DCIT-CENTRAL CHARGE-8(3), MUMBAI V. ESTATE OF LATE SHRI RAMNIKLAL RAJMAL MEHTA- EXECUTOR SHRI DILIP RAMNIKLAL MEHTA, MUMBAI

ITA 4220/MUM/2024

AI Insights

The case revolves around the appeal by the Revenue against the order of the learned Commissioner of Income Tax (Appeals) which had deleted a substantial disallowance made by the Assessing Officer under Section 69A of the Income Tax Act, 1961, concerning unexplained money. The disallowance was initially made following a search and seizure operation at the business premises of the assessee, leading to the discovery of a foreign bank account linked to the estate of the late Ramniklal Mehta. The key legal issue was the validity of the search and the subsequent notice under Section 153A, which was challenged on the grounds that it was issued in the name of a deceased individual. The Tribunal's decision emphasized the procedural impropriety in issuing notices and conducting searches against deceased persons, thereby invalidating the subsequent assessments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471339 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Other Referred Cases: Gunjan Girishbhai Mehta vs Director of Investigation, Commissioner of Income-tax, Karnal v. Rakesh Kumar, Mukesh Kumar, Bhupendra Bhikhalal Desai v. Income Tax Officer, Ward, Commissioner of Income-tax -VIII, Chennai v. M. Hemanathan, Commissioner of Income Tax v. Moti Ram (Deceased) (through his legal heir Dharam Pal), Mr. Samadhan Krishna Katekar, L/H of Late Krishna Kathari Katekar v. ITO. Ward-3, Panvel Range
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANYOGITA NAGPAL
• Assessee Lawyers: ROHAN SHAH; P P BHANDARI
• Keywords: Set aside; Peak credit; Principle of natural justice; Search and seizure; Double taxation relief; Residential status
• Section: 143(3); 132; 153A; 131; 22; 69A; 158BC; 158BD

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “D”, MUMBAI Before Justice (Retd.) C V Bhadang, Hon’ble President & Shri B R Baskaran, Hon’ble Accountant Member ITA No. 4220/Mum/2024 for A.Y. 2006-07 DCIT Central Charge 8(3), Mumbai Vs. Estate of Late Ramniklal Rajmal Mehta- Executor Shri Dilip Ramniklal Mehta, 1608/1609 Prasad Chambers, Charni Road, Opera House, Mumbai 400 004. PAN AAHPM1917B (Appellant) (Respondent) Assessee By : Shri Rohan Shah & Shri P P Bhandari Revenue By : Smt Sanyogita Nagpal (CIT DR) Date of Hearing : 09.12.2024 Date of Pronouncement : 07.03.2025 ORDER Per Justice (Retd.) C V Bhadang, President: By this appeal, Revenue is challenging the order dated 28.06.2024 passed by the learned Commissioner of Income Tax (Appeals)-50, Mumbai (‘CIT(A)’ for short). The appeal relates to assessment year 2006-07. By the impugned order, the learned CIT(A) has deleted the disallowance of ₹ 188,65,84,826/- made by the Assessing Officer to the total income of Estate of late Ramniklal Rajmal Mehta under Section 69A of the Income Tax Act, 1961 (‘Act’ for short) as unexplained money. 2. The brief facts necessary for the disposal of the appeal may be stated thus. 2 ITA No. 4220/M/2024 Estate of Late Shri Ramniklal Rajmal Mehta Shri Ramniklal Mehta, father of Shri Dilip Mehta passed away on 07.04.2002 at his residence in India. Shri Dilip Mehta happens to be the Executor of Estate of late Shri Ramniklal Mehta. Undisputedly, Dilip Mehta and his wife had initially moved to Belgium in the year 1973 and are presently residing in Dubai. Shri Dilip Mehta is a non-resident Indian (NRI). 3. A search and seizure action was carried under Section 132 of the Act at the business premises of the assessee at Rosy Blue (India) Group on 25.08.2011. Consequent to the search, a notice under Section 153A of the Act was issued on 11.01.2013 in response to which a Return of Income (RoI) was filed on behalf of the Estate of late Ramniklal Mehta on 04.03.2013 declaring a total income of Rs.11,47,13,590/-. The Assessing Officer has noticed that the said RoI filed on 04.03.2013 under Section 153A of the Act was filed showing the status of the assessee as an NRI. 4. It appears that an information was received by the Government of India from French Government under DTAA regarding an account in the name of an entity called White Cedar Investment Ltd. (now known as Red Oak Operations Ltd.). It was informed that the account in the name of White Cedar Investment Ltd. is in HSBC Bank, Geneva. The base note from HSBC Bank, Geneva showed peak credit of an amount of USD 4,48,61,171 as on March, 2006, in the said account. 5. During the course of search Shri Russel Mehta, relative of late Shri Ramniklal Mehta, was asked to explain the nature and source of investments with HSBC Bank, Geneva. In statements dated 26.08.2011 and 28.12.2011 Shri Russel Mehta informed that Shri Dilip Ramniklal Mehta who is the Executor of Estate of late Shri Ramniklal Mehta should be aware of the foreign bank 3 ITA No. 4220/M/2024 Estate of Late Shri Ramniklal Rajmal Mehta account. Accordingly, a letter was served on Shri Dilip Mehta in response to which he filed a reply on 06.01.2012 informing that White Cedar Investment Ltd. is an independent investment company with several subscribers. It was further informed that certain assets belonging to late Shri Ramniklal Mehta were sold in 2003-04 after his death in 2002. Some sale proceeds were invested in White Cedar Investment Ltd. of USD 27,95,000. Shri Dilip Mehta also produced letter dated 27.12.2011 from Mr Karl French, Director of White Cedar Investment Ltd. stating that an amount of USD 27,95,000 was invested by Shri Ramniklal Mehta in White Cedar Investment Ltd. It is further stated that the Estate of late Shri Ramniklal Mehta holds 5.73% shares in the corpus of White Cedar Investments Ltd. 6. It appears that thereafter a statement of Shri Dilip Mehta was recorded by Investigation Wing on 10.01.2012 in which he informed that the sale proceeds of ₹ 11,46,72,012/- have been deposited in the account of the investment company, White Cedar Investment Ltd., which were proceeds on account of sale of jewellery owned by his father late Shri Ramniklal Mehta. It was also stated that Estate of late Ramniklal Rajmal Mehta shall pay taxes on the said amount of Rs.11,46,72,012/-, which tax has accordingly been paid. 7. During the assessment proceedings, the Assessing Officer issued notice under Section 131 of the Act to the executor of Estate of late Shri Ramniklal Mehta to submit the complete copy of statement of bank account in HSBC and if he is not in a possession of the bank statement then he was requested to furnish a consent waiver form, none of which was complied with. 8. A requisition was made to the Spanish tax authorities through FT & TR Division of CBDT to obtain details of the entity White Cedar Investments Ltd. 4 ITA No. 4220/M/2024 Estate of Late Shri Ramniklal Rajmal Mehta (Red Oak Operations Ltd.) in order to verify the authenticity of letter dated 27.12.2011 of Mr. Karl French. The information received from the Spanish Tax authorities showed that there was no company by name White Cedar Investment Ltd. or Red Oak Operations Ltd. registered in Spain. It was also informed that though Mr Karl French was a resident of Spain he was not a Director of any Company in Spain. 9. A letter dated 10.03.2014 produced by learned AR of the assessee before the Assessing Officer, showed that White Cedar Investment Ltd. was a company incorporated in British Virgin Island, under IBC number 582130. 10. On consideration of the entire material, the Assessing Officer came to the conclusion that the assessee has not discharged the onus by submitting the consent waiver form and the authenticity of the letter dated 27.12.2011 from Mr. Karl French that the assessee owned only 5.73% of the corpus of White Cedar Investments Ltd. could not be verified. Finally, the learned Assessing Officer concluded that in the RoI, the assessee had declared income at Rs. 11,46,72,012/- equivalent to USD 25,70,545/- as against peak balance of USD 4,48,61,171/- as on 03.03.2006 which was equivalent to ₹ 200,12,56,838/-. It is in these circumstances that the learned Assessing Officer by virtue of order dated 30.05.2014 passed under Section 153A r.w.s. 143(3) of the Act assessed total income at ₹ 200,12,98,416/-. After considering the amount which has been declared, the net disallowance/addition is to the extent of ₹ 188,65,84,826/-. (₹ 200,12,56,838 less 11,45,72,012) 11. Shri Dilip Mehta representing the Estate of late Shri Ramniklal Mehta challenged the said order before the learned CIT(A). The learned CIT(A) vide 5 ITA No. 4220/M/2024 Estate of Late Shri Ramniklal Rajmal Mehta order dated 28.06.2024 dismissed the appeal and confirmed the additions made. 12. The matter was carried to this Tribunal in ITA No. 3771/Mum/2017. There was a connected appeal bearing ITA No. 405/Mum/2017 challenging the order of imposition of penalty, to which we are not presently concerned. 13. A co-ordinate Bench of the Tribunal vide order dated 25.08.2022 (in the quantum appeal) remitted back the appeal to the file of learned CIT(A) for deciding the ground nos. 1, 2 and 3 as raised on behalf of the assessee. The grounds are reproduced as under :- “1. The Learned Commissioner of Income-tax (Appeals) erred in upholding the validity of notice under Section 153A of the Act and the order passed by the Learned Assessing Officer under Section 153A r.w.s. 143(3) of the Act on the ground that the Appellant did not object to the notice under section 153A of the Act and no submissions were made during the course of appeal proceedings. It is submitted that a notice under Section 153A of the Act can be issued only if a search is initiated under Section 132 of the Act on the appellant. The Appellant had explained the status of proceedings. In absence of a search, the notice issued under Section 153A of the Act and the subsequent assessment order passed under Section 153A r.w.s. 143(3) of the Act are bad in law and ought to be cancelled. 2. The Learned Commissioner of Income-tax (Appeals) without disposing the specific ground raised, erred up holding the order of Learned Assessing Officer passed without furnishing the information/details purported to have been received by him before using the same against the appellant. It is submitted that the learned Assessing Officer has made huge additions under Section 69A of the Act to the Returned Income of the Appellant without giving any opportunity to the Appellant to make his 6 ITA No. 4220/M/2024 Estate of Late Shri Ramniklal Rajmal Mehta submissions in the matter. The order passed based the information/details which were never made available to the appellant and without affording an opportunity to the appellant is against the natural justice and is bad in law and ought to be cancelled. 3. The Learned Commissioner of Income-tax (Appeals) erred in upholding the order passed by Learned Assessing Officer assessing the appellant in the status of \"Resident\" under Income-tax Act, 1961. It is submitted that in accordance with the provisions under Section 168 r.w.s. 6 of Income-tax Act, 1961 the appellant is a \"non-resident\" as claimed in the return of income. The appellant has furnished all details as available to establish the status of the \"Estate\" as non- resident and as such there is no reason to for the learned Assessing Officer to take a contrary view without bring any material evidence to negate the claim of the appellant.” 14. The learned CIT(A) in the second round of challenge has decided the appeal by order dated 28.06.2024 upholding ground no. 1. In the result, the search proceedings initiated against a dead person and the consequent notice issued under Section 153A of the Act on Shri Dilip Mehta as executor of Estate of late Ramniklal Mehta was held to be illegal and invalid. 15. We have heard the learned DR for the appellant and the learned AR for the respondent. With their assistance, we have gone through the record. The Revenue has filed revised grounds of appeal on 14.10.2024 which are as under:- “1. Whether on the facts and under the circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 188,65,84,826/- (Rs.200,12,56,838/- less Rs.11,46,72,012/-) made by the assessing officer to the total income of the assessee as unexplained money u/s.69A of the Act without appreciating the fact that the warrant of authorization was issued in the name of Shri. Ramniklal Rajmal Mehta and Dipti Doshi and was duly executed on 25.08.2011 which is signed by Dipti Doshi who was very much alive and hence the warrant was validly executed? 7 ITA No. 4220/M/2024 Estate of Late Shri Ramniklal Rajmal Mehta 2. Whether on the facts and under the circumstances of the case and in Law, the Ld.CIT(A) has erred in deleting the disallowance of Rs.188,65,84,826/- (Rs.200,12,56,838/- less Rs.11,46,72,012-) made by the assessing officer to the total income of the assessee as unexplained money u/s.69A of the Act without appreciating the fact that the warrant of authorization was in the name of Shri Ramniklal Rajmal Mehta and as he was dead therefore the proceedings was initiated on legal heir/successor Shri Dilip Mehta as Executor of the Estate of Late Ramniklal Mehta and hence the proceedings u/s 153A of the Act is completely legal and as per provisions of the Act? 3. Whether on the facts and under the circumstances of the case and in Law, the Ld.CIT(A) has erred in deleting the disallowance of Rs.188,65,84,826/- (Rs.200,12,56,838/- less Rs. 11,46,72,012/-) made by the assessing officer to the total income of the assessee as unexplained money u/s.69A of the Act without appreciating the fact that the assessee did not raise the issuance of notice u/s 153A either during the course of assessment proceedings or original appellate and in fact had filed return in response to notice uls.153A of the Act and therefore notice issued u/s. 153A of the Act was validly issued? 4. Whether on the facts and under the circumstances of the case and in Law, the Ld.CIT(A) has erred in deleting the disallowance of Rs.188,65,84,826/- (Rs. 200,12,56,838/- less Rs.11,46,72,012/-) made by the assessing officer to the total income of the assessee as unexplained money u/s.69A on the ground that there is absence of incriminating material without appreciating the fact that the Hon'ble ITAT has not set aside this issue of additions made in the proceedings u/s. 153A of the Act without having any incriminating material in the instant case and thus adjudicating the same was out of the jurisdiction of the Ld.CIT(A)? 5. Whether on the facts and under the circumstances of the case and in Law, the Ld.CIT(A) has erred in deleting the disallowance of Rs.188,65,84,826/- (Rs.200,12,56,838/- less Rs. 11,46,72,012/-) made by the assessing officer to the total income of the assessee as unexplained money w/s.69A on the ground that there is absence of incriminating material without giving opportunity to the Assessing officer on this issue? 8 ITA No. 4220/M/2024 Estate of Late Shri Ramniklal Rajmal Mehta 6. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 7. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” 16. It is submitted by the learned DR that the proceedings initiated against Mr. Dilip Mehta, legal heir/successor and executor of Estate of Late Shri Ramniklal Mehta are valid and the disallowance could not have been deleted. It is pointed out that the warrant of authorization was issued in the name of Shri Ramniklal Rajmal Mehta and Dipti Doshi which was duly executed on 25.08.2011 and which was signed by Dipti Doshi. It was contended that the warrant was validly executed. It was submitted that the Assessing Officer was justified in making the addition on the total income of the assessee as unexplained money under Section 69A of the Act inasmuch as the source of the total funds as per the highest balance lying in the account which was equivalent to ₹ 200,12,56,838/- has not been explained. It is submitted that the learned CIT(A) was not justified in deleting the disallowance by holding the notice issued under Section 153A of the Act as invalid. On behalf of the appellant, reliance is placed on the decision of Supreme Court in Gunjan Girishbhai Mehta vs Director of Investigation, 393 ITR 310 (SC). 17. The learned AR has supported the impugned order. It is submitted that ground no. 1 challenging the validity of the search and the consequent notice under Section 153A has rightly been accepted by the CIT(A). It is pointed that the search warrant was admittedly issued in the name of a dead person and the notice under Section 153A of the Act also could not have been issued to the executor of the Estate of late Shri Ramniklal Mehta. It is submitted that even 9 ITA No. 4220/M/2024 Estate of Late Shri Ramniklal Rajmal Mehta on merits, the sources have been adequately explained. On behalf of the appellant, reliance is placed on the following decisions: (i) Commissioner of Income-tax, Karnal v. Rakesh Kumar, Mukesh Kumar [2009] 313 ITR 305 (Punjab & Haryana) SLP disposed by the Hon'ble Supreme Court in SLP(C) No. 3623/2009 (ii) Bhupendra Bhikhalal Desai v. Income Tax Officer, Ward [2021] 130 taxmann.com 196 (Gujarat High Court) SLP dismissed by the Hon'ble Supreme Court in SLP(C) No. 13061 of 2021 (iii) Commissioner of Income-tax -VIII, Chennai v. M. Hemanathan [2016] 68 taxmann.com 22 (Madras High Court) (iv) Commissioner of Income Tax v. Moti Ram (Deceased) (through his legal heir Dharam Pal) [2009] 316 ITR 321 (Punjab &Haryana High Court) (v) Mr. Samadhan Krishna Katekar, L/H of Late Krishna Kathari Katekar v. ITO. Ward-3, Panvel Range [ITA No. 3112/Mum/2017-ITAT, Mumbai]” 18. We have considered the submissions made. As noticed earlier, the co- ordinate Bench by order dated 25.08.2022 had remitted only three issues/grounds for consideration by learned CIT(A),. A perusal of the impugned order would show that the first ground which relates to challenge to the validity of the action and the basis of search, has found favour with the learned CIT(A) and the same is allowed. So far as second ground about the alleged absence 10 ITA No. 4220/M/2024 Estate of Late Shri Ramniklal Rajmal Mehta of opportunity being granted to the appellant and the information from Mr Karl French not being furnished, was essentially a ground based on breach of principles of natural justice. In para 12, the learned CIT(A) has found that the said ground does not require any deliberation and has not been decided by the leaned CIT(A). 19. The third issue about the residential status has also been dismissed for want of production of documentary evidence to show that Late Ramniklal Mehta was a NRI at the time of his death. 20. Thus, we are only concerned with ground no. 1 (raised by the assessee before the learned CIT(A)) which has been accepted by CIT(A), by which Revenue is aggrieved. This challenge is covered by ground nos. 1, 2 and 3 as raised in its appeal by the Revenue. It is contended that the warrant was in the joint name of deceased Shri Ramniklal Rajmal Mehta and Dipti Doshi which was duly executed on 25.08.2011 and which was signed by Dipti Doshi. We are unable to accept the contention as execution of warrant against Shri Dipti Joshi cannot enure to the benefit of the Revenue for making addition against the deceased Shri Ramniklal Mehta when Shri Ramniklal Mehta had died way back in the year 2002. Admittedly, no addition has been made against Dipti Joshi. The initiation of proceedings against Shri Dilip Mehta as legal heir and executor of Estate of Late Shri Ramniklal Mehta under Section 153A of the Act also cannot be accepted. The issue is covered by the decision of Punjab & Haryana High Court in the case of Rakesh Kumar Mukesh Kumar [2009] 313 ITR 305. In that case search was conducted at the premises of the father of the assessee on 23.07.2002. Father of the assessee had died prior thereto on 20.06.2022. On the basis of certain incriminating documents found during the search, notice under the then existing Section 158BC (which is in para materia with section 11 ITA No. 4220/M/2024 Estate of Late Shri Ramniklal Rajmal Mehta 153A) was issued and served upon the assessee as legal heir. The assessee did not file any return in response thereto and the addition came to be made under Section 158BC r.w.s. 144 of the Act. The learned CIT(A) held that the assessment was illegal and void ab initio because it was passed in consequence of search warrant issued under Section 132 of the Act in the name of a dead person. When the matter went to the High Court, the decision of CIT(A) was confirmed. This is what has been held in para 5 of the judgment:- “5. We have heard learned counsel for the revenue and have perused the record. We find no force in the contentions raised by him. In the instant case, Mohar Singh died prior to the issuance of search authorisation and thus, the search warrant was issued in the name of a dead person and the Panchnama was also prepared in the name of the dead person. These facts are not disputed by the counsel for the appellant. Thus, from the undisputed facts, it is crystal clear that not only the search was invalid but the authorization for conducting search itself was invalid and void ab initio. Thus, the order passed by the Assessing Officer under section 158BC(c)/144 of the Act dated 30-7- 2004 was illegal as the same was passed in consequence to a search warrant, issued under section 132 of the Act, in the name of a dead person. Such search warrant is against the law of natural justice. No valid assessment could have been made on the strength of such an invalid search warrant. The judgments cited by the learned counsel for the appellant are not applicable in the facts and circumstances of the case, being clearly distinguishable.” 21. It is necessary to note that the Supreme Court has not interfered with the said order as SLP (D) 1998/2009 challenging the said order has been dismissed on 30.03.2009. 22. When the search itself was illegal and invalid, the fact that Shri Dilip Mehta had participated and had filed return cannot cure the illegality. The reliance placed on behalf of the Revenue on the decision of the Supreme Court, in 12 ITA No. 4220/M/2024 Estate of Late Shri Ramniklal Rajmal Mehta Gunjan Girishbhai Mehta (supra), is misplaced. That was a case wherein notice under Section 132 of the Act was issued in the name of a dead person. The said notice was duly served on the assessee (petitioner therein) as a legal heir of the deceased. A notice of assessment under Section 158BC of the Act was issued and in the return filed the income was declared as NIL. The petitioner participated as legal heir. It appears that subsequently a notice under Section 158BD of the Act (equivalent to Section 153C) was issued to the petitioner on the basis of information coming to light in the course of search. The petitioner unsuccessfully challenged the notice before the High court and the matter went to the Supreme Court. The Supreme Court, inter alia, held that the information discovered in the course of search if capable of generating the satisfaction for issuance of notice under Section 158BD of the Act cannot altogether become irrelevant for further action under Section 158BD. It can thus be seen that it was a case which arose in the context of provisions of Section 158BD (which is equivalent to section 153C) unlike in the present case wherein the notice was issued under Section 153A of the Act. A perusal of the decision in Gunjan Girishbhai Mehta (supra) would indicate that reliance was placed on the decision of Punjab & Haryana High Court in the case of Rakesh Kumar Mukesh Kumar (supra) which was negatived on the ground that in Rakesh Kumar Mukesh Kumar (supra) the challenge was to the assessment under Section 158BC. We find that the present case is governed by ratio in the case of Rakesh Kumar Mukesh Kumar (supra). 23. Thus, ground nos. 1 to 3 as raised cannot be accepted as being devoid of any merit. 24. Thus, we find the learned CIT(A) justified in upholding ground no.1 as raised on behalf of the appellant-assessee. No case for interference is made 13 ITA No. 4220/M/2024 Estate of Late Shri Ramniklal Rajmal Mehta out. In view of the fact that the entire action, which is based on the search is found to be illegal falls through it is not necessary to dwell other grounds. Appeal is accordingly, dismissed. Order pronounced in the open court on 7th March, 2025. Sd/- Sd/- [B R Baskaran] [Justice (Retd.) C V Bhadang] ACCOUNTANT MEMBER PRESIDENT Mumbai, Dated : 7th March, 2025 SA Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The PCIT, Mumbai. 4. The CIT 5. The DR, ‘D’ Bench, ITAT, Mumbai BY ORDER //True Copy// (Assistant Registrar) Income Tax Appellate Tribunal, Mumbai "