Madras High Court upholds ₹1.28 crore tax on jewellery trader for gold sales suppression
Gold turnover suppression leads to penalty as Madras HC restores income tax assessment
In a significant ruling reinforcing the importance of timely disclosure and accurate accounting, the Madras High Court has dismissed a jewellery trader’s plea against tax and penalty proceedings for large-scale suppression of purchases and sales. The court affirmed that the Assessing Officer had acted appropriately in relying on contemporaneous records and admissions to tax the suppressed turnover.
Background of the Case
The matter pertains to an inspection conducted at Alagar Jewellery Mart, Tuticorin, in November 1996, which unearthed serious financial irregularities. The inspection revealed that gold worth approximately ₹12 lakh, issued to goldsmiths and the corresponding sales of ornaments, was entirely unrecorded in the official books of accounts. The findings were further corroborated by the seizure of documents and stock discrepancies.
Subsequent investigations led to the discovery of unaccounted purchases of old jewels, unrecorded sales of converted ornaments, and unexplained stock variations, aggregating to a suppression of over ₹60 lakh. When combined with additional omissions and findings from an income tax raid, the total unaccounted income reached nearly ₹1.28 crore.
Seized Evidence and Initial Admission
Among the documents seized during the inspection were two private notebooks that indicated the transfer of 5,382 grams of old jewels to 17 goldsmiths, with only 3,951 grams of new ornaments returned. This discrepancy lacked any accounting trail. At the time of the inspection, the assessee admitted to these irregularities.
However, in a turn of events, the assessee later claimed during the appellate stage that the transactions reflected job work or “coolie conversions”, a form of outsourced labour commonly used in the jewellery industry. No supporting evidence—such as job work vouchers, acknowledgments, or labour payment records—was presented to support this contention.
Court’s Observations
The Division Bench comprising Justices P. Velmurugan and K.K. Ramakrishnan found the plea of job work to be an afterthought, observing that it was raised only at the appellate stage, without any documentation or corroboration. The Bench remarked:
“It is also relevant that during the inspection, the respondent did not produce any supporting accounts, nor did he take the plea of coolie conversion. It was only at the appellate stage that he took this plea and attempted to adjust the accounts. This shows that the accounts were not properly maintained at the relevant time and were sought to be adjusted only after the discrepancies were discovered during inspection. Such conduct strengthens the conclusion that the suppression was deliberate.”
Findings and Legal Position
The High Court held that the Assessing Officer had correctly relied on seized records and the assessee’s contemporaneous admissions to compute the suppressed turnover and impose a penalty. It further noted that the Tribunal and the Appellate Assistant Commissioner erred in accepting the belated explanation without any corroborative material.
The Court emphasized that an admission made during the course of an official inspection carries substantial evidentiary value and cannot be casually withdrawn or contradicted without sufficient proof.
Final Verdict
The Madras High Court set aside the orders of the lower appellate authorities, restored the original assessment, and upheld the penalty levied by the Assessing Officer. The Court thereby allowed the tax case revision, underscoring the principle that suppression of turnover and misrepresentation in tax matters will be dealt with strictly under law.
This judgment reaffirms the legal position that timely admissions and proper maintenance of accounts are critical in tax assessments. Attempts to introduce unsubstantiated explanations at later stages are likely to be viewed as deliberate attempts to evade tax liability. The ruling sends a clear message about the consequences of financial suppression and after-the-fact justifications, particularly in sectors prone to cash-based transactions and underreporting.