also claimed that it is for the Department to prove that the assessee-firm had made any unexplained purchases of gold and there is no such material with the Department as it is not the case of the Department that the purchases in question are not recorded in the books. It is, therefore, claimed that the impugned addition of ₹ 1,53,02,266 is not warranted. It is also emphasised that the provisions of ss. 68, 69 etc., of the IT Act are not attracted in this case. 7. Having anxiously considered the rival submissions we are of the view that the Department deserves to succeed. The AO has painstakingly enquired into the circumstances relating to the declarations under the Amnesty Scheme by the partners and their relatives and the version of subsequent purchase of the gold from them by the assessee-firm. The entire story suffers from strange coincidences. The entire gold was bought by the assessee-firm in the same year from all the 18 persons. Actually, what was bou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aiyalal (supra). The CIT(A) negatived the contention on the ground that this decision of the apex Court does not apply to the returns filed under the Amnesty Scheme. We are not convinced about the reasoning of the CIT(A) in this regard. We do not see how the assessee-firm can get out of the ratio of this decision. There is nothing in the Amnesty Scheme, 1985, which conferred any explicit or implicit benefit on third parties. The benefits under the scheme are restricted only to the declarants. In this regard we do not see any difference between the Voluntary Disclosure Scheme, 1965, considered by the apex Court and the Amnesty Scheme, 1985. Simply because the Voluntary Disclosure Scheme is a statutory scheme and the Amnesty Scheme is a creature of Board's circulars, it does not follow that there is any material difference between the two in respect of the applicability of the said decision of the apex Court. The AO has relied upon question and answer No. 11 in Circular No. 451 of the CBDT on the scope of the Amnesty Scheme which has been reproduced by the CIT(A) at p. 10 of his order and reads as follows : "Q. 11. Whether ladies and minors can avail of the immunity given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve evidence gathered from an external source. Its attempt has been only to discredit the amnesty returns filed by the ladies and minors." We have already extracted the contents of the CBDT's letter, dt. 17th June, 1986 referred to by the CIT(A) in the course of his above remarks. We do not see anything in that letter which restricts the power of the Department to enquire into a return filed by a third party in the way the CIT(A) has mentioned. The Board, to our mind, has explicitly cautioned that black money cannot be introduced by taxpayers in the names of ladies or minors in the guise of amnesty returns. The benefits of the amnesty returns are confined to the declarants themselves. In other words, no questions would be asked in their returns but the Department is not estopped in anyway by the terms of the scheme to make all legitimate enquiries in returns filed by third parties who claim transactions with the declarants under the Amnesty Scheme, who may include minors and ladies. We do not see how the Department can accept or reject a version of the assessee that he borrowed money or obtained gold, as in the present case, from the declarants under the amnesty scheme wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule out the applicability of s. 68 of the IT Act, 1961. (v) That, in a case of this description, there was no question of double taxation. Once it was found that the income declared by the creditors did not belong to them there was nothing to prevent the same being taxed in the hands of the assessee to whom it actually belonged. Held, also, (by Sen and Venkataramiah, JJ.) that the ITO was justified in treating the cash credits appearing in the books of account of the assessee amounting to ₹ 46,250 as the assessee's income from undisclosed sources since the assessee failed to discharge the burden of proof placed upon it under s. 68 of the IT Act, 1961." As already mentioned, the letter of the CBDT, dt. 17th June, 1986, does not, to our mind, in anyway whittle down the sweep of the decision of the apex Court. The said letter precludes roving enquiries only in the case of the declarants as to the year of acquisition. It does not confer any benefits on the third parties who ostensibly have dealt with the declarants. 8. The assessee-firm has rested its case both before the CIT(A) and before us on the declarations made by the partners and their family members under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Jamnaprasad Kanhaiyalal (supra) which has clearly held that a bogus declaration is not a protection to third parties. In this view of the matter, we have to hold that the assessee-firm is hit by the ratio of the said decision of the apex Court. 9. We find that the decisions cited by the learned counsel for the assessee are all distinguishable. They have not dealt with the case of a party dealing with the declaration under the Amnesty Scheme, as in the present case. In the case of Narayandas Kedarnath (supra), the jurisdictional High Court held that in a case where credits stood in the names of partners, the assessee-firm has discharged the onus of explaining the credits and it cannot be further saddled with the responsibility of explaining how the partners acquired the monies represented by the credits. While deciding the issue in favour of the assessee, the jurisdictional High Court observed as follows : "It is true that we are as anxious as the Department to see that there is no dishonest evasion of payment of income-tax, but I take it that there are at least some honest assessees in this State, and we have got also to think of these honest assessees. There may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impact of such declarations on third parties dealing with the declarants. 10. The learned counsel for the assessee argued before us that the assessee did not derive any particular advantage in the present case. If the gold really belonged to the assessee-firm, nothing prevented it from disclosing it under the Amnesty Scheme, 1985, instead of, as alleged by the AO, getting it declared by the partners and their relatives. 11. It is claimed that the tax effect would have been of the same order. The CIT(A) also mentioned this point and we have already reproduced his comments wherein he referred to the calculation given by the counsel for the assessee-firm who appeared before him, according to which the tax effect would have been of the order of ₹ 60 lakhs, which is more or less the same figure as in the case of the partners and their relatives who had actually declared. Neither the CIT(A) nor the counsel before us has given any basis for working out the tax effect under the alternative arrangement at ₹ 60 lakhs. Assuming that the figure is correct, we find that this is not a strong enough argument in favour of the assessee-firm. The CIT(A) approvingly referred to the plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in the present case, the purchases of gold of ₹ 1,53,02,266 represents only credit purchases and not cash purchases. As already mentioned, the accounts of the partners and their relatives from whom the gold in question has been bought have only been credited in the books of the assessee-firm. In other words, no money had flown out of the books by the end of the accounting year towards the purchases. If it had been a case of cash purchases, the argument of the learned counsel for the assessee-firm that in case the purchases from the specified parties are doubted, as an alternative measure, deduction for purchases from third parties for the same extent should be given would have deserved some consideration, but, in the present case, where the purchases are merely on credit basis, no money had flown out of the books and so it was not available for making purchases from third parties. As the gold had admittedly come into the books by way of purchases and no money had flown out of the books towards the purchases in question recorded in the books, it has to be inferred that as the recorded purchases are bogus, the gold has been acquired from the undisclosed income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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