MEWA LAL DWARIKA PRASAD Vs. CIT

JUDGEMENT

(1.) THE Tribunal, Allahabad, has referred the following questions of law under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act:') for opinion to this Court: R.A. No. 644/All/1987 1. Whether on the facts and in the circumstances of the case and on correct interpretation of the effect of the order dated 23 -4 -1977, as had been passed under Section 132(5), the Tribunal was legally correct in holding that the goods that had been retained thereunder, continued to bear the character of stock -in -trade in the hands of the assessee and were therefore liable to be valued, for the purposes of computing the taxable income of the assessee, on the same basis as was applicable to the other stock -in -trade ?

(2.) WHETHER the Tribunal was legally correct in upholding the addition of Rs. 23,930.29 which represented merely an appreciation in the value of goods that had been held by the IT department eversince 1974 and ultimately retained towards the payment of tax liability by virtue of an order dated 23 -4 -1977 as has been passed under Section 132(5) of the Income Tax Act, 1961. R.A. No. 644/All/1987 1, Whether on the facts and in the circumstances of the case and on correct interpretation of the effect of the order dated 23 -4 -1987, as had been passed under Section 132(5), the Tribunal was legally correct in holding that the goods that had been retained thereunder, continued to bear the character of stock -in -trade in the hands of the assessee and were, therefore, liable to be valued, for the purposes of computing the taxable income of the assessee, on the same basis as was applicable to the other stock -in -trade ? 2. Whether the Tribunal was legally correct in upholding the addition of Rs. 35,687.97 which represented merely an appreciation in the value of goods (sic)since 1974 and ultimately retained towards the payment of tax liability by virtue of an order dated 23 -4 -1987 as has been passed under Section 132(5) of the Income Tax Act, 1961. 2. The present reference relates to the assessment years 1978 -79 and 1979 -80. Briefly stated the facts giving rise to the present reference are as follows. The assessee had originally filed a return for the assessment year 1978 -79 showing an income of Rs. 19,921 which was revised by another return of loss of Rs. 4,010. The assessee submitted that revised return was necessary as certain business assets were seized by the department and continued to be in possession of the department and while filing the original return, the assessee treated such seized assets as its own properties and included the same in the closing stock. It was submitted that on reconsideration, the assessee thought that the seized assets no longer formed part of the trading stock and should be excluded by reverse entries in the accounts. According to the assessee, only the commercial profits could be brought to tax and since the assessee had no domain or control over the seized assets, any appreciation in value would only be hypothetical profit and cannot be brought to tax. It was clarified that the assets were retained to satisfy the demand raised under Section 132(5) and accordingly the same should be treated to have been appropriated towards tax liability till payment is made or refunded to the assessee. The assessee stressed the point that it had ceased to be the owner of the assets which should be excluded from the computation of the net profit. According to the assessing officer, the closing stock has always to be valued in determining profit of the business and any appreciation in the stock value should be taken into consideration. According to him, it cannot be said that retention of the seized assets would tantamount to payment of taxes and income -tax can be only paid in cash and retention of assets was only to safeguard the interest of revenue as is in the nature of 'attachment before judgment'. He also emphasized that the tax can be satisfied only when the assets were sold and sale proceeds were appropriated towards tax. He did not agree with the assessee that ownership of the seized material was no longer with the assessee. He, therefore, computed the income of the assessee on the basis of the original return after consideration of the seized stock as belonging to the assessee. For the second year, that is, assessment year 1979 -80, the Income Tax Officer did not accept similar contentions raised by the assessee in view of the above reasoning.

(3.) THIS time revenue took up the appeals before the Tribunal against the said orders of the Appellate Assistant Commissioner. The Tribunal heard both the sides at length and took into consideration the different decisions. It noted that the accounting year of the assessee ended on 9 -11 -1977. But although the raid and the seizure under Section 132(5) resulted in seizure of stock -in -trade on 23 -4 -1977, but the assessee did claim and included such seized stock as his own stock -in -trade and declared so in the return filed originally. It pointed out that reversal of the entries in the books of the assessee took place after the year of accounting had ended long back. The Tribunal was of the view that seizure of the stock -in -trade would not mean that the same had ceased to be stock -in -trade of the assessee. The Tribunal considered the decision of Hon'ble Kerala High Court in Assainar and Anr. v. ITO and Ors. : [1975]101ITR854(Ker) in order to say that where the money in possession of the party is seized under the Customs Act and the same became liable to be refunded to the party, it would be open to IT department to seize that money or portion of it under Section 132 of the Income Tax Act and that when the articles have been seized pursuant to the provision 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 was seized. The decision of the Hon'ble Supreme Court in the case of Memon Mohd. Haji Hassan AIR 1967 SC 1885, 1889 was also taken into consideration. The Tribunal also observed that order under Section 132(5) has necessarily to be passed summarily to ascertain tax liability of the person concerned. The Tribunal also considered the decision of the Hon'ble Supreme Court in the case of Poojan Mal v. Director of Inspection (Inv.) and Ors. : [1974]93ITR505(SC) before giving its decision. After considering each aspect of the matter and the submissions made before it and after taking into consideration the different decisions of different courts, the Tribunal came to conclusion that the seized stock -in -trade had not ceased to be the stock -in -trade or assets of the assessee. The Tribunal, therefore reversed the order of the Appellate Assistant Commissioner and restored that of the Income Tax Officer.