JUDGMENT
S.H. Kapadia, J.
1. Since the above two appeals arise from common orders of the Tribunal, the same are disposed of together by this common judgment.
2. Being aggrieved by the decision of the Tribunal, directing the addition of Rs. 1,53,02,226 for the assessment year 1988-89, this appeal has been filed under Section 260A of the Income-tax Act, 1961, by the assessee.
facts :
The assessee is a partnership-firm. It is engaged in the business of dealing in bullion, gold and jewellery. For the assessment year 1988-89, it filed its return declaring an income of Rs. 33,18,400. The assessee claimed that in the year of account, relevant for the assessment year 1988-89, it had purchased gold ornaments of Rs. 1,53,02,226 weighing 58.803 kgs. from the partners of the firm and their family members. In other words, gold ornaments were purchased from 18 individuals, out of which five were the partners of the firm and the remaining 13 are their family members. In the audit report furnished under Section 44AB, the said purchases were shown as purchases of old ornaments. However, the purchase memos showed the gold ornaments as new ornaments. The Assessing Officer called for an explanation regarding the above purchase transaction. In its explanation, the case of the assessee was that the said five partners and their family members had filed the returns for the assessment year 1978-79 under the Amnesty Scheme, 1985. That, this was done in March, 1987, when the value of certain jewellery came to be declared as income from undisclosed sources under the head “Income from other sources”. The same jewellery was subsequently sold to the firm in the year of account relevant to the assessment year 1988-89. The amnesty return was filed on the basis of a valuation report obtained from a valuer, Meenawalla, on March 27, 1987. The value of the jewellery was accordingly disclosed under the Amnesty Scheme by all 18 individuals on March 27, 1987. Thereafter, all 18 individuals sold the said jewellery to the assessee. The Assessing Officer summoned all 18 individuals under Section 131 of the Income-
tax Act. 14 out of the 18 individuals attended the office of the Assessing Officer. They stated to have sold the jewellery to the assessee-firm. That, the jewellery was acquired by them out of their income from undisclosed sources. That the income was earned during the assessment year 1378-79. That the income earned was invested in purchase of the jewellery. That, this was disclosed under the Amnesty Scheme by filing a return in March, 1987, for the assessment year 1978-79 and lastly, that all persons who sold the jewellery had offered capital gains on such sale of jewellery in their returns for assessment year 1988-89. All of them stated that the source of jewellery was out of undisclosed income. Except one individual, the remaining individuals could not specify the nature of the source of income. They could not give the names of the jewellers from whom the jewellery was purchased. That, all of them categorically stated that after the declaration of the jewellery in March, 1987, under the Amnesty Scheme, they were given to karigars for re-making the jewellery and that the remade jewellery was sold to the firm as new ornaments. They also admitted that in September, 1982, an action was taken by the Department under Section 132. However, at that time, the jewellery under question was not found by the Department. On the above evidence, the Assessing Officer came to the conclusion that the purchase of gold ornaments of Rs. 1,53,02,226 was not a genuine purchase. He, accordingly, added the impugned amount to the income of the assessee, the impugned amount being Rs. 1,53,02,226. Being aggrieved, the assessee carried the matter in appeal to the Commissioner of Income-tax (Appeals). The first appellate authority came to the conclusion that since the concerned jewellery stood declared in the returns filed under the Amnesty Scheme, no case was made out either to doubt the said purchases by the assessee-firm or to make the impugned addition of Rs. 1,53,02,226. Being aggrieved by the decision of the first appellate authority, the Department carried the matter in appeal to the Tribunal. By the impugned decision, the Tribunal came to the conclusion, inter alia, that the gold acquired out of undisclosed income surfaced in the assessment year 1988-89 and, therefore, the Department was justified in bringing the value of such gold, acquired outside the books, to tax in the assessment year in question. That there was an attempt of capital build-up in the hands of ladies, minors and other relatives of the partners of the assessee-firm. That the entire scheme was planned and coordinated by the assessee-firm. That the assessee-firm cannot be disassociated from the scheme of declaration of gold under the Amnesty Scheme in the names of the family members of the partners of the assessee-firm, particularly in view of the fact that different individuals could not have got the idea of acquiring gold in the assessment year 1978-79 and declaring such gold under the Amnesty Scheme by filing their returns on the same day, viz., March 30, 1987, and thereafter getting the gold converted
into ornaments through karigars around the same time and subsequently selling the ornaments to the assessee-firm in the same accounting year. Accordingly, the Tribunal came to the conclusion that the assessee-firm has resorted to unfair tax-saving device. Accordingly, the Tribunal upheld the findings of the Assessing Officer by adding Rs. 1,53,02,226 to the income of the assessee-firm. Being aggrieved by the decision of the Tribunal, the assessee has come up in appeal to this court under Section 260A of the Income-tax Act.
Arguments :
Mr. Dastur, learned senior counsel for the appellants, contended that the genuineness of the purchase cannot be doubted as the sales were disclosed in the hands of the sellers who paid taxes on account of capital gains on the sales. That the Income-tax Department had, in the same year, assessed these 18 individuals/declarants on account of capital gains in their assessment for the assessment year 1988-89. That merely because purchases were made from the partners and their family members, they cannot be doubted. That the Assessing Officer erred in coming to the conclusion that the respective partners’ accounts were merely credited and that there was no real payment. It was pointed out that the amounts credited to the accounts of the respective partners and the members of their family were credited to the existing accounts and from these accounts, the partners made substantial withdrawals in the same year and, therefore, the Tribunal erred in coming to the conclusion that these were paper transactions. It was further contended that the sellers were persons of substantial means, That they were assessed to tax for many years. That they have made substantial contribution in the business of the firm in the past. That they have independent sources of income. Hence, the Tribunal erred in not considering the relevant facts. It was further contended that the ratio of the decision of the Supreme Court in the case of Jamnaprasad Kanhaiyalal v. CIT[1981] 130 ITR 244 had no application to the facts of the present case, particularly in view of two distinctive facts, viz., in the present case, there was a disclosure under the Amnesty Scheme and the sellers had paid tax on account of capital gains when the gold was sold to the firm. Such facts were not there in the case of Jamnaprasad Kanhuiya-lal . It was further contended that there were patent mistakes, on the face of the record, committed by the Tribunal for which the appellant filed a miscellaneous application under Section 254(2) for rectification. In this regard, it was contended that the appeal filed by the Department was not in conformity with the Income-tax Rules. That the appeal was defective as the same was not accompanied by grounds of appeal, statement of facts as also exhibits filed by the assessee before the first appellate authority. It was contended that the Tribunal decided certain issues which never arose. In this matter, the Commissioner of
Income-tax (Appeals) decided the appeal in favour of the assessee. He held that the judgment of Ihe Supreme Court in Jamnaprasad Kanhaiyalal’s case (1981] 130 ITR 244 was not applicable to the facts of this case. Having so held, the Commissioner of Income-tax (Appeals) did not thereafter go into the merits of the case. Against the decision of the Commissioner of Income-tax (Appeals), the Department went in appeal to the Tribunal. The Tribunal came to the conclusion that the decision of the Supreme Court was applicable. It was contended that on the said finding, the Tribunal should have remanded the matter back to the Commissioner of Income-tax to decide the matter on the facts and in view of the applicability of the judgment of tbe Supreme Court in the case of Jamnaprasad Kanhaiyalal’s case [1981] 130 ITR 244. That was not done. After coming to the conclusion that the judgment of the Supreme Court was applicable, the Tribunal examined the facts and found erroneously, that the firm had introduced unexplained investment in gold in the names of the partners and their family members by getting the returns of income filed for the assessment year 1978-79 under the Amnesty Scheme. Therefore, the Tribunal erred in giving its decision on the factual aspects of the case which did not arise out of the order of the first appellate authority as there was no factual finding given by the first appellate authority. That the Tribunal, while giving its decision on the above facts, failed to take into consideration the evidence produced by the assessee before the Assessing Officer as also before the Commissioner of Income-tax (Appeals). That substantial amounts were withdrawn by the sellers before the end of the year has not been considered by the Tribunal. That this fact was on record in the statement of facts filed before the first appellate authority and which was not enclosed in the appeal paper-book filed by the Department before the Tribunal. That the Tribunal has failed to appreciate that before selling the jewellery to the assessee-firm, the partners and their relatives had disclosed the same under the Amnesty Scheme. They had paid income-tax on the declared jewellery. They had paid wealth-tax on the said jewellery for the assessment year 1978-79 up to 1986-87 when they filed the returns under the Amnesty Scheme and also in the return of net wealth for the assessment year 1987-88. That they had re-made the jewellery and had disclosed the same under the Gold (Control) Act before the jewellery came to be sold. That the parties who sold the jewellery were regularly assessed to income-tax. That the sellers were assessed to wealth-tax for the assessment year 1987-88 and as such, their capacity to acquire the jewellery stood proved. Hence, not only the capacity of the sellers was proved, but also the actual transactions were proved as genuine. This was particularly in view of the fact that they were assessed to capital gains on the same transactions in their individual assessments for the assessment year 1988-89. That the Tribunal failed to appreciate that there was no purpose for disclosing
the jewellery under the Amnesty Scheme in the hands of the partners and their family members instead of in the hands of the firm as the taxes payable in both cases would have been the same. That the Commissioner of Income-tax (Appeals) did not go into the question of capacity of the partners and their relatives for acquiring the jewellery in question as the first appellate authority came to the conclusion that the said judgment of the Supreme Court in Jamnaprasad Kanhaiyalal’s case [1981] 130 ITR 244 had no application to the facts of the present case. That after the Department had assessed the partners and their relatives on account of capital gain for the assessment year 1988-89, and also under the Wealth-tax Act for the assessment year 1987-88, the Department could not have assessed the value of the same jewellery in the hands of the firm once ag’ain in the same year 1988-89 and that the Department should not have, therefore, come to the conclusion that the sales to the firm were not genuine. Hence, the Tribunal erred in dismissing the miscellaneous application filed by the appellants under Section 254(2) of the Act.
Findings :
At the outset, it may be mentioned that there is a difference between source of income and genuineness of the sale of ornaments by the individuals in favour of the assessee-firm. The most crucial question which was required to be taken into account by the Tribunal was whether the Department could have come to the conclusion that the impugned sales were not genuine when, in fact, these very sales have been assessed in the hands of the individuals to capital gains. In this connection, the following facts are required to be mentioned. On March 31, 1987, five partners of the firm, along with their family members, made a declaration under the Amnesty Scheme and filed income-tax and wealth-tax returns for the assessment years 1978-79 to 1987-88. The individuals also filed their returns for the assessment year 1988-89 which was not the amnesty year. For example, Gopaldas Zaveri filed a return of income on June 29, 1988, declaring the income of Rs. 7,05,170. The income was processed and assessed under Section 143(3) of the Income-tax Act. On the basis of sale of gold ornaments in the previous year relevant to the assessment year 1988-89, the sale effected by Gopaldas of the gold ornaments was assessed. Capital gains were accordingly charged for the said assessment year 1988-89. Accordingly, other individuals were also required to pay capital gains tax. In all, Rs. 29,00,000 were paid by way of capital gains tax. In other words, for the assessment year 1988-89, which was not the amnesty year, the Department assessed the individuals as sellers on the ground that they have sold the gold ornaments belonging to them individually. Accordingly, tax has been recovered on the sale price of the gold ornaments. The tax paid by the individuals in all was around Rs. 29,00,000. The cost taken into account was about Rs. 33,00,000. The sale price taken into account for
the purposes of Section 48 of the Income-tax Act was around Rs. 1,53,02,226. In other words, the assessment orders have been passed in the case of individuals levying capital gains tax on the sale of gold ornaments by the individuals to the firm. The short point which is very crucial to be decided and which has not been considered by the Tribunal is : Can the Department assess capital gains tax on the individual sellers and still disallow the purchase cost in the hands of the firm on the ground that the purchase is not genuine ? On ]une 29, 1988, return of income for the assessment year 1988-89 was filed along with the tax audit report. On March 19, 1991, a show-cause notice was issued by the Assessing Officer as to why the value of the purchases of Rs. 1,53,02,226 should not be added to the income of the assessee. By the assessment order dated March 27, 1991, the Assessing Officer disallowed Rs. 1,53,02,226 being the purchase consideration credited to the running accounts of the partners and their family members in respect of the same gold jewellery purchased from them holding that it was not a purchase consideration. That, it represented the income of the appellant from undisclosed sources for the assessment year 1988-89. The Assessing Officer came to the conclusion that the purchase consideration payable to the partners and their relatives represents income of the asses-see from undisclosed sources amounting to Rs. 1,53,02,226 for the assessment year 1988-89. According to the Department, gold ornaments were not found in 1982 when action was taken under Section 132 of the Income-tax Act and, therefore, the sale could not have taken place in favour of the firm in 1987 as the gold ornaments did not belong to the individuals. Hence, according to the Assessing Officer the ornaments always belonged to the firm. That the individuals had no source to acquire the gold ornaments. That the holder of the gold ornaments was only the firm and, therefore, the purchase of gold ornaments by the firm from the partners and their family members was not a genuine transaction. To the same effect is the finding of the Tribunal. The Tribunal has found that there was an attempt at capital build-up in the hands of ladies, minors and other relatives of the partners of the assessee-firm. In coming to the above conclusion, the Tribunal has relied upon various circumstances which are enumerated in the impugned judgment, viz., that the purchase of gold ornaments of Rs. 1,53,02,226 represented only credit purchases and not cash purchases. That the gold acquired out of undisclosed income has surfaced in the year of account relevant to the assessment year 1988-89. That the ladies and minors had no independent source of income to acquire the jewellery in the first instance. That all the sellers gave stereo-typed answers to explain how they acquired the ornaments in the assessment year 1978-79. That the name of the jeweller from whom they acquired the ornaments has not been given. These circumstances have been enlisted broadly at page 177 of the paper-book. But, the most crucial circumstance
which has not been taken into account by the Tribunal is the consequence of the order of assessment under which the sales have been assessed to capital gains in the hands of the individuals. Therefore, the short point which arises for determination in this case and which has not been considered by the Tribunal is : Whether the Department could assess the sales to capital gains on the ground that the sale is genuine and still disallow the purchase cost in respect of the same transaction ? In other words, the consequences of the assessment orders passed in the case of the 18 individuals, assessing the sales to capital gains have not at all been considered by the Tribunal. The Assessing Officer and the Tribunal have proceeded on the footing that Rs. 1,53,02,226 represented income of the firm from undisclosed sources for the assessment year 1988-89. This is a very important circumstance. The assessment orders further indicate that while assessing the sale proceeds of the gold ornaments in the cases of the individuals, the cost of acquisition/purchase plus making charges during the financial year 1977-78 have also been taken into account. On the other hand, in the present proceedings, the Assessing Officer has proceeded on the basis that the ornaments, all along, only belonged to the firm. In other words, the Tribunal has not considered whether the assessment orders passed with regard to the individuals could stand side by side with the order of the Assessing Officer passed in the present appeal. If the ornaments, all along, belonged to the firm, then one fails to understand as to how the cost of acquisition/purchase has been taken into account for the financial year 1977-78 in the assessment orders passed in the cases of the 18 individuals. The assessees have been separately assessed. Lastly, in the present matter, the Tribunal has not considered the evidence which formed part of the statement of facts filed by the assessee before the first appellate authority. Against the order of the Commissioner of Income-tax (Appeals), the Department went in appeal to the Tribunal. They did not file the statement of facts which was filed by the assessee before the first appellate authority. That statement of facts also consisted of voluminous evidence which has been annexed to the paper-book in the present appeal running from pages 91 to 128 of the paper-book in Income-tax Appeal No. 404 of 2000.
3. Under the above circumstances, we are of the view that the impugned order is required to be set aside. That the matter is required to be remitted to the Tribunal for disposal in accordance with law. The appeal filed before the Tribunal by the Department is accordingly restored to the file of the Tribunal. The Department can apply for rectification of their memo of appeal so that the requisite paper-book/material can be brought on record. The Department is also given liberty to move the Tribunal by way of amendment application, if so advised, and they are given permission to add additional grounds to the memo of appeal, if so advised. This liberty is
required to be given because we find merit in the contention of the Department that the grounds of appeal before the Tribunal do not cover all aspects of the case. The Tribunal may also give an opportunity to the parties, if it so desires, to produce additional evidence in accordance with the Rules. The Tribunal should also consider, in the light of what is stated hereinabove, the question regarding the applicability of the judgment of the Supreme Court in the case of Jamnaprasad Kanhaiyalal v. CIT[1981] 130 ITR 244 afresh, particularly with regard to the consequences of the assessment order being passed on the returns of the individuals, subjecting the sales to capital gains tax in the hands of the individuals.
4. Accordingly, the appeal is allowed. The impugned order is set aside. The Tribunal is directed to hear and dispose of the appeal in accordance with law within four months from the date of the receipt of the certified copy of the order passed by us in the above two appeals.
5. Subject to above, both the appeals are disposed of with no order as to costs.
