9911796707
TMI Blog2025 (1) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... ds in the accounts operated by him do not absolve the assessee of the taxability of such income. The assessee had dominion over the funds and utilized them for economic gains, including investments. This clearly establishes that the income accrued to the assessee, making it taxable in his hands. The leveraging of fraudulently accrued income for economic benefits, such as investments in shares and deposits in the accounts operated by him, further supports its taxability in the hands of the assessee. While the taxation of economic benefits is beyond the current scope, it demonstrates that the assessee exercised full dominion and control over the funds. The fact that the fraudulent income was recovered or repaid in subsequent years does not negate the taxability of the income in the year of accrual. The doctrine of real income requires taxation at the time of accrual, irrespective of later events. In CIT v. Shoorji Vallabhdas Co. [ 1962 (3) TMI 6 - SUPREME COURT] held that income is taxable when it is received or accrued, and subsequent adjustments do not affect its original taxability. Thus, the assessee s claim for deductions in respect of recovery or repayment fails, as it does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suring that violations of other laws particularly involving public exchequer are addressed through appropriate legal mechanisms. That is the reason inter-departmental organizations such as CEIB/SFIO/FIO have been established. Decided against assessee. - Dr. B.R.R. Kumar, Vice-President And Shri T.R. Senthil Kumar, Judicial Member For the Appellant : Shri Mukesh R. Shah Party in person For the Respondent : Shri Karun Kant Ojha, CIT-DR ORDER PER DR. B.R.R. KUMAR, VICE-PRESIDENT : These two appeals have been filed by the Assessee against the order passed by the Ld. Commissioner of Income-tax (Appeals)-4, Ahmedabad (hereinafter referred to as CIT(A) for short) dated 08.09.2015 passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as the Act for short], for Assessment Year (AY) 1992-93 1993-94. 2. The Assessee has raised the following Grounds of Appeal:- (I) (1) That an A.O. dt. 8-12-06 passed by learned ACIT is bad in law as also on facts. (2) That learned ACIT erred in not appreciating facts and circumstances of case and evidence on records. (II) (3) That learned ACIT erred in overruling directions of Hon ble ITAT Orders dt. 8-6- 05 7-9-05, in respect of esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Departmental acknowledgement receipt even in a single case. (12) That learned ACIT erred in not issuing summons further erred in not allowing right of cross examination, of I.T. Department Employees / Bankers in service during 1987-88-89-90-91-92-93 / authorized officers of search party (in service during 1990-91-92- 93), for enforcing production of documents / evidence, so as to establish complete facts of case as per Hon ble ITAT order/s. III (13) That learned ACIT has failed to prepare, pass, sign and serve Annexure A B forming part of such A.O. dt. 8-12-06 (para 4), on or before 31-12-06 (being last date of passing A.O. u/s. 153 (2A) Proviso Second). (14) A.O. so passed served on 16-12-06, being half-hearted, incomplete, invalid, nonspeaking, is void ab-initio and hence deserves to be quashed (as being time-barred A.O. under I.T. Act.) IV (15) That learned ACIT erred in not following decision in Appellant's own case for A.Y. 91-92 on same sets of facts, as accepted by then CIT by not preferring second appeal before Hon ble ITAT in view of Hon ble CBDT instruction no. 1903 considering cumulative tax effect and not due to small tax effect as stated in A.O. dt. 8-12-06. V (16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome determinable as Rs. Nil in both the year/s. VIII (22) That learned ACIT has erred in charging interest u/s. 234 A /u/s.234 B of I.T. Act, though 100% income as alleged of Rs. 21.84 lakhs (Rs. 2.47 lakhs A.Y. 92-93 + Rs. 19.37 lakhs A.Y. 93-94) has been recovered with interest on or before 31-12-93 and such income so recovered has to be utilized to satisfy the tax demands of Rs. 15.57 lakhs as raised in respect of such income only. Appellant has not used the Govt. funds at all so that interest u/s. 234 A 234 B of I.T. Act cannot be charged under I.T. Act viz. Revenue loss is Rs. NIL. (23) That learned ACIT erred in not appreciating that, alleged income tax refund money receipts of Rs. 21.84 lakhs, if treated as income earned by assessee, which is even if confirmed by Hon ble Supreme Court of India (presumed), then it means as per A.O. dt.8-12-06, assessee is the owner of such receipts during life time, hence recovery of such receipts so made is invalid assessee is entitled to a refund of such receipts treated as income, after adjustments of demands as raised. Hence learned ACIT may please be directed to issue refund of balance amount with interest. The question of charge of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide assessment order dated 23.3.95 at total income of Rs. 2,92,260/-. Similarly, the assessment was completed on 23-03-1995 at Rs. 19,58,540/- against the returned income filed for AY 1993-94 on 17-12-1993 of Rs. 22,440/-. 4. Aggrieved against the assessment orders, the assessee filed appeals before the CIT(A). Ld CIT[A]-VII vide order dated 10.04.1997 confirmed the assessment orders passed by the Assessing Officer. On further appeal of the assessee before this Tribunal, the Co-ordinate Bench of this Tribunal vide order dated 08.06.2005 in ITA nos. 2664, 2665/Abad/1997 restored the issue back to the file of Assessing Officer. The directions given by the ITAT vide para 4 is reproduced below: We have heard the assessee and Id. DR and the records perused. The basic and important admitted facts of the case are that the copies of statement recorded were not supplied to the assessee. The said material was used against the assessee while framing the assessment. It has also been noticed that various details and affidavits filed by the assessee have also not been properly appreciated and considered. In view of principle of natural justice, the revenue is required to give the copies of sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opriation is outside the scope of I.T. Act. Alleged Income of Rs. 21.98 lakhs is subject to charge of taxes and taxes have to be recovered out of alleged income earned of Rs. 21.98 lakhs (Rs 978748 (131671 . . 92-93, Rs. 846877 A.Y. 93-94) Income cannot be recovered under I.T. Act .. ACIT has no jurisdiction to recover Rs. 37.93 Lakhs (Rs. 21.84 lakhs recovery of alleged income tax refund money receipts belonging to Govt. of India Rs. 15.59 lakhs as income tax plus interest demand thereon treating same Govt. property as appellants income against Rs. 21.84 lakhs receipts. This is not permissible under Constitution of India. Appellant has not been supplied even till today, copies of statements dt. 21- 4-93, 22- 4-93 AND neat, legible typed copies of statements dt. 23, 24-4- 93, though directed to be supplied by Hon ble ITAT vide order dt. 8-6-05. 'Not only that but also, Appellant has not been supplied evidence as to claim / receipts/utilization/repayment of such alleged income tax refund money receipts as demanded on page 63-77 of appellant's letter dt. 12-9-06 AND as further demanded by your office letter dt. 20-4-09 from the office of Learned ACIT Cir-9. Ahmedabad. Thus le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come tax department has not filed any evidence as to claim/receipts/ utilization / repayment of alleged income tax refund receipts even till today. Even A.O. has completely overruled the directions of ITAT as stated in ITAT order dt. 8-6-05 that (i) Revenue must establish complete facts of the case, (ii) Revenue will provide an opportunity of being heard to assessee, (iii) Revenue will supply the materials used against the assessee. Assessee has explained these aspects in detail vide his letters as cited supra. But same has been completely ignored by all the authorities concerned which is not justified as per laws in force. Assessee relied on the judgement of the Hon ble Apex court in the case of T. A. Quereshi M/s. CIT (2006) 287 ITR 547 (SC) where in it was held even though the assessee was committing a highly immoral act in illegally manufacturing and selling heroin, the case had to be decided on legal principles and not on one's own moral views. that even not a single evidence of claims, receipts, utilization / repayments of such alleged income tax, refund receipts has been filed before any competent Court including Criminal Court even after twenty years. that Income tax re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erials, the Ld. CIT DR submitted that the decision of the appellate authority for the AY 1991-92 was not contested further in appeal by the Revenue, considering the monetary limits in force during the period, in view of the CBDT Instruction No: 1903 Dated 28.10.1992. 8.2. With regard to the argument of the assessee that income tax refund money has already been recovered, as deductible expenditure, from income assessed, since liability to pay such alleged refund money to Govt. of India accrues or arose, on the date of receipts of such alleged refund money, Ld. DR argued that A.Y. 1894-95 being year of actual year of recovery, assessee is not entitled to such deductions in A.Y. 92-93 / 93-94. Ld. CIT (DR) Shri Karun Kant Ojha vehemently argued that, the receipts in the relevant assessment years had arisen out of encashment of the refund obtained in the names of several persons from the Income-tax Department. Income was earned in assessment year 1991- 92, 1992-93 and 1993-94 and was invested by the assessee in shares in the name of HUF. In assessment year 1994-95 and 1995-96, the recoveries have been made out of investments made by the assessee in the name of the HUF and its members. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from paragraph 1 of the assessment order that combined hearing for assessment year 1991-92, 1992-93 and 1993-94 had taken place and a questionnaire was issued to the assessee on 23-11-1994 in which the appellant was required to explain as to how much income had been earned by him by defrauding Government of India during the assessment year under appeal. After considering various submissions made by the assessee during the course of assessment proceedings, the Assessing Officer held that the appellant had defrauded the Government of India for assessment year 1992-93 1993-94 to the extent of Rs 2,47,943/- and Rs. 19,36,095/- respectively. The above amount was determined as Income of the appellant from other sources and added in the returned Income. The complete facts of the case have been discussed in the assessment, order for assessment year 1991-92 which are briefly narrated here. The Income-tax Officer, Ward 8(1), Ahmedabad while verifying the claims of refunds in the cases of Amratlal S. Vyas, Kishore B. Jagtiani, Kishore B. Jagatiani (HUF) and Kokilaben H. Shah, became suspicious about the genuineness of the challans attached with the returns of income, because the refunds clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o en cash the refunds issued by the I.T. Department, bank accounts were opened in the names of these assessee in Sahyog Co. Op. Bank in Madalpur Branch. The refunds were deposited in these bogus accounts and subsequently the amounts were withdrawn in small amounts in cash. The funds were transferred to R.H.S. Family account No.681 in the same branch. An amount of Rs. 23,444/-was found to have been withdrawn in cash, the whereabouts of which were not known. iv) This information was elicited from the appellant himself in the shape of statement recorded on 24/4/1993 by the ITO, Ward -8(8), Ahmedabad which has been reproduced In the assessment order for assessment year 1991-92 at paragraph 2.2 from pages 4 to 16 of the assessment order. v) Subsequent to the above findings and the admission the appellant, -fact were recorded by the records made by the available with the IT. Department and the incriminating documents seized during the course of search at the residential and professional premises of the appellant u/s 132(1) of the I.T. Act. The department identified 106 cases where such bogus refunds were claimed and obtained by the appellant. By the above act, the appellant had made, him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia was liable to be deducted as professional expenditure. The reliance was placed on the decision of Badridas Daga vs.CIT 34 ITR 10(SC), wherein it was held that loss resulting from embezzlement are admissible as deduction u/s 10(1) of the I.T. Act (corresponding to sec.23 of I.T. Act, 1961) if it arises out of carrying on of the business and is incidental to it. It was further claimed that the appellant had not been proved guilty of charges leveled against him by the Court and till that date, the appellant was Innocent and as such the question of assessing the income did not arise. The Assessing Officer, however rejected the above explanation and the arguments of the appellant for the following reason:- (a) The word 'income' in the Act connotes a periodical monetary return 'coming in' with some sort of regularity or expected regularly from definite sources. The sources need not be continuously productive but must be one whose; object is the production of; a definite return excluding anything in the nature of a windfall (CIT vs. Shaw Wallace Co, AIR PC. 133). (b) For the purpose of taxation of any income at the hands of an assessee, two things are necessary (i) fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it is not taxable, because it falls within an exemption provided by the Act, lies upon the lies upon the assessee. (Parimisetti Seetharamamma vs CIT(1965) 57 ITR 532, 536(SC) (g) The Assessing Officer is, within the limits assigned to him under the Act, a tribunal of exclusive jurisdiction for the purpose of assessment of income-tax He has under the Act to decide whether a particular receipt as income. As between the state and the as sea see, it is his function alone to determine whether the receipt is income and is taxable. [Chhatrasinhji Kesarlsinhji Thakore vs CIT(1966) 59 ITR 562, 568(SC)] (h) It is well settled In England that the Income Tax Act is not restricted to its application to lawful business only. Once it is found that the transaction in question is trade, manufacture, adventure or concern in the nature of trade within the meaning of the Income Tax Act, the words of the Section are not to be cut down by the consideration that the trade is tainted with illegally. The taint of illegality or wrong-doing associates with income, profits and gains is immaterial for the purpose of taxation. Even if a trade is illegal, it is still a trade within the meaning of income Tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imple unenforceability in a court of law of a contract intended to produce income to the illegality of making a contract itself und consequent imposition of fines and imprisonment on the transgression there of (CIT vs. Kothari (SC) (1968) 09 ITR I (GUJ) The offence in certain cases may, besides vitiating the main contract, affect subsidiary contracts too, as for example, contracts of insurance against fire or damage of goods or articles involved in the main contract. (Insurance on spirits and casks containing spirits would be void and illegal in areas where anti-liquor laws are in force - Porter on Insurance, 8th edition, page 31) In all such cases, so long as the methods adopted to earn the income are commercial and otherwise amount to a business, the income would not be exempt from taxation (Chandrika Prasad Ram Swarup vs CIT (1939) 7 ITR 269 (ALL). Once the character of the activity has been ascertained as being in the nature of trade, the person who carries it on cannot found himself upon the element of illegality in it, to avoid the tax (Lindsay vs. IRC 18 TC 43). He cannot invoke his (owrn turpitude and claim immunity (Canadian Minister of Finance vs. Smith (1927) AC 193). By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween an infraction of the law committed in the carrying on of a lawful business and in infraction of the law committed in a business inherently unlawful and constituting a normal Incident of it [CIT vs. Piara Singh(1930) 124 ITR 40(SC)) Thus, if expenditure has been incurred for the purpose of carrying on the business, that is, to enable a person to carry on and earn profit in that business, it would be treated a permissible deduction. It has to be a commercial loss in trade and also contemplable by the parties. A penalty imposed for a breach of any law during the course of a trade cannot be regarded as an allowable expenditure, as an infraction of the law is not a normal incident of a lawful business and a penalty paid for an infraction of the law cannot be said to be a business loss in the commercial sense. However, where for certain infractions of the law, in addition to a penalty or fine, the goods are confiscated and sold at a lower price which is paid to the assessee, the resultant loss on sale of stock in trade would be an allowable loss. (j) Infraction of the law in the course of carrying on unlawful business - Profits in the carrying on of unlawful business shall have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her sources Should the business by reason of its being prohibited by law or being, carried out a bones mores be regarded as ineligible to the status of a 'business or profession the income from, such business or profession , the income from such business would have to be charged only under the head 'Other sources Under this later head, for the purpose of computing the chargeable income, all expenditure incurred for the purpose of making or earning such income' has statutorily to be deducted. If, however, the income should be taxed under the head 'Business or profession, then, what is taxable thereunder is the 'profit or gain' of the business. Such profits shall have to be computed according to commercial principles, that it is, after making an allowance for necessary outgoings (1) Embezzled or misappropriated funds: The chargeability of sums of money embezzled or stolen would depend upon the application of several principles touching the subject, some of which are well established. It is well settled that the element of unlawfulness or illegality or immorality in the acquisition of income does not exempt the income from charge. It is equally well settled tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within him prompted him to commit a misdemeanor which in normal parlance amounts to embezzlement. Hence, it can be stated that receipts from such activities do not amount to professional receipts. The nature of his profession is far different from his acts of commission. The requirements of his profession are to prepare Returns of income, represent cases before the Revenue, tender advice to his client etc. Hence, it is Income from such activity which can be termed as his professional receipts. The defrauded amount has not arisen to him on account of his profession, but on account of illegal activity which he carried out during the exercise of his lawful profession. The illegal activity must be dissected from his professional activity and thereby it follows that receipts from two separated activities must also be dissected. The receipts arising from profession will necessarily be taxed under the head profession , whereas the TAINTED income must be brought to tax under the residuary head Other sources The assessee's contention that unless and until he is proved guilty in a Court of law, the question of income does not arise, cannot be entertained as determination of income is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the same could not be rebutted before the Assessing Officer. The procedure adopted by the Assessing Officer in framing the assessment and determining the appellant's income from other sources denied any opportunity to the appellant to explain or rebut the presumptions raised against him. Firstly, the evidence and material relied on by the Assessing Officer was not made available to the appellant and secondly no opportunity was given to offer explanation or comment in this regard. It was further contended that apart from the above denial of principles of natural justice, the Assessing Officer ignored the objections and contentions raised by the appellant on various dates of hearing vide letters dated 27/10/94, 22/1/95, 18/2/95, 2/3/95 and 6/3/1995. 11.3 The Assessing Officer failed to appreciate the fact that the appellant had not earned income at all from the Income-tax refunds obtained from the Government India. No such income had either accrued to the appellant or arosed to him in any of the previous year relevant to assessment year 1992-33 and 1993-94 in view of CBDT order u/s 119(2A) dated 2/5/1994 The Assessing Officer also failed to appreciate the fact that the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount to the Government on being caught with forgery and ownership of the Government never ceased whatever has been paid by him or recovered from him is not tax but recovery of amount which was lying with him and which was owned by the Government throughout this period. The conduct of the appellant howsoever reprehensible may be, will not turn the receipts obtained from bogus claim refund as income of the appellant. The proceedings before the Department have to be decided within the four corners of the Income-tax Act, 1961 and this forum is not a criminal court of justice for passing judgement on immorality of the appellant's act. Since the addition made in appellant's total income in assessment year 1991-92 had been deleted by the learned DCIT(A)2, Ahmedabad vide order dated 23/11/1995 and the department had not filed appeal against the said order, the addition made in assessment year 1992-93 was able to be deleted. It was contended that the addition wade in appellant's total income may be deleted 12. The contention of the appellant has been carefully considered. From the facts of the case as discussed in the earlier paragraphs and by the Assessing Officer in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an economic activity, the provisions of the I.T. Act are applicable to determine the chargeability of the receipts under the I.T. Act under the appropriate heads of income. Under the I.T. Act, I.T. authority is not concerned with the legality of the activities of the appellant. The appellant may be earning income by indulging in the illegal activities. Income- tax Act empowers the Assessing Officer to levy income-tax on such income. 12.1 The deductions from the above income are to be allowed in view of the Supreme Court decision in the case of CIT vs. S.C, Kothari (82 ITR) 794. In that case the Supreme Court had held that loss incurred in carrying on illegal business must be deducted from the true figure of profits brought to tax could be computed. However, it is seen that the recoveries have been made from the appellant not during the accounting period relevant to assessment year 1992-93 1993-94. As stated earlier, the amount has been recovered from the appellant only. In A.Y. 1994- 95 and 1995-96. Therefore, the deduction in respect of the above expenditure can be allowed to the appellant only in the assessment years 1994-95 and 1995-96. So far as assessment year 1992-93 1993 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had considered the recoveries effected from the appellant in assessment year 1994-95 and 1995-96 as expedite allowable for the receipts for assessment year 1991-92 With all due regards, I am unable to agree with the findings in of the brother-colleague. The receipts in assessment year 1991-92 had arisen out of encashment of the refund obtained in the names of several persons from the IT. Department. Income was earned in assessment year 1991-92, 1992-93 and 1993-94 and was invested by the appellant in shares in the name of HUF In assessment year 1994-95 and 1995-96, the recoveries have been made out of investments made by the appellant in the name of the HUF and its members. Therefore, the deduction of an expenditure, if any, has to be considered of the earning or income for assessment year 1994-95 and 1995- 06. Appellant is a professional and has shown income from profession on mercantile basis. There is no reason consider and allow expenditure to the appellant in A.Y 1992-93 1993-94 on that basis. Therefore, it is held that the additions has been correctly made and no interference is called for in this respect. Accordingly, this ground is dismissed and decided against the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credited in savings bank accounts of Sahyog cooperative bank, which has been closed prior to 15 years, and at present there is no information about this bank's management, branch managers, officers, employees, engaged in opening and operating of savings accounts hence at present, it is not possible to secure copies of this bank's records. It is further disclosed that complainant has tried his level best in collecting evidence since April 1993 but it was just a wastage of considerable time and further due to transfer of case records, income tax department is not in possession of important and cogent evidence. It is further disclosed that crime branch has collected some of the documents but same have been found to have been termit-feded and hence such documents have been returned to crime branch. It is further disclosed that crime branch has again collected certain documents but same being incomplete, it is not possible to establish a chain of evidence. It is further disclosed that complainant P. M. Makwana has expired even before a long time period. It has been further stated that this discharge petition has been sent to judicial department of income tax dept. Hence it is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage. In the background of the ratios laid down by Hon ble apex court in Somnath Thapar case (supra) and in the light of the entire above discussion, prima-facie it cannot be said that the ld. Trial judge erred in rejecting the request of the petitioner- original accused no. 4 for discharge. As stated above and as observed by Hon ble apex court in Dilavar Balus case (supra), even laying evidence for the limited purpose of finding as to whether prima-facie case has been made out, it prima-facie transpires in the light of above entire discussion that the evidence prima-facie reveals that charge is required to be framed 4. Accused has pleaded that it has been held in the case of P Jayapan 149 ITR 696 (SC), that once the assessment order has been cancelled by the tribunal, prosecution cannot be proceeded with. It is being further argued that it has been held in the case of Uttamchand 133 ITR 909 (SC), Shivsankar Shah 106 Taxman 536 ( atna HC), that once penalty u/s 271(1)(c) of income tax act has been cancelled by tribunal, prosecution proceedings automatically ends. It is further pleaded that it has been held in the case of K.C. Builders 265 ITR 562(SC), that findings of tribunal are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and accused is hereby discharged in this case in accordance with the norms of sec.245 of Cr. Pr. Code and further declared as innocent and ordered as absolved / acquitted in this case. If there is a change in this order by higher forum, then income tax department will not be prevented from restoring/filing this case again because of such order. No order as to costs Pronounced and read this order today in the court Date: 12/12/2023 (Sanat Jayantilal Panchal) Place: Ahmedabad Addl. Chief Metropolitan Magistrate. Abad (G.J. 00864) 10. From the above sequence of events from the year 1993, the following facts emerge :- A search was conducted at the premises of the assessee on the allegation of fraudulent claim of refunds by producing forged challans. Assessments for the AYs 1991-92 to 1993-94 have been completed taking into consideration the amount of fraudulent refunds claimed. The matter went on a series of litigations and the appeal before the Tribunal is pending. It is not in dispute that the assessee has obtained fraudulent refunds and invested in shares in other accounts. It is also a fact on record that the embezzled amount of the refunds have been recovered from the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready perpetuated an act of crime on Government of India ? 12. The case presents a peculiar situation where the income, accrued fraudulently by the assessee, was parked in the accounts of his family s HUF and further leveraged for economic benefits, such as investments and financial gains. The assessee has accepted engaging in the fraudulent activity, which resulted in tangible control and dominion over the funds. This conduct, coupled with the economic benefits derived from the tainted money, reinforces the principle that such income must be attributed to the assessee for tax purposes. While the taxability of the economic benefits derived from such fraudulent income is beyond the current scope, the fact that the assessee leveraged these funds for personal gains adds weight to the case for taxing the income in the year of accrual. This aligns with the established principle that income, once accrued or received, irrespective of its legality, must be taxed under the Income-tax Act, 1961. 13. On these issues we are guided by the facts of the case as well as the established judgments of Hon ble Supreme Court and High Courts. 14. It is an undisputable fact that the assessee has admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is not an expense incurred for earning taxable income; rather, it represents restitution of wrongful gains . In CIT v. S.C. Kothari [(1971) 82 ITR 794 (SC)], the Hon ble Supreme Court held that losses from illegal activities can be deducted only if incurred for earning taxable income. In the present case, recovery or repayment of fraudulent income does not qualify as an allowable expense. Allowing deductions for recovery of fraudulent income would contradict the legislative intent of the Income-tax Act. It would effectively permit the assessee to benefit from their wrongful acts by reducing their tax liability in subsequent years. 16. In A. Raman Co. v. CIT [(1968) AIR 49 (SC)], the Hon ble Supreme Court ruled that statutory provisions must be interpreted to align with legislative intent and should not enable unintended benefits to taxpayers involved in fraudulent or wrongful acts. Thus, the fraudulent income of Rs. 2,47,943/- for Assessment Year 1992-93 and Rs. 19,36,095/- for Assessment Year 1993-94 is taxable in the hands of the assessee under the head Income from Other Sources. The parking of these funds in the different accounts and subsequent leveraging for economic be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deductible. Restitution does not meet the criterion. Allowing deductions for restitution of fraudulently earned income would undermine public policy by creating an incentive to commit fraud. Courts have consistently disallowed claims for deductions or refunds in such cases to maintain the integrity of the tax administration. 18. We also find that the Income-tax Department has initiated prosecution u/s 277 of the Act. This prosecution is primarily launched as per the provisions of the income-tax act for making false statements in verification under the IT Act. The assessee has been discharged from these charges owing to non-substantiation of this allegation in any form by the Revenue. The Income-tax Department being an arm of the Govt. of India appears to have not launched any criminal proceedings against the assessee for defrauding a Govt. Department by way of claiming of wrong amounts from the Government, like in any other department viz. CPWD, NHAIL, Health, Education or Telecommunications. In this case, the Income-tax Department has to act in dual role of the executor of the income-tax statute and also as an arm of Government. The prosecution launched was limited in its role ..... X X X X Extracts X X X X X X X X Extracts X X X X
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