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I. T. A. No. 2113/LB of 1983-84, decided on 30th June, 1985.

--Ss. 4(2-A) a 23(3)--Undisclosed income--Addition--Income neither undisclosed nor unexplained but value of silver bullion confiscated by Martial Law Authorities from possession of partner at assessee firm who was convicted and sentenced for possession thereof--Silver bullion was released by order of Governor in favour of said partner and not in favour of assessee firm or other partners-- Assessee's case throughout being that bullion belonged to certain Beoparies and assessee was to sell it on commission basis--Silver bullion having been released to one partner who was convicted and sentenced for possession thereof, assessee firm could not be said to be owner of bullion--Nature and source of investment as such fully explained--Mere fact that assessee firm had shown same in balance-sheet for assessment year in question, held, would not necessarily make it unexplained and undisclosed income of firm--Department failing to show that silver bullion did not belong to said partner but belonged to assessee firm--Addition deleted at hands of assessee in circumstances.

Zia H. Rizvi for Appellant.

M. Arahad Pervaiz for Respondent.

Date of hearing: 13th May, 1885.

This is an appeal tiled by a registered firm deriving income from the purchase and sale of silver and gold bullion and relates to the assessment year 1978-77. Only a short question is in issue in this case, The assessing officer has made an addition of Rs.3,01,560, under section 4(2-A) of the 'Repealed Income-tax Act as undisclosed income.

2. Brief facts in the case are that the assessee's firm consists of three persons as under:----

(1) Mr. Abdul Wahid

(2) Mr.. Abdul Rasheed.

(3) M. M. Shareef

On 29-9-1970, 6 Maunds 32 Seers silver bullion was seized from the assessee's premises and Abdul Wahid, one of the partners was arrested by the Martial Law Authorities. The assessee's case before the Martial haw Authorities was that this bullion belonged to certain Beoparies. Consequently, Mr. Abdul Wahid alongwith some Beoparies were tried by the Martial Law Authorities. However, since other Beoparies denied any connection with this bullion, they were acquitted but Mr. Abdul Wahid was convicted and sentenced to imprisonment and, therefore, said silver bullion was confiscated by the Government. On 13-4-1976 this silver bullion was released by the Government to Mr. Abdul Wahid under the order of the Governor. The relevant order of the Governor conveyed by Deputy Secretary Judicial is reproduced below:-

Government of Punjab Home Department (Judicial-II) Lahore 13-4-1976.

Order:-

No. C-3/928.-- In exercise of the powers conferred clause (2) of Article 5 of the Martial Law (forming Proceedings Ordinance 1972, President's Order No.14 of 1972, the Government of the Punjab, on re-consideration of the case of accused Abdul Wahid C/o Muhammad Sharif of Shop No.734/F Sooha Bazar Lahore, who was tried by Summary Military Court Lahore, alongwith five others, in case F.I.R. No.230, dated 26-9-1970, P.S. Lohari Gate Lahore, under M.L.R. 23, is pleased to remit the sentence of confiscation of Silver only, weighing 6 Mounds and 32 Seers in the case of Abdul Wahid, petitioner.

By order of the Governor of the Punjab

(Sd.) (GHULAM MURTAZA KHAN BAJWA),

Deputy Secretary (Judicial)

Secretary to Government of Punjab

Home Department, Lahore.

Place: Lahore.

Dated: 13th April, 1976.

In consequence of that order of the Governor and on the same date i.e. 13-4-1976, the Department wrote a letter No. SO-J-3(C) 3/925 to the District Magistrate, Lahore in which he was requested to release the Silver Bullion weighing 6 Maunds 32 Seers to Mr. Abdul Wahid as its confiscation had been remitted by the Governor of the Punjab. The concluding paragraph of that letter reads as under:

"It is, therefore, requested that the said confiscated silver, may immediately please be ordered to be released in favour of petitioner Abdul Wahid, under intimation to this Department".

3. After the release of this confiscated silver to Mr. Abdul Wahid, it was shown by the firm in its account as its asset valued at .......... Rs.3,01,560. In the balance-sheet it was mentioned against this asset that it was value of silver thobi released after confiscated on 26-9-1970 under order of the Governor of Punjab. However, in the assessment year 1977-78 this amount of Rs.3,01,560 was credited to two of the three partners of the firm namely Abdul Wahid and Abdul Rashid. The assessing officer has added 89.3,01,560 on the basis of the entries in the balance-sheet as assets of the firm while the assessee's case is that this was never property of the firm and, therefore, cannot be added as income of the firm as undisclosed income.

4. The facts stated above made it absolutely clear that firstly, this was not an undisclosed income of the assessee nor it was unexplained. Section 4(2-A) requires that if the assessee fails to explain the source and nature a credit in the books of accounts of the assessee, the sum to credit may be treated as income of the assessee for that previous year. Obviously nature as well as the source of this amount has been explained by the assessee's firm. Admittedly, this is the value of silver, which was confiscated by the Martial Law Authorities in September, 1979. Admittedly, this silver has been released to Mr. Abdul Wahid only and to the assessee firm. Again, admittedly, it was Abdul Wahid who had been convicted and sentenced for the possession of this bullion and not the other partners of the firm. As such, to say the nature and sources of investment has not been explained by the assessee does not stand to reason. The assessee's case throughout had been that this was owned by certain Beoparies and the assessee was to sell it on commission basis. However, the assessee's version was not accepted by the Martial Law Authorities and it was for that reason that Abdul Wahid partner was convicted and sentenced. Therefore, the firm cannot be held to be the owner of this silver bullion. It-is Abdul Wahid alone who had been convicted and sentenced for the possession of this bullion and it is he to whom the Governor has released this silver bullion. Even otherwise, mere fact that the assesses firm has shown it in its balance-sheet for the assessment year 1976-77 does not necessarily make it unexplained and undisclosed income of the firm. The learned counsel for the assesses contended that since the other partner namely Abdul Rashid had helped in the release of this bullion he was given 50% share by Abdul Wahid. In any case had it been property of the firm all the three partners would have been convicted and in the next assessment year all the three partners would share this bounty. The alternative argument of the learned counsel for the assessee is also correct that in any case the value, which could be added was the cost price as in September 1970. It was submitted that at best it could be assumed that the assesses had purchased it in September 1970 when it was seized by the Martial Law Authorities. The assessee firm have given the value of this bullion as on 30-6-1976. If at all the assessee was to explain, it was to explain the investment made in September 1970 which was at about Rs.32 per Tola as against Rs.1,385 per Tola in the year 1976. The value at the rate of 32 per Tola works out of Rs.65,280.

5. After considering the arguments of the learned counsel for the assessee, we are of the view that this bullion did not belong to the firm but it belonged to Abdul Wahid alone. As admittedly it was he alone from whose possession this was seized and it was he alone who was convicted for the possession of this bullion and it was in his favour that bullion was released by the Governor. In the presence of their admitted facts this bullion cannot be said to be owned by the assesses firm in early because of any entry made by it on its assets side in the balance-sheet. The department has not been able to show that this silver bullion does not belong to Abdul Wahid but belongs to the assessee firm.

6. For the foregoing reasons, we direct that this addition should be deleted at the hands of the assessee.

M.Y.H. Appeal accepted.

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