P. Soman vs Commissioner of Income Tax

C.N. Ramachandran Nair, J.—The Appellant, a Goldsmith-cum-Jeweller, has filed this appeal u/s 260A of the income tax Act against the order of the income tax Appellate Tribunal confirming disallowance of deduction of a sum of Rs. 1,50,000 paid towards redemption fine imposed by the Central Excise authorities for release of gold seized from the Appellant during the accounting year relevant for the assessment year 1989-90. A search was made by the Central Excise and Gold Control Authorities in the premises of the Appellant on 28-4-1988 and seized unaccounted jewellery worth above Rs. 4 lakhs. In adjudication proceedings completed on 11-1-1989, the Central Excise authorities confiscated the gold imposing personal penalty of Rs. 75,000 which was reduced in appeal to Rs. 45,000 and allowed redemption of seized gold ornaments on payment of redemption fine of Rs. 1.5 lakhs. In view of search and seizure of gold ornaments, the income tax assessment originally completed was reopened u/s 147 of the income tax Act and the value of the seized gold ornaments was assessed u/s 69A of the income tax Act. In the assessment the Appellant claimed deduction of Rs. 1.5 lakhs being redemption fine later paid for release of the gold ornaments. Deduction claimed was disallowed for the reason that fine paid for redemption of gold ornaments is for infraction of law and penal in nature and so much so it is not an allowable deduction. In the first round of appeal before this Court, the matter was remanded again to the Assessing Officer for considering the true nature of the redemption fine. However, in remand proceedings also the Assessing Officer confirmed the disallowance, against which appeal before the Tribunal was also unsuccessful. It is against this order the Appellant has filed this appeal before this Court.

We heard counsel appearing for the Appellant and the Standing Counsel for the income tax Department. Counsel for the Appellant relied on the decision of the Supreme Court in Dr. T.A. Quereshi Vs. Commissioner of Income Tax, Bhopal, and contended that the payment of redemption fine is a business loss and the same has to be allowed as a deduction. On the other hand, Standing Counsel appearing for the revenue has relied on the decision of the Supreme Court in Haji Aziz and Abdul Shakoor Bros. Vs. The Commissioner of Income Tax, Bombay City II, and in Swadeshi Cotton Mills Co. Ltd. Vs. Commissioner of Income Tax, and contended that redemption fine is in substance a penal levy and not an allowable deduction. After going through the impugned orders and after hearing counsel for both sides, we are of the view that the Assessee''s claim for deduction is not maintainable because Section 69A which is a provision under which the value of seized jewellery is added to the income of the Appellant does not provide for deduction at all. For easy reference Section 69A is extracted hereunder:

Where in any financial year the Assessee is found to the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the Assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the Assessee for such financial year.

It is admitted position that addition made is of the value of the unaccounted jewellery seized from the premises of the Appellant and only Section 69A authorises assessment of unexplained income of this nature. By the deeming provision contained in Section 69A, any money, value of bullion, jewellery or other valuable article found in the ownership of the Assessee which is not recorded in the books of account maintained by him will be treated as his income for such financial year. The section obviously does not provide for any deduction or allowance while making addition in terms of Section 69A. All what is required to be proved is that the Assessee is the owner of money or the valuable article seized and if it has not been recorded in the books of account, it shall be deemed to be the income of that financial year. In this case, the Assessee''s gold ornaments were admittedly found to be not accounted by the Assessee in the accounts and that is the reason why it was seized by the Central Excise authorities. There is no dispute with regard to the ownership of the gold ornaments and the Appellant lost the ownership only when adjudication order is passed by which the department confiscated the gold. However, in the confiscation order, the Appellant was given an option to redeem the gold ornaments on payment of the redemption fine of Rs. 1.5 lakhs. It is admitted that the Appellant actually redeemed the gold on payment of the redemption fine. So long as the assessment of seized gold ornaments u/s 69A is concerned, its value being the unaccounted income of the financial year in which the seizure was made by virtue of Section 69A it was rightly assessed as income for the relevant assessment year 1989-90. In our view, the subsequent development such as adjudication, confiscation and later redemption of the article on payment of the personal penalty and redemption fine will not affect the assessment of the value of the seized jewellery u/s 69A. Since Section 69A does not provide for any deduction whatsoever in respect of addition, the claim for redemption fine later paid by the Assessee for retrieving gold is not an admissible claim at all. So much so disallowance of the claim by the Assessing Officer and confirmed by the Tribunal is perfectly in order though not for the reasons stated by them. However, we make it clear that if retrieved gold is later taken as stock in business the Assessee may be entitled to claim redemption fine paid as expenditure or cost. In any case since this issue does not arise for consideration for the assessment year in question, we do not propose to give any opinion about it. Since subsequent years'' assessment orders are not before us we do not give any direction in this regard.

The appeal is dismissed with the above observations.