9911796707
TMI Blog1987 (9) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... ession of the department and that while filing the original return, the assessee treated such assets as its own properties and included the same in the closing stock. It was clarified that on a re-consideration of the matter, the assessee thought that those assets did not form part of the trading stock and, therefore, they should be excluded from the closing stock by reversing the entries in the account books. 3. It was contended before the ITO that only commercial profit could be brought to tax and since the assessee had no domain over the assets seized, any appreciation in value will only be a hypothetical profit and cannot be brought to tax. It was stated as well that the assets were retained to satisfy the demand raised under section 132(5) and hence they should be treated to have been appropriated towards the tax liability and, therefore, no profit can be taxed till the payment was refunded to the assessee. It was stressed before the ITO that the assessee ceased to be the owner of the assets and was not free to use them according to its own requirements and, therefore, the assessee cannot be taxed on such value. 4. The ITO noted that no doubt the hypothetical profit cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s registered firm and the accounting method was mercantile. The assessment year ended on ] 9-11-1977. 7. Similarly for the assessment year 1979-80, the ITO rejected the contentions of the assessee. On the same basis as in 1978-79, the assessment for 1979-80 was completed. 8. Amongst other things, the assessee took up the matter before the AAC reiterating these grounds and submissions made before the ITO. The AAC heard the submissions on behalf of the assessee. For the assessment year 1978-79, the AAC found considerable force in the submissions of the assessee. He noted that the ITO has completely overlooked the fact that silver ornaments which were included in the stock-in-trade in the balance-sheet filed along with the return, stood appropriated against the tax liability created by virtue of an order dated 23-4-1977 passed under section 132(5) of the Act. According to the AAC, the stock-in-trade to that extent ceased to be the stock-in-trade and the assessee was not liable to be taxed on price appropriated of such goods at the close of the accounting year. The AAC referred to the assessee's letter addressed to the ITO in August 1980, in which it was mentioned that following th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the stock in trade has to be valued at market value. It is urged at length that on the facts of the case, the AAC went wrong in deleting the addition and his orders for both the years required to be reversed and those of the ITO may be restored. 12. On the other hand, the assessee's learned counsel supports the order of the AAC. In fact various contentions and arguments adopted before the authorities below are reiterated before us as well. It is urged that assets which was stock in trade of the assessee in the past years ceased to be the stock in trade after the order under section 132[5] which was passed on 23-4-1977, i.e. before the end of the previous year, relevant to the assessment year 1978-79. It is urged that the appeal by the revenue having no merits may be dismissed. Reference is made in this connection to the decision of the Hon'ble Supreme court in the case of State bank of Travancore v. CIT [1986] 158 ITR 102 with emphasis at page 133 in which amongst other things, it was observed that if the stock in trade remained unused, or unsold, mere book appreciation in the value thereof cannot be brought to tax but on the facts requisite to sustain the proposition, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of tax would be available the balance would have to be returned to the owner and in the instant case, the assessee would be entitled to receive back the balance. How could we, therefore, say that the assessee by virtue of order under section 132(5) has ceased to be the owner of such goods. In this connection, we may refer to a decision of the Hon'ble Kerala High court in the case of Assainar v. ITO [1975] 101 ITR 854 in which on the facts of that case, it was held that where the money in the possession of the party is seized becomes liable to be refunded to the party, it would be open to the Income tax Department to seize that money or portion of it under section 132 of the Act. It was also held, however, in that case that when articles have been seize pursuant to a procession in the statute and as long as the enquiry is pending, the officer who seized the articles will be in the position of a bailee and once the proceedings are over, that officer will no longer be a bailee and he has the obligation to return the articles to the person from whom it were seized. it was held that that officer would be holding articles on behalf of the person from whom it was seized. Thus, in our vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment. 16. It has to be mentioned also that the goods so seized under section 132[5] are to be retained and the tax demand would be adjusted accordingly. The balance would have to be returned or refunded to the owner i.e. the assessee in the instant case and to nobody else. The assessee in the circumstances would make necessary entire in the accounts regarding debiting or crediting such income tax. The assessee in the circumstances would make necessary entries in the accounts regarding debiting or crediting such income tax liabilities and the assessee need not pay such demand again by making direct payments by cash or by any other means, as the tax demand stood statisfied by such adjustment with the retained assets. In the case of Pooranmal it was held by the Hon'ble supreme court that section 132[5] does not contemplate a different procedure on regular assessment as the section only contemplates a provisional summary inquiry with a view to determine how much of the seized wealth can be legitimately and reasonably retained to over tax liability already incurred and that regular assessment follows in the same manner as in other cases. 17. In the instant case, it is not the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of value of such stock in trade. On behalf of the revenue, reference is made by the learned Departmental Representative to a decision of the Third Member in the case of Sandvik Asia Ltd. v. [1985] 14 ITD 35 [Bom.] [TM]. We also have gone through the decisions as cited by note the sides for our consideration. Having regard to the facts of the case and the materials available on record and in view of what we have decided in the preceding paragraphs, valuation of the stock in trade would have to be made in the same method as adopted by the assessee in the earlier years. It there was any appreciation in the value of the stock in trade as on the closing of the proviso year, the same would have an effect on the previous year, the same would have an effect on the trading result for the year under consideration. The ITO has noted that income would be determined on the basis of profit and loss account filed by the assessee along with the original return, It appears that the valuation adapted by the assessee or the market rate applied was disturbed by the ITO in the assessment order. The AAC has deleted the addition on the main ground dealt with by us in the earlier preceding paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X
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