Shri Shantilal Jain, Mumbai V. The Income Tax Officer, Ward-2, Bhuj

ITA 1063/RJT/2009

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1655 (ITAT-RAJKOT)
• Duration Of Justice: 10 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2002-2003
• Appeal Filed On: 03-11-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Charitable institution; Cost of acquisition; Tangible material; Set aside
• Section: 143(3); 13; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT , , BEFORE SHRI RAJPAL YADAV , JUDICIAL MEMBER & SHRI WASEEM AHMED , ACCOUNTANT MEMBER ./ I.T.A. NO. 1 063/RJT/2009 ( / ASSESSMENT YEAR : 2002 - 03 ) SHRI SHANTILAL JAIN , 41, USHA , 161, S.V.ROAD , VILE PARLE(WEST) MUMBAI. / VS. I.T.O , WARD - 2 , BHUJ . ./ ./ PAN/GIR NO. : AAEPJ8434B ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI VIMAL DESAI, A.R / RESPONDENT BY : SHRI ANIL KUMAR , SR. D . R / DATE OF HEARING 19 /09 /201 9 / DATE OF PRONOUNCEMENT 10 / 12 /201 9 / O R D E R PER WASEEM AHMED ACCOUNTANT M EMBER : THE CAPTIONED APPEAL HA S BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) - II , RAJKOT [ LD. CIT(A) IN SHORT] DATED 02/09/2009 , ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 143(3) R.W.S 147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER R EFERRED TO AS 'THE ACT') DATED 29/12/20 06 RELEVANT TO ASSESSMENT YEAR S (A . Y . ) 2002 - 03 . ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 2 - THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ASSESSMENT ORDER U/S.143(3) R.W.S 147 IS BAD IN LAW . 2. THE REOPENING OF ASSESSMENT IS BAD IN LAW. 3. THE LD . AO HAS ERRED ON FACTS AND IN LAW IN MAKING THE ASSESSMENT IN THE STATUS OF AOP. THE ''LD.CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO. 4. THE LD. AO HAS ERRED ON FACTS AND IN LAW IN CONSIDERING THE APPELLANT AS MEMBER OF AOP. THE ''LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO. 5. THE LD. AO HAS ERRED ON FACTS AND IN LAW IN ASSESSING TOTAL INCOME OF THE AOP AT RS.15,26,050/ - THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO. THE APPELLANT C RAVES LEAVE TO ADD, ALTER, AMEND , DELETE OR WITHDRAW ONE OR MORE GROUNDS OF APPEAL . 2. BEFORE DISCUSSING THE ISSUES RAISED BY THE ASSESSEE IN THE GROUNDS OF APPEAL, WE FIND PERTINENT TO TAKE A NOTE OF THE FACTS OF THE CASE IN BRIEF. THERE WAS A SHOW CAUSE NOTICE ISSUED BY THE DIRECTORATE OF REVENUE INTELLIGENCE DATED 26 TH OF MARCH, 2002 WHEREIN IT WAS ALLEGED THAT THE GROUP OF 8 PERSONS WAS ENGAGED IN IMPORTING THE DUTY - FREE GOODS/WOOLLEN RAGS/USED CLOTHES FOR THE DISTRIBUTION AMONG THE EARTHQUAKE VICTIMS AT KUTCH, GUJARAT. SUCH GOODS WERE IMPORTED VIDE BILL OF E NTRY NO. 8836 AND 8835 DATED 25 TH SEPTEMBER, 2001. AS SUCH THE GOODS/WOOLLEN RAGS/USED CLOTHES FOR THE DISTRIBUTION AMONG THE EARTHQUAKE VICTIMS WAS EXEMPTED FROM THE IMPORT DUTY VIDE NOTIFICATION NO. 7/2001 ISSUED UNDER THE CUSTOM ACT. THE DETAILS OF THE PERSONS INCLUDING THE TRUST INDULGED IN THE ACTIVITY OF IMPORTING THE GOODS STAND AS UNDER: 1. SHRI SHANTILAL JAIN, 41, USHA, 161, SV ROAD, VILLE PARLE (WEST), MUMBAI. 2. SHRI MOTILAL SARAF, GOKULDHAM, 3 RD FLOOR, FLAT NO.4, SV ROAD, BORIVALI, (WEST) MUMBAI. 3. SHRI AJAY SARAF (NOTICE BOARD OF CUSTOMS HOUSE KANDLA) 4. SHRI DEV KUMAR KAPTA, 459, JANTA COLONY, GANDHIDHAM) ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 3 - 5. SHRI SURESH BHATIA, PLOT NO.234, SECTOR - 4, NEAR OSLO, GANDHIDHAM. 6. SHRI PRAKASH POONIA, 59/596, GUJARAT HOUSING BOARD, GANDHIDHAM 7. SHRI VIPULGAR NARANGAR GUSAI, 5, JIGAR NIWAS, MAHAVIR NAGAR, BHUJ. 8. SHRI CHAMPAKLAL THAKKAR, 13, SURDHARA CIRCLE, THALTEJ, AHMEDABAD. 9. SHRI NOPAJI LAKHMAJI CHARITABLE TRUST, MUMBAI, 41, USHA, 161, SC ROAD, VILLE PARLE, (WEST), MUMBAI. 10. SHIVAM DEVELOPMENT TRUST, I 1, SAPTMESH COMPLE X, PARESHWAR CHOWK, BHUJ, KUTCHCH. 3. HOWEVER, THE DRI FOUND THAT THE IMPUGNED GROUP OF PERSONS WAS INVOLVED IN DIVERTING THE IMPORTED RAGS CLOTHES MATERIALS IN THE OPEN MARKET IN CONTRAVENTION TO THE PROVISIONS OF THE NOTIFICATION BEARING NO. 7/2001 ISSU ED UNDER THE CUSTOM ACT ISSUED UNDER THE CUSTOMS ACT. ACCORDINGLY, THE DRI SEIZED THE GOODS IMPORTED BY THE GROUP OF 8 PERSONS WORTH OF 15,26,050.00 WHICH WERE DIVERTED IN THE OPEN MARKET. FURTHER, SHRI SHANTI LAL JAIN A PERSON OF THE GROUP PAID THE SU M OF RS. 10 LACS TO COMPENSATE THE LOSS OF IMPORT DUTY ON THE GOODS DIVERTED IN THE OPEN MARKET. NOW COMING TO THE FACTS OF THE CASE: 4. THE ASSESSEE HAS RAISED AS MANY AS 4 GROUNDS OF APPEAL WHICH ARE INTERCONNECTED. THEREFORE, WE HAVE CLUBBED ALL OF T HEM TOGETHER FOR THE SAKE OF CONVENIENCE AND ADJUDICATION. 4.1 THE INTERCONNECTED ISSUE RAISED BY THE ASSESSEE RELATES TO THE REOPENING OF THE ASSESSMENT U/S 147 OF THE ACT, ASSESSMENT ON THE AOP AND CONSIDERATION OF THE MEMBERS OF THE AOP ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 4 - 4.2 THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS AN AOP AND FOUND TO BE ENGAGED IN THE ACTIVITY OF IMPORTING THE GOODS AND DISTRIBUTING THE SAME AMONG THE EARTHQUAKE VICTIMS IN GUJARAT. 5. THE AO RECEIVED THE INFORMATION FROM THE DRI ABOUT THE ACTIVITY CARRIED ON BY THE GROUP OF 8 PERSONS AS DISCUSSED ABOVE. ACCORDINGLY, THE AO TREATED THE IMPUGNED GROUP OF 8 PERSONS AS THE ASSOCIATION OF PERSONS (FOR SHORT AOP) AND INITIATED THE PROCEEDINGS U/S 147 OF THE ACT ON ACCOUNT OF ESCAPEMENT OF IN COME. ACCORDINGLY THE AO ISSUED A SHOW CAUSE NOTICE U/S 148 OF THE ACT VIDE DATED 12 - 04 - 2005 INDIVIDUALLY BELIEVING THAT THE INCOME HAS BEEN ESCAPED ASSESSMENT BY ALL THE PERSONS AS DISCUSSED ABOVE . IT WAS REQUIRED IN THE NOTICE TO FILE THE INCOME TAX RETU RN U/S 148 OF THE ACT ON BEHALF OF THE AOP. 6. HOWEVER, THERE WAS THE RESPONSE FROM THE 4 PARTIES STATING THAT THEY WERE NOT AWARE OF THE FACT THAT SUCH GOODS IMPORTED FROM THE COUNTRY OUTSIDE INDIA, MEANT FOR THE EARTHQUAKE VICTIMS, WILL BE DIVERTED IN T HE OPEN MARKET. THE LIST OF SUCH PERSONS STANDS AS UNDER: I - SHIVAM DEVELOPMENT TRUST II - PRAKASH POONIA III - VIPUL GUSAI (PRESIDENT OF SHIVAM DEVELOPMENT TRUST) IV - DEV KUMAR KAPTA 6.1 AS SUCH, THERE WAS NO REPLY FROM THE REMAINING PARTIES IN RESPONSE TO THE NOTICE ISSUED U/S 148 OF THE ACT. CONSEQUENTLY, NONE OF THE PARTY FILED ANY INCOME TAX RETURN IN RESPONSE TO THE NOTICE ISSUED U/S 148 OF THE ACT. ACCORDINGLY, THE AO TREATED THE VALUE OF THE GOODS OF 15,26,050.00 DETERMINED BY THE CUSTOMS AUTHORITY WHICH WERE DIVERTED IN THE OPEN MARKET AS INCOME OF THE AOP. ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 5 - AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD. CIT (A). 7. THE ASSESSEE BEFORE THE LD. CIT (A) SUBMITTED THAT THE AO HAS ACQUIRED THE SATISFACTION THAT THERE IS ESCAPEMENT OF INCOME SOLELY ON THE INF ORMATION RECEIVED FROM THE DRI. AS SUCH, THE AO HAS NOT APPLIED HIS MIND INDEPENDENTLY BEFORE THE ISSUANCE OF NOTICE U/S 148 OF THE ACT. THEREFORE, THE NOTICE ISSUED U/S 148 OF THE ACT IS INVALID AND CONSEQUENTLY THE ASSESSMENT FRAMED U/S 147 OF THE ACT IS TO BE QUASHED. 7.1 THE ASSESSEE ALSO CLAIMED THAT THERE WAS NO AOP INVOLVED IN THE ACTIVITY OF IMPORTING THE GOODS AND DIVERTING THE SAME TO THE OPEN MARKET AS ALLEGED BY THE AO IN HIS ASSESSMENT ORDER. AS SUCH THE PARTIES INVOLVED IN IMPORTING THE GOODS AND DIVERTING THE SAME IN THE OPEN MARKET, SHOULD ONLY BE SUBJECT TO THE PROCEEDINGS UNDER THE ACT. 7.2 THE ASSESSEE FURTHER CLAIMED THAT THE GOODS IMPORTED ARE THE RAG CLOTHES HAVING NO COMMERCIAL VALUE. THEREFORE, THE AO WITHOUT APPLYING HIS MIND HAS TREATED THE VALUE OF SUCH RAG CLOTHES DETERMINED BY THE CUSTOM DEPARTMENT AS UNDISCLOSED INCOME OF THE ASSESSEE. 7.3 THE ASSESSEE ALSO CLAIMED THAT THE MATTER IS PENDING BEFORE THE CESTAT AS OF NOW AND THEREFORE THERE CANNOT BE ANY ADDITION ON ACCOUNT OF THE IMPUGNED ALLEGED ACTIVITY OF DIVERTING THE GOODS IN THE OPEN MARKET. 8. HOWEVER, THE LD. CIT (A) DISAGREED WITH THE CONTENTION OF THE ASSESSEE AND UPHELD THE ORDER OF THE AO BY OBSERVING THAT THE ACTIVITY WAS CARRIED ON FOR THE PURPOSE OF THE PROFIT BY THE 2 OR MORE PERSONS, HAVING COMMON OBJECTS. THEREFORE, THE LD. CIT (A) CONCLUDED THAT THE ASSESSEE HAS RIGHTLY BEEN TREATED AS THE AOP. ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 6 - 8.1 THE VALUE OF SUCH GOODS WHICH WERE DIVERTED IN THE OPEN MARKET HAS BEEN COMPUTED BY THE CUSTOM DEPARTMENT AN D THE ASSESSEE HAS PAID THE DUTY ON SUCH VALUE OF THE GOODS. ACCORDINGLY, THE LD. CIT (A) HAS HELD THAT THE AO HAS RIGHTLY DETERMINED THE VALUE OF SUCH GOODS AS UNDISCLOSED INCOME OF THE ASSESSEE. 8.2 THE MATTER BEFORE THE CESTAT IS PENDING IN RELATION T O THE PENALTY LEVIED ON THE IMPORT OF THE GOODS WHICH WERE DIVERTED IN THE OPEN MARKET IN VIOLATION OF THE NOTIFICATION ISSUED UNDER THE ACT. THIS FACT CAN ALSO BE VERIFIED FROM THE ORDER OF THE PENALTY ISSUED BY THE CESTAT DATED 25 TH AUGUST, 2009. AS SUCH , THERE WAS NO DISPUTE PENDING BEFORE THE CESTAT FOR THE QUANTUM ADDITION MADE BY THE AO BASED ON THE DRI/CUSTOMS DEPARTMENT. IN VIEW OF THE ABOVE, THE LD. CIT (A) CONFIRMED THE ORDER OF THE AO. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT (A), THE ASSESS EE IS IN APPEAL BEFORE US. 9. THE LD. AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 24 AND SUBMITTED AS UNDER: BACKGROUND: 1. THE APPELLANT IS AN INDIVIDUAL. 2. ONE TRUST NAMELY SHIVAM DEVELOPMENT TRUST, BHUJ IMPORTED DUTY FREE GOODS AS EARTHQUAKE RELIEF MATERIAL FOR THE VICTIMS OF EARTHQUAKE IN KUTCH. 3. THE DRI, DELHI CONDUCTED INQUIRIES AND INVESTIGATION ON VARIOUS PERSONS WHO WERE INVOLVED IN IMPORTING, CLEARING AND TRANSPORTATION OF GOODS FROM K ANDLA TO OTHER DESTINATIONS. THE INQUIRIES AND INVESTIGATIONS WERE CARRIED OUT BY THE DRI ON THE GROUND THAT DUTY FREE IMPORTED RELIEF MATERIAL WAS DIVERTED IN TO THE OPEN MARKET. 4. THE INQUIRIES WERE MADE AGAINST 2 TRUSTS & 8 INDIVIDUAL (INCL. T RUSTEE OF THE 2 TRUSTS). THE APPELLANT WAS ONE OF THE PERSONS ON WHOM THE INQUIRIES WERE MADE BY THE DRI. THE AO CONSIDERED 8 PERSONS INCLUDING THE APPELLANT AS AOP AND ALLEGED THAT THE AOP IS INVOLVED IN SUCH SCANDAL. ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 7 - 5. ON THE BASIS OF THE INQUI RIES AND INVESTIGATIONS CARRIED OUT BY DRI, THE AO ISSUED NOTICE U/S. 148 WAS INTER ALIA ISSUED TO THE APPELLANT REQUIRING HIM TO FILE THE RETURN OF INCOME. 6. THE APPELLANT DID NOT FILE THE RETURN OF INCOME IN RESPONSE TO SAID NOTICE U/S. 148. 7 . . THE ASSESSMENT WAS COMPLETED U/S. 143(3) R.W.S 147 IN THE STATUS OF AOP TREATING APPELLANT AS ONE OF THE MEMBERS OF AOP. RE: ASSESSMENT MADE IN THE STATUS OF AOP: 1. THE LEARNED A.O. CONSIDERED 8 PERSONS NAMED IN THE SHOW CAUSE NOTICE ISS UED BY THE DRI AS AOP AND COMPLETED THE ASSESSMENT IN THE STATUS OF AOP COMPRISING OF 8 PERSONS. 2. THE LEARNED A.O. HAS COMPLETED THE ASSESSMENT WITHOUT BRINGING ANYTHING ON RECORD TO ESTABLISH THAT ALL THESE 8 PERSONS CONSTITUTED AN AOP. 3. 'ASSOCIATION OF PERSON' AS USED IN SECTION 2(31) MEANS AN ASSOCIATION IN WHICH TWO OR MORE PERSONS JOIN IN A COMMON PURPOSE OR COMMON ACTION, AND AS THE WORDS OCCUR IN A SECTION WHICH IMPOSES A TAX ON INCOME, THE ASSOCIATION MUST BE ONE, THE OBJECT OF W HICH IS TO PRODUCE INCOME. 4. IT MAY KINDLY BE APPRECIATED THAT AN AOP COMES INTO EXISTENCE WHEN TWO OR MORE PERSONS JOIN HANDS FOR A COMMON PURPOSE OR FOR A COMMON ACTION, THE OBJECT OF WHICH IS TO PRODUCE INCOME, PROFITS OR GAINS. AN AOP CAN BE F ORMED ONLY WHEN TWO OR MORE INDIVIDUALS VOLUNTARILY COMBINE TOGETHER FOR A CERTAIN PURPOSE. 5. IT MAY FURTHER BE APPRECIATED THAT AN AOP DOES NOT MEAN ANY AND EVERY COMBINATION OF PERSONS. UNLESS COMBINED IN A JOINT ENTERPRISE VOLUNTARILY TO PRODUCE INCOME, THERE COULD BE NO AOP. 6. THE LEARNED A.O. HAS FAILED TO APPRECIATE THAT FOR CONSTITUTING AOP, THE PERSONS AGAINST WHOM INVESTIGATIONS WERE CARRIED OUT BY THE DRI OUGHT TO HAVE ENTERED INTO AN AGREEMENT TO EARN THE INCOME AND THEN SHARE TH AT INCOME. 7. IN THIS CASE NOTHING HAS BEEN BROUGHT ON RECORD TO ESTABLISH ALL THE 8 PERSONS ASSESSED IN THE STATUS OF AOP HAD MUTUALLY AGREED TO IMPORT THE MATERIAL UNDER THE GUISE OF RELIEF TO EARTHQUAKE AFFECTED PEOPLE IN KUTCH AND THEN DIVERT I T IN THE OPEN MARKET TO EARN AND SHARE THE INCOME AMONGST THEM. 8. IN THE INSTANT CASE, OUT OF THE 8 PERSONS AGAINST WHOM INVESTIGATIONS WERE CARRIED OUT, 2 HAVE DONE THE ACT IN THE COURSE OF EMPLOYMENT AS PER THE DIRECTIONS GIVEN BY THEIR EMPLOYER , 1 IS THE TRANSPORTER WHO HAS TRANSPORTED THE GOODS IN REGULAR COURSE OF HIS BUSINESS OF TRANSPORTATION, YET ANOTHER BEING TRUSTEE OF THE TRUST INVESTIGATED ONLY PROVIDED THE SIGNED BLANK LETTER HEADS FOR THE PURPOSE OF OBTAINING THE DONATION AND SO ON. T HESE PERSONS CANNOT BE SAID TO HAVE JOINED TOGETHER AS AN ASSOCIATION FOR THE PURPOSE OF CARRYING OUT COMMON ACTIVITY. THE FACT THAT ALL THESE 8 PERSONS HAVE NOT COMBINED TOGETHER FOR CARRYING OUT ANY ACTIVITY FOR THE PURPOSE OF EARNING INCOME JOINTLY IS A LSO BORNE OUT FROM THE EXCERPTS OF THEIR ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 8 - STATEMENTS RECORDED BY THE DRI AS REPRODUCED IN THE SHOW CAUSE NOTICE ISSUED BY THE DRI (REF. PARA 9 TO 16 ON PAGE 3 TO 5 OF THE SAID SHOW CAUSE NOTICE). 9. WHEN MUTUAL AGREEMENT TO CARRY OUT AN ACTIVITY FOR EARNING & SHARING INCOME AMONGST 8 PERSONS NAMED IN THE ASSESSMENT ORDER IS NOT PRESENT, ASSESSMENT IN THE STATUS OF AOP IS BAD IN LAW. 10. IT IS MOST RESPECTFULLY SUBMITTED THAT WHAT IS TO BE SEEN IS THE CONDUCT AT THE TIME OF CARRYING OUT AN ACTIV ITY. IN THE CAUSE UNDER CONSIDERATION, THERE WAS NO COMING TOGETHER OF THE 8 PERSONS TO ENGAGE IN ANY ACTIVITY JOINTLY. MERELY BECAUSE ALL THESE 8 PERSONS WERE INVESTIGATED BY DRI THAT BY ITSELF WOULD NOT BE SUFFICIENT TO HOLD THAT THERE WAS AN AOP. 11. THE LEARNED AO HAS SUMMARILY MADE ASSESSMENT IN THE STATUS OF AOP COMPRISING ALL THE 8 PERSONS AGAINST WHOM INQUIRY AND INVESTIGATIONS WERE CARRIED OUT BY THE DRI AS AOP WITHOUT BRINGING IN ANYTHING ON RECORD TO ESTABLISH THE EXISTENCE OF AN AOP. 12. THEREFORE, THE ASSESSMENT MADE IN THE STATUS OF AOP IS VOID AB INITIO. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: G. MURUGESAN & BROS. VS. CIT [88 ITR 432 (SC)] - COPY ENCLOSED WAJRACHAND G. JAIN & ORS. VS. ACIT [76 TTJ 101 (PUNE)] - COP Y ENCLOSED RE: CONSIDERING APPELLANT AS MEMBER OF AOP : 1. THE APPELLANT WAS THE DIRECTOR OF M/S KANDLA CLEARING AGENCY PVT. LTD. WHICH FUNCTION AS A CHA. HE IS NOT CONNECTED, DIRECTLY OF INDIRECTLY, WITH SHIVAM DEVELOPMENT TRUST, THE TRUST WHOSE LETTER WERE USED FOR IMPORTING AND CLEARING THE GOODS BEING USED CLOTHES. 2. MERELY BECAUSE THE APPELLANT WAS ENGAGED IN THE CLEARANCE OF GOODS IN THE NORMAL COURSE OF BUSINESS, HE CAN NOT BE CONSIDERED AS MEMBER OF AOP. 3. THE MERE FACT OF ISSUANCE OF SHOW CAUSE NOTICE AND LIABILITY FOR PENALTY UNDER SECTION 112 OF THE CUSTOMS ACT, 1962 CAN NOT BE A GROUND TO HOLD THE APPELLANT I AS MEMBER OF ALLEGED AOP. 4. THEREFORE, THE APPELLANT CANNOT BE TREATED AS A MEMBER OF ALLEGED AOP. I RE: ASSESSING TOTAL INCOME OF AOP AT RS. 15,26,052/ - : 1. THE LEARNED AO HAS ASSESSED TOTAL INCOME OF AOP AT RS. 15 ,26,052/ - (FOR 22 BALES WHICH COULD NOT BE LOCATED AND SEIZED BY THE DRI) ON THE BASIS OF VALUATION DONE BY THE DRI. IN PARA 2.3 (PG. NO. 16 & 17) OF THE ASSESSMENT ORDER WHICH PERTAINS TO DETERMINATION OF INCOME, THE AO CONTENDED THAT 22 BALES OU T OF 93 BALES IMPORTED BY SHIVAM DEVELOPMENT TRUST AND NOPAJI LAKHMAJI CHARITABLE TRUST WHICH COULD NOT BE FOUND BY DRI WERE SOLD IN THE OPEN MARKET. IT IS NOT CLEAR FROM THE ASSESSMENT ORDER AS TO HOW MANY BALES BELONGED TO WHICH TRUST. THE DRI HAS ESTIM ATED MARKET VALUE OF 71 BALES CONFISCATED AT RS. 49.25 LACS AND ACCORDINGLY ESTIMATED MARKET VALUE OF 22 BALES THAT COULD NOT BE LOCATED AND CONFISCATED AT RS. 15.26 LACS. THE SAME IS CONSIDERED AS INCOME OF THE ALLEGED AOP. IT MAY KINDLY BE NOTED THAT THE GOODS IMPORTED WERE OLD AND USED CLOTHING WHICH WERE TO BE GIVEN AS DONATION TO EARTHQUAKE VICTIMS. THIS FACTOR DOES NOT SEEM TO HAVE BEEN CONSIDERED WHILE ESTIMATION OF MARKET VALUE BY THE DRI. ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 9 - IT MAY ALSO KINDLY BE NOTED THAT IN THE SHOW CAUSE NOTICE I SSUED BY THE DRI, NO BASIS WHATEVER FOR ESTIMATION MARKET VALUE OF GOODS CONFISCATED AS WELL AS THAT COULD NOT BE CONFISCATED HAS BEEN GIVEN. THE LEARNED AO HAS BLINDLY ADOPTED THE VALUATION DONE BY THE DRI WITHOUT APPLICATION OF MIND. THE MATTER IS NOT Y ET FINALIZED AND AT PRESENT PENDING WITH CESTAT. FURTHER, IT IS ALSO GATHERED FROM THE REPLY OF SHIVAM DEVELOPMENT TRUST (REPRODUCED ON PAGE 2 TO 4 OF THE ASSESSMENT ORDER) THAT THE INCOME WAS FIRST TAXED IN THE HANDS OF THE TRUST. THAT ASSESSMENT WAS SET ASIDE BY THE RAJKOT ITAT. IT IS NECESSARY TO EXAMINE WHAT STAND WAS TAKEN IN THE DE NOVO ASSESSMENT OF THE TRUST AND WHY THE A.O. CHANGED HIS MIND TO TAX THE INCOME IN THE HANDS OF ALLEGED AOP. THE SAME ARE NOT CLEAR FROM THE ASSESSMENT ORDER. 10. ON THE CONTRARY, THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 11. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE CASE ON HAND RELATES TO THE GOODS DIVERTED IN THE OPEN MARKET IN VIOLATION OF THE PROVISIONS OF THE NOTIFICATION BEARING NUMBER 7/2001. ACCORDINGLY, THE AO TRE ATED THE VALUE DETERMINED BY THE CUSTOM DEPARTMENT FOR LEVYING THE IMPORT DUTY AS UNDISCLOSED INCOME OF THE ASSESSEE. THE ACTION OF THE AO WAS SUBSEQUENTLY CONFIRMED BY THE LD. CIT (A). 11.1 NOW BEFORE US, FROM THE PRECEDING DISCUSSION, MULTIPLE ISSUES ARISE FOR OUR ADJUDICATION AS DESCRIBED BELOW: I. WHETHER THERE WAS ESCAPED OF INCOME U/S 147 OF THE ACT IN THE GIVEN FACTS AND CIRCUMSTANCES. II. WHETHER THERE EXIST AOP INVOLVING THE IMPORT OF GOOD S AND DIVERTING THE SAME IN THE OPEN MARKET. III. WHETHER ALL THE 8 PERSONS DISCUSSED ABOVE ARE THE MEMBERS OF AOP. IV. WHETHER THE VALUE DETERMINED BY THE CUSTOM DEPARTMENT FOR CLAIMING THE IMPORT DUTY IS UNDISCLOSED INCOME OF THE ASSESSEE. ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 10 - 11.2 REGARDING THE Q UESTION NO. 1, WE NOTE THAT THE AO HAD THE INFORMATION FROM THE DRI WHEREIN IT WAS ALLEGED THAT THE GROUP OF 8 PERSONS WAS INVOLVED IN THE DEFRAUDING THE CUSTOM DUTY. ACCORDINGLY, AN AMOUNT OF RS. 10,00,000/ - WAS PAID TO THE CUSTOM DEPARTMENT TO COMPENSATE THE LOSS OF DUTY BY SHANTILAL JAIN ONE OF THE MEMBER OF AOP. THUS, THE AO BASED ON SUCH INFORMATION, ACQUIRED THE SATISFACTION THAT THERE IS THE ESCAPEMENT OF INCOME BY SUCH GROUP OF PERSONS AND TREATED ALL OF THEM AS THE AOP. ACCORDINGLY NOTICE WAS ISSU ED BY THE AO U/S 148 OF THE ACT. ADMITTEDLY, THE GOODS WERE IMPORTED WHICH WERE CLEARED WITHOUT THE PAYMENT OF THE IMPORT DUTY IN CONTRAVENTION TO THE NOTIFICATION BEARING NUMBER 7/2001. ACCORDINGLY ONE OF THE PART IES OUT OF SUCH GROUP HAS PAID THE IMPORT DUTY AMOUNTING TO 10 LAKHS ONLY. THUS IN OUR CONSIDERED VIEW THE INFORMATION RECEIVED FROM THE DRI WAS SUFFICIENT ENOUGH FOR THE AO TO ACQUIRE THE SATISFACTION THAT THE INCOME HAS ESCAPED ASSESSMENT. 11.3 THE AO IN THE INCOME TAX ASSESSMENT PROCEEDINGS HAS TO FORM A PRIMA - FACIE OPINION THAT THE INCOME HAS ESCAPED ASSESSMENT BASED ON THE TANGIBLE DOCUMENTARY EVIDENCE. AS SUCH THE AO IS NOT UNDER THE OBLIGATION TO REACH TO THE CONCLUSION THAT THERE IS ACTUALLY ESCAPEMENT OF INCOME. THUS W E ARE OF THE VIEW THAT THE AO HAS DERIVED HIS SATISFACTION BASED ON THE TANGIBLE MATERIALS RECEIVED FROM THE DRI. 11.4 WE ALSO NOTE THAT, THE REOPENING U/S 147 OF THE ACT WAS INITIATED WITHIN THE PERIOD OF 4 YEARS FROM THE END OF THE ASSESSMENT YEAR IN WHICH NOTICE U/S 14 8 WAS ISSUED. THUS IN SUCH CASE, W E ARE OF THE VIEW THAT THE PRIMA FACIE OPINION WAS BASED ON THE TANGIBLE MATERIAL WHICH IS SUFFICIENT TO INITIATE THE PROCEEDINGS U/S 147 OF THE ACT. IN VIEW OF THE ABOVE, WE UPHOLD THE INITIATION OF THE PROCEEDINGS U/S 147 OF THE ACT. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDING OF THE LD. CIT (A). ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 11 - 12. THE NEXT QUESTION ARISES WHETHER THERE EXIST ANY AOP AS ALLEGED BY THE AUTHORITIES BELOW. IN THIS REGARD, WE NOTE THAT THE GROUP OF PERSONS CARRYIN G OUT ANY ACTIVITY FOR THE COMMON OBJECTS AND FOR THE PROFIT, THEN SUCH GROUP SHALL BE REGARDED AS ASSOCIATION OF PERSONS. WE FURTHER NOTE THAT TO DECIDE THE EXISTENCE OF AOP THE FOLLOWING LEGAL CHARACTERISTICS ARE REQUIRED TO BE ADHERED: A) THE WORD ASSOCIATE INDICATES TO JOIN IN FOR COMMON PURPOSE OR TO JOIN IN FOR COMMON ACTION, (B) THE TERM ASSOCIATION OF PERSONS MUST BE CONSTRUED IN ITS PLAIN AND ORDINARY MEANING. THEY ARE NOT EJUSDEM GENERIS WITH THE WORD IMMEDIATELY PRECEDING, NAMELY, FIRM. (C) SINCE THE WORDS OCCUR IN AN ACT IMPOSING TAX ON INCOME, PROFITS OR GAINS, THE ASSOCIATION MUST BE ONE WHICH PRODUCES INCOME, PROFITS OR GAINS, (D) IT IS NOT NECESSARY THAT THERE SHOULD BE ANY MUTUAL RIGHT OR OBLIGATION AMONG THE MEMBERS OF AN ASSOCIATI ON ENFORCEABLE IN A COURT OF LAW, (E) THE MEMBERS OF THE ASSOCIATION MUST VOLUNTARILY COMBINE TOGETHER FOR A CERTAIN PURPOSE; VOLITION ON THE PART OF THE MEMBERS OF THE ASSOCIATION IS AN ESSENTIAL INGREDIENT; (F) THERE MUST BE A DELIBERATE COMMON DESIGN TO PRODUCE INCOME, TO FORM AN AOP 12.1 WE FURTHER FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF G. MURUGESAN & BROTHERS V/S CIT REPORTED IN 88 ITR 432 WHEREIN IT WAS HELD AS UNDER; FOR FORMING AN 'ASSOCIATION OF PERSON S', THE MEMBERS OF THE ASSOCIATION MUST JOIN TOGETHER FOR THE PURPOSE OF PRODUCING AN INCOME. AN 'ASSOCIATION OF PERSONS' CAN BE FORMED ONLY WHEN TWO OR MORE INDIVIDUALS VOLUNTARILY COMBINE TOGETHER FOR A CERTAIN PURPOSE. HENCE VOLITION ON THE PART OF THE MEMBERS OF THE ASSOCIATION IS AN ESSENTIAL INGREDIENT. IT IS TRUE ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 12 - THAT EVEN A MINOR CAN JOIN AN 'ASSOCIATION OF PERSONS' IF HIS LAWFUL GUARDIAN GIVES HIS CONSENT. IN THE CASE OF RECEIVING DIVIDENDS FROM SHARES, WHERE THERE IS NO QUESTION OF ANY MANAGEMENT, IT IS DIFFICULT TO DRAW AN INFERENCE THAT TWO OR MORE SHAREHOLDERS FUNCTION AS AN 'ASSOCIATION OF PERSONS' FROM THE MERE FACT THAT THEY JOINTLY OWN ONE OR MORE SHARES, AND JOINTLY RECEIVE THE DIVIDENDS DECLARED. THOSE CIRCUMSTANCES DO NOT BY THEMSELVES GO TO SHOW THAT THEY ACTED AS AN 'ASSOCIATION OF PERSONS'. 12.2 FROM THE ABOVE, IT IS CLEAR THAT IT IS NOT NECESSARY THAT THERE SHOULD BE ANYTHING IN WRITING FOR REFERRING ANY GROUP OF PERSONS AS THE AOP. WHAT IS REQUIRED IS THAT THERE SHOULD BE COMMON OB JECT AND PROFIT MOTIVE OF THE PERSONS INVOLVED. 13. THE NEXT QUESTION ARISES WHETHER ALL THE MEMBERS AS ALLEGED BY THE AUTHORITIES BELOW CONSTITUTE THE AOP. INDEED, THE PROCEEDINGS BY THE DRI WERE INITIATED AGAINST ALL THE PERSONS AS DISCUSSED ABOVE, BUT THE PAYMENT WAS MADE BY ONE PERSON TO COMPENSATE THE CUSTOM DUTY. HOWEVER, WE NOTE THAT THE CESTAT IN ITS ORDER DATED 25/08/2009 ACQUITTED CERTAIN PERSONS. THE COPY OF THE ORDER IS PLACED ON 21 TO 24 OF THE PAPER BOOK. THEREFORE, IN OUR CONSIDERED VIEW, T HE PERSONS ACQUITTED BY THE CESTAT CANNOT BE TREATED AS MEMBER OF THE IMPUGNED AOP. WE ARE ALSO CONSCIOUS THAT THE WHOLE BASIS FOR INITIATING THE PROCEEDINGS U/S 147 OF THE ACT AGAINST THE AOP WAS THE NOTICE ISSUED BY THE DRI WHEREIN THE 8 PERSONS AND 2 TR UST WERE ALLEGED TO BE INVOLVED. ACCORDINGLY, IN CASE OF ANY CHANGE SUBSEQUENTLY BY THE CUSTOM DEPARTMENT, THE SAME SHOULD ALSO BE INCORPORATED IN THE PROCEEDINGS INITIATED U/S 147 OF THE ACT. ACCORDINGLY, WE HOLD THAT ALL THE 8 PERSONS DON T CONSTITUTE AS MEMBER OF THE AOP. ACCORDINGLY, WE DELETE THE NAME OF THESE PERSONS FROM THE LIST OF MEMBERS OF SUCH AOP. 14. THE LAST QUESTION ARISES TO DETERMINE WHETHER THE VALUE COMPUTED BY THE CUSTOM DEPARTMENT OF THE GOODS DIVERTED IN THE OPEN MARKET I.E. 15 ,26,050.00 REPRESENTS THE INCOME OF THE ASSESSEE. ADMITTEDLY, THE ASSESSEE HAS PAID THE IMPORT DUTY ON THE VALUE OF THE GOODS DETERMINED BY ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 13 - THE CUSTOM DEPARTMENT. THUS IT IS PRESUMED THAT THE MARKET VALUE OF SUCH GOODS WAS THE VALUE DETERMINED BY THE CUSTO M DEPARTMENT. ACCORDINGLY, IT IS INFERRED THAT THE ASSESSEE MUST HAVE SOLD THE IMPUGNED GOODS IN THE OPEN MARKET AS THE SAME WAS NOT SEIZED BY THE CUSTOM DEPARTMENT. THE AO ALSO NOTED THAT THAT THE INCOME FROM SALE OF GOODS WAS NOT DISCLOSED IN THE INCOME TAX RETURN. 14.1 MOREOVER, THE ONUS LIES ON THE ASSESSEE TO JUSTIFY BASED ON THE DOCUMENTARY EVIDENCE THAT IT HAS SOLD THE GOODS AT A VALUE LESS THAN THE VALUE DETERMINED BY THE CUSTOM DEPARTMENT. BUT THE ASSESSEE FAILED TO DISCHARGE ITS ONUS. FURTHERMOR E, THE AO HAS TAKEN THE VALUE BASED ON THE VALUATION DETERMINED BY THE CUSTOM DEPARTMENT WHICH WAS NOT CHALLENGED BY THE ASSESSEE. ACCORDINGLY, WE ARE OF THE VIEW THAT THE IMPUGNED VALUE CANNOT BE DISPUTED BY THE ASSESSEE IN THE INCOME TAX PROCEEDINGS. 1 5. THE NEXT ASPECT ARISES WHETHER THE ENTIRE AMOUNT OF THE VALUE REPRESENTS THE INCOME OF THE ASSESSEE. IN THIS REGARD, WE NOTE THAT THE ASSESSEE IS ENTITLED FOR THE DEDUCTION OF THE EXPENSES INCURRED IN CONNECTION WITH SUCH INCOME. THERE IS NO INFORMATION ABOUT THE PURCHASE COST AND THE TRANSPORT EXPENSES INCURRED BY THE ASSESSEE, THEREFORE IN THE ABSENCE OF ANY INFORMATION WE HOLD THAT THE ASSESSEE CANNOT BE GIVEN THE BENEFIT OF SUCH EXPENSES. IT IS BECAUSE THE PROVISIONS OF SECTION 147 OF THE ACT ARE NOT FOR THE BENEFIT OF THE ASSESSEE. THUS, THE EXPENSES ABOUT WHICH THERE IS NO INFORMATION AVAILABLE ON RECORD CANNOT BE GIVEN ANY RELIEF TO THE ASSESSEE . 15.1 HOWEVER, THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE AGAINST SUCH VALUE OF THE GOODS OF RS . 15,26,050.00 HAS INCURRED A COST OF 10 LAKHS BY WAY OF PAYING THE CUSTOM DUTY, INTEREST ET C WHICH HAS DIRECT NEXUS WITH THE IMPUGNED INCOME. ACCORDINGLY WE HOLD THAT THE ASSESSEE IS ENTITLED FOR THE RELIEF/BENEFIT OF SUCH EXPENSES AGAINST THE IMPUGNED U NDISCLOSED INCOME ITA NO. 1063 /RJT / 2009 A.Y. 2002 - 03 - 14 - DETERMINED BY THE AUTHORITIES BELOW. ACCORDINGLY, WE SUSTAIN THE ADDITION OF RS. 5,26,052.00 ( 15 , 26 , 052 - 10 ,00,000.00 ) AS INCOME OF THE ASSESSEE. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 16. IN THE RESULT THE APPE AL OF THE ASSESSEE IS PARTLY ALLOWED . THIS ORDER PRONOUNCED IN OPEN COURT ON 10 / 12 /201 9 - SD - - SD - ( ) ( ) (RAJPAL YADAV) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) DATED 10 /12 /201 9 MANISH