Sri. CHANDRAKANT K. SHAH, MUMBAI V. ITO - 18(2)(4), MUMBAI

ITA 1236/MUM/2006

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59897 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 29-02-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 20-02-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V S SAMUEL
• Assessee Lawyers: VIPUL B JOSHI
• Keywords: Unexplained cash credit; Gift; Peak credit
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER. I.T.A. NO. 1236/MUM/2006. ASSESSMENT YEAR : 2000-01. SHRI CHANDRAKANT J. SHAH, THE INCOME-TAX OFFICER, 7, NARENDRA INDUSTRIAL ESTATE, VS. 18(2)(4), OPP. KAMGAR STADIUM, S.B. MARG, MUMBAI. DADAR (W), MUMBAI 400 028. PAN : AAPPS9701D APPELLANT. RESPONDENT. APPELLANT BY : SHRI VIPUL B. JOSHI AND SHRI SAMEER DALAL. RESPONDENT BY : SHRI V.S. SAMUEL. DATE OF HEARING : 29-02-2012 DATE OF PRONOUNCEMENT : 16-03-2012 O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS)-XVIII, MUMBAI DATED 13-12-2005 WHEREBY HE SUSTAINED THE PENALTY IMPOSED BY THE AO U/S 271(1)(C) TO THE EXTENT THAT THE SAME WAS IN RELATION TO ADDITION OF RS.3,50,000/- MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF ALLEGED BOGUS GIFTS TREATING THE SAME AS UNEXPLAINE D CASH CREDITS U/S 68. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO IS ENGAGED IN THE BUSINESS OF TRADING IN CLOTHS IN THE NAME AND STYLE OF HIS PROPRIETARY CONCERN M/S 2 ITA NO.1236/MUM/2006 SHAH FABRICS. THE RETURN OF INCOME FOR THE YEAR UND ER CONSIDERATION WAS FILED BY IT ON 25-10-2000 DECLARING TOTAL INCOME OF RS.1,77,350 /-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAS INTRODUCED CAPITAL OF RS.11,25,000/- IN THE YEAR UNDER CONSIDERATION, SOU RCE OF WHICH WAS CLAIMED TO BE GIFTS RECEIVED FROM 8 DONORS. THE CLAIM OF THE ASSE SSEE OF HAVING RECEIVED THE SAID GIFTS WAS EXAMINED BY THE AO AND ON SUCH EXAMINATI ON, HE FOUND THAT ALL THE DONORS WERE HARDLY OF SUFFICIENT MEANS TO GIVE THE GIFTS AS CLAIMED BY THE ASSESSEE. HE FOUND THAT THE SAID DONORS HAD NO FINANCIAL CAPA CITY TO GIVE THE GIFTS AS CLAIMED BY THE ASSESSEE AND IN MOST OF THE CASES, CASH WAS DEPOSITED IN THE ACCOUNTS OF THE DONORS JUST BEFORE GIVING CHEQUES TO THE ASSESSEE T OWARDS GIFTS. THE AO, THEREFORE, TREATED THE SAID GIFTS AS BOGUS WHICH WERE SHOWN TO BE RECEIVED BY THE ASSESSEE TO BUILD UP HIS CAPITAL BY PAYING SOME PREMIUM AMOUNT. HE ASSUMED SUCH PREMIUM AS 10% OF THE GIFT AMOUNTS AND ADDED RS.11,25,000/- TO THE TOTAL INCOME OF THE ASSESSEE U/S 68 TREATING THE GIFTS AS UNEXPLAINED C ASH CREDITS AND PREMIUM OF RS.1,12,500/- CALCULATED AT THE RATE OF 10% OF THE GIFT AMOUNT. ON APPEAL, THE LEARNED CIT(APPEALS) RESTRICTED THE SAID ADDITION M ADE BY THE AO TO THE EXTENT OF RS.6,25,000/- ON ACCOUNT OF BOGUS GIFTS AND TO THE EXTENT OF RS.62,500/- ON ACCOUNT OF PREMIUM PAID FOR ARRANGING THE GIFTS. 3. AS A RESULT OF SUSTENANCE OF THE ADDITION MADE O N ACCOUNT OF GIFTS AND PREMIUM PAID THEREON BY THE LEARNED CIT(APPEALS) IN THE QUANTUM PROCEEDINGS, A PENALTY NOTICE WAS ISSUED BY THE AO REQUIRING THE A SSESSEE TO SHOW CAUSE AS TO WHY PENALTY U/S 271(1)(C) SHOULD NOT BE IMPOSED ON THE SAID ADDITIONS SUSTAINED BY THE LEARNED CIT(APPEALS). IN REPLY TO THE SAID NOTI CE, IT WAS SUBMITTED BY THE ASSESSEE THAT THE GIFTS WERE TREATED AS BOGUS MEREL Y ON THE GROUND THAT THE CONCERNED DONORS HAD NO FINANCIAL CAPACITY TO GIVE SUCH GIFTS AND THERE WAS NO ADVERSE MATERIAL BROUGHT ON RECORD TO ESTABLISH THA T THE SAID GIFTS WERE ARRANGED BY 3 ITA NO.1236/MUM/2006 THE ASSESSEE BY PAYING HIS OWN MONEY. IT WAS ALSO S UBMITTED ON BEHALF OF THE ASSESSEE THAT THE ADDITION MADE ON ACCOUNT OF ALLEG ED BOGUS GIFT IN THE ASSESSMENT AND PARTLY SUSTAINED BY THE LEARNED CIT(APPEALS) HA S BEEN CHALLENGED IN AN APPEAL FILED BEFORE THE TRIBUNAL. THE EXPLANATION OF THE A SSESSEE WAS NOT FOUND ACCEPTABLE BY THE AO. HE HELD THAT TO THE EXTENT OF ADDITIONS CONFIRMED BY THE LEARNED CIT(APPEALS) IN THE QUANTUM PROCEEDINGS, IT WAS PRO PERLY PROVED THAT THE GIFTS WERE BOGUS AND WERE OBTAINED ON PAYMENT OF PREMIUM. HE HELD THAT THE CASE OF THE ASSESSEE THUS WAS COVERED BY EXPLANATION 1 TO S ECTION 27(1)(C) AND IT WAS A FIT CASE TO IMPOSE PENALTY U/S 271(1)(C). ACCORDINGLY H E IMPOSED A PENALTY OF RS.3,71,250/- U/S 271(1)(C) BEING 100% OF THE TAX S OUGHT TO BE EVADED BY THE ASSESSEE IN RESPECT OF ADDITION OF RS.6,87,500/- MA DE TO THE TOTAL INCOME OF THE ASSESSEE HOLDING THAT THE ASSESSEE HAD FURNISHED IN ACCURATE PARTICULARS OF HIS INCOME TO THAT EXTENT. 4. THE PENALTY IMPOSED BY THE AO U/S 271(1)(C) WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BEFORE THE LEARNED CIT( APPEALS) WHO UPHELD THE ACTION OF THE AO TO IMPOSE PENALTY U/S 271(1)(C) OBSERVING THAT AN ATTEMPT WAS MADE BY THE ASSESSEE TO INTRODUCE HUGE AMOUNT AS CAPITAL TH ROUGH THE DEVISE OF RECEIVING SHAM GIFTS FROM VARIOUS PERSONS. HE, HOWEVER, FOUN D THAT THE ADDITION ON ACCOUNT OF GIFT WAS SUSTAINED BY THE TRIBUNAL ONLY TO THE E XTENT OF RS.3,50,000/- AND ACCORDINGLY HE RESTRICTED THE PENALTY IMPOSED BY TH E AO U/S 271(1)(C) ONLY TO THE EXTENT THAT THE SAME WAS IN RESPECT OF THE ADDITION OF RS.3,50,000/-. STILL AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE ASSES SEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE CLAIM O F THE ASSESSEE OF HAVING RECEIVED GIFTS FROM 8 DONORS AGGREGATING TO RS.11,25,000/- W AS SUPPORTED BY THE GIFT DEEDS 4 ITA NO.1236/MUM/2006 EXECUTED BY THE CONCERNED DONORS. ALL THE RELEVANT DETAILS OF THE SAID DONORS SUCH AS, NAMES, ADDRESSES, PREMIUM ACCOUNT NOS. WERE ALS O DULY GIVEN IN THE SAID GIFTS. THE AO, HOWEVER, TREATED THE SAID GIFTS AS BOGUS AN D ADDED THE ENTIRE AMOUNT OF GIFTS TO THE TOTAL INCOME OF THE ASSESSEE U/S 68 TR EATING THE SAME AS UNEXPLAINED CASH CREDIT ON THE GROUND THAT THE DONORS HAD NO FI NANCIAL CAPACITY TO GIVE SUCH GIFTS TO THE ASSESSEE. HE ALSO FOUND THAT CASH WAS DEPOSITED IN THE BANK ACCOUNTS OF MANY DONORS JUST BEFORE GIVING CHEQUES TO THE ASSES SEE TOWARDS GIFTS. IT IS OBSERVED THAT THE TOTAL ADDITION OF RS.11,25,000/- MADE BY T HE AO ON ACCOUNT OF BOGUS GIFTS, HOWEVER, HAS BEEN RESTRICTED INITIALLY BY THE LEARN ED CIT(APPEALS) TO RS.6,25,000/- AND FINALLY BY THE TRIBUNAL TO RS.3,50,000/- IN THE QUANTUM PROCEEDINGS ACCEPTING THE REMAINING AMOUNT OF GIFTS AS GENUINE. MOREOVER, EVEN IF IT HAS BEEN ALLEGED BY THE AO THAT THE GIFTS WERE ARRANGED BY THE ASSESSEE BY PAYING PREMIUM AMOUNT, THERE IS NOTHING BROUGHT ON RECORD TO SUPPORT AND S UBSTANTIATE THE SAID ALLEGATION. THERE IS ALSO NOTHING BROUGHT ON RECORD TO SHOW THA T THE CASH DEPOSITED BY THE DONORS IN THEIR ACCOUNTS PRIOR TO GIVING GIFTS TO T HE ASSESSEE WAS ACTUALLY BELONGING TO THE ASSESSEE AND THE SAME WAS GIVEN BY THE ASSES SEE TO THE SAID DONORS FOR RETURNING THE SAME IN THE FORM OF GIFTS. IN THE CAS E OF ADDL. CIT VS. RAWALPINDI FLOUR MILLS LTD. REPORTED IN 125 ITR 243, IT WAS HE LD BY THE HONBLE ALLAHABAD HIGH COURT THAT IF THE ASSESSEE FAILS TO PROVE THE GENUINENESS OF THE LOANS IN THE ASSESSMENT PROCEEDINGS, THE ADDITION TO THE TOTAL I NCOME U/S 68 CAN BE SAID TO BE JUSTIFIED BUT ON THAT GROUND ALONE PENALTY U/S 271( 1)(C) CANNOT BE IMPOSED. IN THE CASE OF CIT VS. BHIMJI BHANJEE & CO. 146 ITR 145, CASH CREDITS WERE FOUND IN THE BOOKS OF THE ASSESSEE. IN THE ASSESSMENT PROCEE DINGS, ASSESSEE ADMITTED THE EXISTENCE OF CREDITORS AND STATED THAT HE WAS NOT I N A POSITION TO PRODUCE THE PARTIES IN WHOSE NAMES THE SAID CASH CREDITS APPEARED. THE ITO WORKED OUT THE AMOUNT OF SUCH PEAK CREDITS AND ASSESSED THE SAID AMOUNT AS I NCOME OF THE ASSESSEE. HE ALSO IMPOSED PENALTY U/S 271(1)(C) WHICH WAS CANCELLED B Y THE TRIBUNAL. ON REFERENCE, 5 ITA NO.1236/MUM/2006 THE HONBLE BOMBAY HIGH COURT UPHELD THE DECISION O F THE TRIBUNAL HOLDING THAT THERE WAS NOTHING ON RECORD TO SHOW THAT THE AMOUNT OF CASH CREDITS ADDED TO THE TOTAL INCOME OF THE ASSESSEE WAS HIS CONCEALED INCO ME EARNED FROM UNDISCLOSED SOURCES. IN THE CASE OF CIT VS. BALBIR SINGH REPORT ED IN 214 CTR 147, THE HONBLE PUNJAB & HARYANA HIGH COURT HAS HELD THAT THE AMOUN T ALLEGEDLY RECEIVED BY THE ASSESSEE AS GIFT HAVING BEEN DISCLOSED BY HIM AND T HE SAME HAVING COME THROUGH BANKING CHANNELS AND THE IDENTITY OF THE DONOR HAVI NG BEEN ESTABLISHED, PENALTY U/S 271(1)(C) WAS NOT IMPOSABLE EVEN THOUGH THE GENUINE NESS OF GIFT WAS NOT ACCEPTED AND THE AMOUNT OF GIFT WAS ADDED TO THE TOTAL INCOM E OF THE ASSESSEE U/S 68. 6. KEEPING IN VIEW THE LEGAL POSITION EMANATING FRO M THE JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE AND HAVING REGARD TO THE FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE PRESENT CASE IS NOT A FIT CASE TO IMPOSE PENALTY U/S 271(1)(C) IN RESPECT OF ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF ALLEGED BOGUS GIFTS TREATING THE SAME AS UNEXPLAINED CASH C REDIT U/S 68. IN THAT VIEW OF THE MATTER, WE CANCEL THE PENALTY IMPOSED BY THE AO AND SUSTAINED BY THE LEARNED CIT(APPEALS) AND ALLOW THIS APPEAL OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON THIS 16 TH MARCH, 2012. SD/- SD/- (S.S. GODARA) (P.M. JA GTAP) JUDICIAL MEMBER. ACCO UNTANT MEMBER MUMBAI, DATED : 16 TH MARCH, 2012. 6 ITA NO.1236/MUM/2006 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, J-BENCH. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES , MUMBAI. WAKODE