J R SHROFF, MUMBAI V. DCIT CEN CIR 31, MUMBAI

ITA 1060/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62657 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 04-07-2012
• Assessment Year: 1990-1991
• Appeal Filed On: 09-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL
• Keywords: Search and seizure
• Section: 143(3); 131; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI D. MANMOHAN (VICE PRESIDENT) AND SHRI N.K. BILLAIYA (ACCOUNTANT MEMBER ) ITA NO. 1060/MUM/2010 ASSESSMENT YEAR-1990-91 SHRI J.R. SHROFF, 24/26, CAMA BLDG., 1 ST FLOOR, DALAL STREET, FORT, MUMBAI-400 001 PAN - AAJPS 1018B VS. THE DCIT, CEN. CIRCLE 31, AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VIJAY MEHTA RESPONDENT BY: DR. P. DANIEL DATE OF HEARING :04 .07.2012 DATE OF PRONOUNCEMENT: 11.7.2012 O R D E R PER N.K. BILLAIYA (AM): THE ASSESSEE HAS CHALLENGED THE CORRECTNESS OF THE ORDER OF LD. CIT(A)-40, MUMBAI DT. 3.12.2009 FOR ASSESSMENT YEA R 1990-91. 2. THE ONLY GRIEVANCE OF THE ASSESSEE IS AGAINST LE VY OF PENALTY U/S. 271(1)(C) OF THE ACT AT RS. 14,25,654/-. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH ERE WAS A SEARCH AND SEIZURE ACTION U/S. 132 OF THE ACT ON 17.9.1990. T HE ASSESSMENT WAS COMPLETED U/S. 143(3) ON 31.3.1993. THE ASSESSEE P REFERRED AN APPEAL AGAINST THIS ASSESSMENT ORDER AND THE LD. CIT(A) HA S GIVEN PART RELIEF. BOTH THE REVENUE AND THE ASSESSEE WENT IN APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF LD. CIT(A). THE ITAT SET ASIDE THE GROUND S BACK TO THE FILE OF LD. CIT(A) FOR FRESH CONSIDERATION IN BOTH THE APPEALS. FOLLOWING THE DIRECTIONS OF ITA NO. 1060/M/2010 2 THE ITAT, THE LD. CIT(A) PASSED ORDERS ON 10.3.2008 AND 28.3.2008 AND DECIDED THE APPEALS OF THE REVENUE AS WELL AS THE A SSESSEE. THIS ORDER OF THE LD. CIT(A) WAS ACCEPTED BY THE ASSESSEE AS IT DID N OT PREFER ANY FURTHER APPEAL. FOLLOWING ADDITIONS WERE CONFIRMED WHICH H AVE BEEN ACCEPTED BY THE ASSESSEE. 1) SHRI RAJENDRA PRASAD JAIN RS. 15,00,000/- 2) SHRI N.N. RANA RS. 1,02,100/- 3) AMERICAN EXPRESS BANK RS. 9,88,000/- 4) DARASHAW & CO. RS. 50,000/- ------------------- RS. 26,40,100/- ========== THE AO INITIATED PENALTY PROCEEDINGS U/S. 271(1)(C ) OF THE ACT AND ACCORDINGLY STATUTORY NOTICES WERE ISSUED AND SERVE D ON THE ASSESSEE. 4. BASED ON THE FINDINGS OF THE LD. CIT(A), THE AO SOUGHT EXPLANATION FROM THE ASSESSEE REQUIRING TO EXPLAIN AS TO WHY PE NALTY U/S. 271(1)(C) SHOULD NOT BE LEVIED IN RESPECT OF AFORESAID ADDITI ONS DUE TO FILING OF INACCURATE PARTICULARS OF INCOME AND THE RESULTANT ATTEMPT TO CONCEAL ITS TRUE INCOME CHARGEABLE TO TAX. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE AO LEVIED PENALTY AT THE RATE OF 100% OF THE TAX SOUGHT TO BE EVADED AT RS. 14,25,654/- THE ASSESSEE CARRIED OVER THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 6. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS CONFIRMED ALL THE TRANSACTIONS RESULTING INTO ADDITION AND ONLY BECAUSE THE ASSESS EE HAS NOT PREFERRED ANY APPEAL AGAINST THE QUANTUM ADDITION WILL NOT IPSO-FACTO RESULT INTO LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT AS IT IS A SETTLE D LAW THAT PENAL PROCEEDINGS ARE DIFFERENT FROM ASSESSMENT PROCEEDINGS. THE LD. COUNSEL FURTHER ARGUED THAT ALL THE NECESSARY DETAILS/EVIDENCES WERE SUBMI TTED BEFORE THE LOWER ITA NO. 1060/M/2010 3 AUTHORITIES DURING VARIOUS STAGES OF ASSESSMENT/REM AND/APPELLATE PROCEEDINGS. PER CONTRA, LD. DEPARTMENTAL REPRESEN TATIVE SUBMITTED THAT THE ASSESSEE HAS FAILED TO COME OUT FROM THE NET OF EXP LANATION-1 TO SEC. 271(1)(C) OF THE ACT. 7. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE ORDERS OF THE LOWER AUTHORITIES AT DIFFERENT STAGES, LET US FIRST SEE THE PROVISIONS OF SEC. 271(1)(C) R.W. EXPLANATION-1(A&B) OF THE ACT WHICH IS AS UNDER: 271. FAILURE TO FURNISH RETURNS, COMPLY WITH NOTICE S, CONCEALMENT OF INCOME, ETC.--(1) IF THE INCOME-TAX OFFICER OR THE APPELLATE ASSISTANT COMMISSIONER IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT, IS SATISFIED THAT ANY P ERSON (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR DELIBERATELY FURNISHED INACCURATE PARTICULARS OF SUCH INCOME,. EXPLANATION -1 . ( A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE AO O R THE CIT(A) OR THE COMMISSIONER TO BE FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE (AND FAILS TO PROVE THAT SUCH EXPLANAT ION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AN D MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCL OSED BY HIM) THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FO R THE PURPOSES OF CLAUSE(C) OF THIS SUB-SECTION, BE DEEMED TO REPR ESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CO NCEALED. EXPLANATION-1(A) IS APPLICABLE WHEN THE ASSESSEE FA ILS TO OFFER AN EXPLANATION OR THE EXPLANATION OFFERED BY HIM IS F OUND TO BE FALSE. EXPLANATION-1(B) IS APPLICABLE, WHEN THE ASSESSEE OFFERS SOME EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AN D FAILS TO PROVE THAT SUCH EXPLANATION IS BONAFIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF ITS TOTAL INCOME HAS BEEN PROPERLY DISCLOSED BY HIM. ITA NO. 1060/M/2010 4 8. NOW LET US CONSIDER THE ADDITIONS ON WHICH THE P ENALTY HAS BEEN LEVIED ONE BY ONE. 1) PAYMENT TO SHRI RAJENDRAPRASAD JAIN RS. 15,00,000 /- 9. IT IS THE CONTENTION OF THE ASSESSEE BEFORE THE L OWER AUTHORITIES IN THE ASSESSMENT/REMAND PROCEEDINGS/APPELLATE PROCEEDINGS , THAT THE AMOUNT OF RS. 15,00,000/- REPRESENTED THE DIFFERENCE IN SECUR ITIES WHICH HAS BEEN DULY CONFIRMED BY FILING THE BANK STATEMENT AND CONFIRM ATION FROM SHRI R.P. JAIN. IT IS THE CONTENTION OF THE REVENUE THAT PAYMENT MAD E TO SHRI R.P. JAIN IS NOT GENUINE AS SHRI R.P. JAIN WAS EXAMINED BY AO U/S. 1 31 OF THE ACT WHEREIN HE CATEGORICALLY DENIED OF HAVING ANY KNOWLEDGE ABOUT THE TRANSACTIONS IN THE MONEY MARKET WITH THE ASSESSEE. THE AO FURTHER OBS ERVED THAT SHRI R.P. JAIN WAS THE STUDENT OF 19 YEARS OF AGE AND IN HIS STATE MENT HAS STATED THAT HE WAS UNAWARE OF ANY BANK ACCOUNT. BASED ON THE STAT EMENT OF SHRI R.P. JAIN, THE AO CONCLUDED THAT THE PAYMENT MADE TO SHRI R.P. JAIN AT RS. 15,00,000/- IS NOT GENUINE, ACCORDINGLY LEVIED THE PENALTY ON S UCH DISALLOWANCE. THE LD. COUNSEL REMINDED US THAT IN THE IMMEDIATELY PRECEDI NG YEAR, THE SAME SHRI R.P. JAIN WAS PAID A SUM OF RS. 2,37,720/- WHICH HA S BEEN ACCEPTED BY THE DEPARTMENT. 10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL AND PERUSED THE ORDERS OF LOWER AUTHORITIES. IRONICALLY, NONE OF THE RIVAL PARTIES HAVE CARED TO SUBMIT THE STATEMENT OF SHRI R P JAIN . AT THE OUTSET, WE FAIL TO UNDERSTAND HOW THE FACT THAT CERTAIN SUB-BROKERAGE PAYMENT TO THIS PARTY WHICH HAS BEEN ALLOWED IN THE APPELLATE PROCEEDINGS FOR ASSESSMENT YEAR 1989-90 CAN BE CONSIDERED AS CONCLUSIVE PROOF OF PA YMENT IN THE SUBSEQUENT YEAR. IN THE IMMEDIATELY PRECEDING YEAR TO WHICH THE LD. COUNSEL IS RELYING SHRI R.P. JAIN WAS PAID BROKERAGE OF RS. 2,37,720/- . THE SAME SHRI R.P. JAIN BECAME AN INVESTOR/TRADER FOR THE YEAR UNDER CONSID ERATION , SO MUCH SO THAT HE ENTERED INTO A CONTRACT FOR THE PURCHASE OF ONE CRORE UNIT OF UTI @ 13.4875 TOTALING TO RS. 13.48 CRORES ON 21.7.1989 W ITHOUT PAYING A SINGLE ITA NO. 1060/M/2010 5 RUPEE AS MARGIN MONEY. THESE UNITS WERE SOLD ON 7. 8.1989 @ 13.6375 AMOUNTING TO RS. 13.63 CRORES RESULTING IN AN AMOUN T OF RS. 15 LAKHS DUE TO SHRI R.P. JAIN. THE CLAIM OF THE ASSESSEE THAT HE HAS FILED THE BANK STATEMENT AND THE CONFIRMATORY LETTER IN RESPECT OF THIS TRAN SACTION CAN ONLY CONFIRM THE TRANSACTION IN THE STOCK EXCHANGE AND PAYMENT THROU GH BANK. WHAT HAS BEEN DOUBTED AND QUESTIONED IS THE GENUINENESS OF T HE TRANSACTION. ON THE GIVEN FACTS, THE ASSESSEE HAS GROSSLY FAILED TO SUB STANTIATE ITS EXPLANATION AND ESTABLISH THE GENUINENESS OF THE TRANSACTION. ACCO RDINGLY, LEVY OF PENALTY ON THE DISALLOWANCE OF RS. 15,00,000/- IS JUSTIFIED. BEFORE PARTING, WE WOULD LIKE TO HIGHLIGHT THAT THE ASSESSEE IS A BROKER AND ANY PURCHASE AND SALE OF SECURITIES THROUGH HIM , ENTITLES HIM TO EARN BROKERAGE. ASSUMING YET NOT ACCEPTING , IN THIS TRA NSACTION ALSO ASSESSEE MUST HAVE RECEIVED BROKERAGE AND THE PROFIT ON THE ABOVE SAID TRANSACTIONS IS EARNED BY SHRI R P JAIN , WHICH THE ASSESSEE HAS PAID TO R P JAIN , THEN , HOW CAN THIS PAYMENT OF RS.15 LACS BE CLAIMED AS EX PENSES BY THE ASSESSEE ? BE THAT AS IT MAY, WE HAVE ALREADY HELD THAT THE AS SESSEE HAS FAILED TO SUBSTANTIATE ITS EXPLANATION AND THEREFORE LIABLE F OR PENALTY . II )PAYMENT OF SUB-BROKERAGE TO SHRI N.N. RANA FOR RS. 1,02,100/- 11. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS PAID RS. 1,02,100/- AS SUB-BROKERAGE TO SHRI N.N. RANA. THE ASSESSEE EXPL AINED THE TRANSACTION BY FILING BANK STATEMENT AND CONFIRMATION RELATING TO THE SAID TRANSACTION. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO RECORDED STATEMENT ON OATH OF SHRI N.N. RANA WHO HAS CATEGOR ICALLY DENIED OF BEING A BROKER TO THE ASSESSEE. BASED ON THE STATEMENT OF SHRI N.N. RANA, THE AO DISALLOWED THE SUM OF RS. 1,02,100/-. ONCE AGAIN NO NE OF THE RIVAL PARTIES HAVE BROUGHT THE STATEMENT OF N N RANA ON RECORDS . 13. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFO RE US THAT THE PAYMENT WAS MADE DURING THE ORDINARY COURSE OF BUSI NESS AND BY CROSS ACCOUNT PAYEE CHEQUE. AFTER CAREFULLY CONSIDERING THE ORDERS OF LOWER ITA NO. 1060/M/2010 6 AUTHORITIES, WE FIND THAT FIXED AMOUNT OF RS. 6,30 0/- PER MONTH HAS BEEN PAID TO SHRI N.N. RANA BY THE ASSESSEE. ONLY ON TH REE OCCASIONS I.E. ON 7.10.1989 RS. 15,000/-, ON 12.12.1989 RS. 10,000/- AND 7.3.1990 RS. 7,300/- HAVE BEEN PAID. IRRESPECTIVE OF THE VALUE O F TRANSACTION CLAIMED TO HAVE BEEN VETTED THROUGH SHRI N.N. RANA. OUR UNDERS TANDING IS THAT BROKERAGE IS ALWAYS PAID AS A FIXED PERCENTAGE AGRE ED BY THE PARTY ON THE VALUE OF THE TRANSACTION. HOWEVER, IN THE INSTANT CASE, THE PAYMENT IS UNIFORM THROUGHOUT THE YEAR EXCEPT POINTED OUT HERE INABOVE. THE CLAIM OF THE COUNSEL THAT PAYMENTS HAVE BEEN PAID BY ACCOUNT PAYEE CHEQUE, BUT THE ASSESSEE HAS FAILED TO SUBSTANTIATE AS TO WHY A FIX ED SUM OF MONEY HAS BEEN PAID TO A SUB BROKER . ONCE AGAIN THE GENUINENESS OF THE TRANSACTION HAS NOT BEEN PROVED BY BRINGING ANY COGENT MATERIAL ON RECORD. THE ASSESSEE HAS FAILED TO SUBSTANTIATE HIS EXPLANATION THEREFOR E LEVY OF PENALTY ON DISALLOWANCE OF RS. 1,02,100/- IS JUSTIFIED. III ] PAYMENT TO DARASHAW & CO. AMOUNTING TO RS. 50 ,000/- 14. THIS AMOUNT OF RS. 50,000/- HAS BEEN DISALLOWED BECAUSE AS PER THE AO, THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUN TING AND AS THE PAYMENT OF RS. 50,000/- BY CHEQUE WAS NOT CLEARED BEFORE TH E END OF THE ACCOUNTING YEAR THEREFORE THE AO DISALLOWED THE SAME. 15. WE FIND THAT THIS DISALLOWANCE OF RS. 50,000/- IS PURELY ON TECHNICAL GROUND FOLLOWING THE METHOD OF ACCOUNTING OF THE AS SESSEE , WHICH , WE FIND THAT , IT WAS ALLOWED IN THE SUBSEQUENT YEAR WHEN T HE PAYMENT WAS ACTUALLY MADE. IN OUR CONSIDERED VIEW, NO PENALTY CAN BE LE VIED ON THIS DISALLOWANCE OF RS. 50,000/- WHICH IS ONLY BASED ON THE ACCOUNTI NG PRINCIPLES . IV)PAYMENT OF RS 9,88,000/- TO AMERICAN EXPRESS / M /S. RELAN & CO. 16. IT IS THE CONTENTION OF THE ASSESSEE THAT AN AMO UNT OF RS. 9,88,000/- WAS PAID TO M/S. RELAN & CO. NEW DELHI ON ACCOUNT O F DIFFERENCE IN SECURITY WHICH HAS BEEN WRONGLY SHOWN TO HAVE BEEN MADE TO A MERICAN EXPRESS BANK. THE ASSESSEE CLAIMED THAT THE TRANSACTION HA S BEEN DULY EXPLAINED BY ITA NO. 1060/M/2010 7 FILING BANK ADVISE OF ANDHRA BANK ALONGWITH THE CON FIRMATION FROM M/S. RELAN & CO., NEW DELHI. 17. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED THE STAND TAKEN BEFORE THE LOWER AUTHORITIES. THE LD. DR SUPPORTIN G THE ORDER OF LOWER AUTHORITIES , SUBMITTED THAT ASSESSEE HAS NOT SUBST ANTIATED HIS EXPLANATION. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE ORDERS OF THE LOWER AUTHORITIES. WE FIND THAT THE TOTAL PAYM ENT IN DISPUTE WAS TO THE TUNE OF RS. 19.88 LAKHS AT THE FIRST ASSESSMENT STA GE. THIS PAYMENT HAD BEEN CLAIMED TO BE MADE TO AMERICAN EXPRESS BANK. HOWEV ER, SUBSEQUENTLY THE ASSESSEE CLAIMED THAT OUT OF THE TOTAL PAYMENT OF R S. 19.88 LAKHS, RS. 9.88 LAKHS WAS PAID TO M/S. RELAN & CO. DURING THE APPE LLATE PROCEEDINGS, PAYMENT OF RS. 10,00,000/- WAS ACCEPTED AND ONLY AD DITION OF RS. 9.88 LAKHS WAS CONFIRMED. THE CONTENTION OF THE ASSESSEE THAT THE PAYMENT OF RS. 9.88 LAKHS TO M/S. RELAN & CO. WAS ON ACCOUNT OF DIFFERE NCE IN SECURITY HAS NOT BEEN SUBSTANTIATED BY BRINGING ANY COGENT MATERIAL EVIDENCE ON RECORD. WHATEVER HAS BEEN BROUGHT ON RECORD HAS ONLY CONFIR MED THE PAYMENT OF RS. 9.88 LAKHS BUT THE GENUINENESS OF THE TRANSACTION H AS NOT BEEN PROVED. EVEN THE BANK ADVICE AND THE CONFIRMATION FILED DO NOT H AVE THE DETAILS OF TRANSACTION NOR ANY CONTRACT NOTE HAS BEEN FILED OR BROUGHT ON RECORD. IN THE ABSENCE OF ANY CONTRACT NOTE IT IS NOT ACCEPTABLE T HAT THE PAYMENT HAS BEEN MADE AS DIFFERENCE IN SECURITIES . ON THAT NOTE, W E HOLD THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE HIS CLAIM AND ACCORDINGL Y LEVY OF PENALTY ON THE DISALLOWANCE OF RS. 9.88 LAKHS IS JUSTIFIED. 19. TO SUM UP, WE HOLD THAT THE LEVY OF PENALTY ON THE FOLLOWING DISALLOWANCE IS JUSTIFIED: A) SHRI RAJENDRAPRASAD JAIN -RS. 15,00,000/- B) SHRI N.N. RANA RS. 1,02,100/- C) AMERICAN EXPRESS/M/S. RELAN & CO. RS. 9,88,000/- ITA NO. 1060/M/2010 8 AS THE ASSESSEE HAS GROSSLY FAILED TO SUBSTANTIATE ITS EXPLANANTION ON EACH ACCOUNT AND IS HIT BY EXPLANATION 1B OF SEC 271[1][C] OF THE ACT. 20. THE ASSESSEE GETS RELIEF ON THE LEVY OF PENALTY ON ACCOUNT OF PAYMENT TO DARASHAW & CO. ON RS. 50,000/- ONLY. THE AO IS D IRECTED TO RECOMPUTE THE PENALTY ACCORDINGLY. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 11 TH DAY OF JULY, 2012 SD/- SD/- (D.MANMOHAN) (N.K. BILLAIYA ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED 11 TH JULY, 2012 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3.THE CIT-CONCERNED 4.THE CIT(A)-CONCERNED 5.THE DR I BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI