Shri Anand Kantilal Chokshi,HUF, Surat V. The Income tax Officer,Ward-9(1), Surat

ITA 163/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5799 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 07-07-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 19-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P R GHOSH
• Assessee Lawyers: R M UPADHYAY
• Keywords: Reopening of assessment; Gift; Depreciation; Reason to believe
• Section: 133A; 147; 148; 144; 139

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH SMC AHMEDABAD BEFORE SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER ANAND KANTILAL CHOKSHI (HUF),41, VISHVAKARMA SOCIETY, VASTRADEVI ROAD, NR. PRIME BANK, SURAT. PAN AABHC5183M VS. INCOME-TAX OFFICER, WARD9(1), SURAT. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI R. M. UPADHYAY, AR REVENUE BY:- SHRI P. R. GHOSH, DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING F OLLOWING GROUNDS :- (1) THE AO HAS ERRED IN LAW AND ON FACTS TO REOPENING A SSESSMENT AND TO ISSUE NOTICE U/S 148 OF THE ACT ONLY ON THE BASIS OF SURVEY ACTION AT THE BUSINESS PREMISES OF HIS CA, S HRI PANKAJ DANAWALA. LD. CIT(A) HAS ALSO ERRED IN LAW IN SUSTA INING SUCH ACTION OF THE AO. (2) THE AO HAS ERRED IN LAW AND ON FACTS TO GIVE A COPY OF REASONS RECORDED FOR REOPENING OF ASSESSMENT. LD. CIT(A) HA S ALSO ERRED IN LAW IN NOT DECIDING THE ISSUE BY SPEAKING ORDER. (3) LD. AO HAS ERRED IN LAW AND ON FACTS TO FINALISE AS SESSMENT U/S 144 R.W.S. 147 OF THE ACT WITHOUT GIVING FULL OPPOR TUNITY TO THE APPELLANT AND ALSO WITHOUT ISSUE OF NOTICE U/S 143( 2) OF THE ACT PRIOR TO COMPLETE ASSESSMENT. LD. CIT(A) HAS ALSO E RRED IN LAW AND ON FACTS TO UP-HELD THE ACTION OF THE AO. ITA NO.163/AHD/2010 ASST. YEAR :2003-04 2 2. THE LD. AR SUBMITTED THAT THE ISSUE OF REOPENING OF ASSESSMENT GOES TO THE ROOT OF THE MATTER, THEREFORE, IF IT IS DECIDED IN FAVOUR OF THE ASSESSEE THEN OTHER GROUNDS WOULD BECOME ACADEMIC. 3. THE FACTS RELATING TO GROUND NO.1 CHALLENGING RE OPENING OF ASSESSMENT ARE THAT THE DEPARTMENT CARRIED OUT A SU RVEY U/S 133A AT THE PREMISES OF ONE SHRI PANKAJ DANAWALA WHOSE STATEMEN T WAS RECORDED. HE ADMITTED THAT HE HAS BEEN CREATING BOGUS CAPITAL BY PREPARING BOGUS PROFIT AND LOSS ACCOUNT AND BALANCE SHEET WITH AGRICULTURA L INCOME, WITH SMALL GIFTS OR SHOWING INCOME FROM INTEREST, BROKERAGE, C OMMISSION ETC. AND THUS CREATING SUBSTANTIAL BOGUS CAPITAL AND FILING RETURN OF INCOME IN RESPECT OF SEVERAL OF HIS CLIENTS. THE PRESENT ASSE SSEE IS ONE OF THE CLIENTS OF THE ASSESSEE. THIS ASSESSEE BELONGS TO ONE SHRI MOHAN DHANJI PATEL GROUP. SHRI DANAWALA CREATED 163 FILES FOR THE BENE FIT OF SHRI MOHAN DHANJI PATEL GROUP. THE DEPARTMENT CARRIED SURVEY A T THE PREMISES OF SHRI MOHAN DHANJI PATEL WHO ALSO ADMITTED THAT RETU RNS ARE FILED ONLY BY SHRI PANKAJ DALAWALA. THE AO NOTED THAT SUCH BALANC E SHEET AND CAPITAL ACCOUNTS ARE BEING FILED W.E.F. FROM ASST. YEAR 199 4. IN ASST. YEAR 2001- 02, RETURN WAS FILED ON AN INCOME OF RS.48,770/- SH OWING OPENING CAPITAL OF RS.8,73,552/-. THE AO CONSIDERED THAT THERE HAS BEEN INCREASE IN THE CAPITAL EVERY YEAR BY 11.25% AND THEREFORE, IN ASST . YEAR 2003-04 ALSO THERE WOULD BE CORRESPONDING INCREASE IN CAPITAL AN D THUS THIS INCREASE, BEING INTEREST INCOME, IS WORKED OUT AT RS.66,370/- . AFTER REOPENING THE ASSESSMENT THE AO COMPLETED THE ASSESSMENT AT RS.60 ,370/- AS UNDER :- INCOME FROM OTHER SOURCES: AS PER ORIGINAL RETURN- RS.60,370/- TOTAL TAXABLE INCOME RS.60,370/- 3 4. THE LD. CIT(A) CONFIRMED THE ASSESSMENT BY OBSER VING AS UNDER :- 3.2 I HAVE GONE THROUGH THE SUBMISSION OF THE APPE LLANT AS WELL AS THE FINDINGS OF THE ASSESSING OFFICER. IT IS A FACT THA T THE ASSESSEE DID NOT COMPLY WITH THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT RESULTING IN COMPLETION OF ASSESSMENT UNDER SECTION 144 OF THE A CT. THE ASSESSEE ON ONE HAND CHOSE TO DEFY STATUTORY COMPLIANCE OF FILI NG OF RETURN OF INCOME IN PURSUANCE TO NOTICE ISSUED UNDER SECTION 148 OF THE ACT AND AT THE SAME TIME QUESTION THE REOPENING AND CONSEQUENT REA SSESSMENT UNDER SECTION 144 OF THE ACT. THIS STAND OF THE ASSESSEE IS NOT APPRECIATED. THE RIGHT TO CHALLENGE A DECISION IN APPEAL IS AS IMPOR TANT, AS OBLIGATION TO COMPLY UNDER LAW. THE ASSESSEE FOLLOWED A SELECTIVE APPROACH. THE AR HAS CHALLENGED THE REASONS FOR REASSESSMENT WHICH A RE RECORDED IN PARA 3 OF THE ASSESSMENT ORDER. THE AR DOES NOT AGREE WI TH SUCH REASONS. DISAGREEMENT WITH THE REASONS DOES NOT NULLIFY THE JURISDICTION UNDER SECTION 148 OF THE ACT OR REASSESSMENT UNDER SECTIO N 144 OF THE ACT. SUFFICIENCY OF REASONS FOR ISSUANCE OF NOTICE UNDER SECTION 148 IS NOT TO BE TESTED. EXISTENCE OF A REASON IS VALID FOR REASS ESSMENT PROCEEDINGS. THEREFORE, ON THIS GROUND THE APPEAL OF THE APPELLA NT IS DISMISSED. 5. BEFORE ME, LD. AR FOR THE ASSESSEE SUBMITTED THA T CONDITION LAID DOWN FOR REOPENING OF ASSESSMENT UNDER SECTION 147/ 148(1) ARE NOT SATISFIED AS THERE IS NO ALLEGATION OF ANY ESCAPEME NT OF INCOME IN THIS YEAR AND FURTHER THAT INCOME ASSESSED IN THE RE-ASS ESSMENT ORDER IS LESS THAN THE INCOME ORIGINAL DECLARED BY THE ASSESSEE I N THE ORIGINAL RETURN FILED BY HIM ON 18.11.2003. THE RETURN OF INCOME WA S FILED BY LD. AR ON AN INCOME OF RS.1,03,860/- FOR ASST. YEAR 2003-04 W HICH WAS ACCEPTED BY THE DEPARTMENT UNDER SECTION 143(1) VIDE THEIR I NTIMATION ISSUED IN MARCH, 2004 A COPY OF WHICH IS ENCLOSED AT PAGE 11 OF THE ASSESSEES PAPER BOOK. THE LD. AR ALSO DREW MY ATTENTION TO RE ASONS RECORDED WHICH ARE ENCLOSED IN PAGES 4-5 OF ASSESSEES PAPER BOOK WHICH ALSO INDICATE THAT ONLY ASSUMED INTEREST INCOME ON ADVANCES GIVEN BY THE ASSESSEE HAS BEEN TREATED AS ESCAPED INCOME AND ASSESSMENT HAS A LSO BEEN MADE ON THE SAME FIGURE WITHOUT CONSIDERING THE ORIGINALLY RETU RNED INCOME OF 4 RS.1,03,860/-. THE LD. AR ALSO SUBMITTED THAT ONCE FIGURES OF CAPITAL, LOAN AND ADVANCES AS PREPARED BY PANKAJ DANAWALA ARE FIC TITIOUS AS CLAIMED BY THE REVENUE THEN THE QUESTION OF ADVANCING SUCH FICTITIOUS CAPITAL WOULD NOT ARISE AND SO THERE WILL NOT BE ANY QUESTI ON OF EARNING ANY INTEREST FROM SUCH FICTITIOUS ADVANCES. 6. THE LD. DR ON THE OTHER HAND, SUBMITTED THAT ASS ESSEE DID NOT DISCLOSE TO THE AO AS TO WHAT WAS THE ORIGINALLY AS SESSED INCOME EVEN THOUGH AO HAD ASKED THE SAME REPEATEDLY AND WHICH R ESULTED INTO PASSING OF AN EX PARTE ORDER. 7. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL ON RECORD. THE PRIMARY ISSUE INVOLVED IN THIS APPEAL I S WHETHER AO HAD ACQUIRED A VALID JURISDICTION TO REOPENING THE ASSE SSMENT UNDER SECTION 147/148(1). FOR THE SAKE OF CONVENIENCE I REPRODUCE SECTION 147 AS UNDER:- 147- IF THE [ASSESSING] OFFICER[HAS REASON TO BELIE VE] THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESSEE OR REASSESS SUCH I NCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, OR RECOMPUTED THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALL OWANCE, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED(HEREAFTER IN THIS SECTION AND IN SECTION 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR): PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT Y EAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS F ROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON TH E PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUBSECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR: [ PROVIDED FURTHER THAT THE AO MAY ASSESS OR REASSESS SUCH INCOME, OT HER THAN THE INCOME INVOLVING MATTERS WHICH ARE THE SUBJECT MATT ERS OF ANY APPEAL, REFERENCE OR REVISION, WHICH IS CHARGEABLE TO TAX AND HAS ESCAPE D ASSESSMENT.] 5 EXPLANATION-1 PRODUCTION BEFORE THE AO OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HA VE BEEN DISCOVERED BY THE AO WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN TH E MEANING OF THE FOREGOING PROVISO. AN ANALYSIS OF THIS SECTION CLEARLY INDICATES THAT FOUR CONDITIONS ARE REQUIRED TO BE SATISFIED BEFORE AO CAN ASSUME JURIS DICTION TO REOPEN THE ASSESSMENT AND ALL THESE FOUR CONDITIONS/INGREDIENT S ARE REQUIRED TO BE SHOWN IN THE REASONS RECORDED. THEY ARE (1) THE AS SESSMENT YEAR FOR WHICH THERE IS A CHARGE FOR ESCAPEMENT OF INCOME; ( 2) THE ASSESSEE IN RESPECT OF WHOM THERE IS A CHARGE OF ESCAPEMENT, (3 ) THE AMOUNT WHICH IS ALLEGED TO HAVE ESCAPED AND (4) FINALLY WHERE SUCH ESCAPEMENT HAS BEEN DUE TO THE OMISSION OR FAILURE ON THE PART OF THE A SSESSEE FROM DISCLOSING ALL THE MATERIAL FACTS NECESSARY FOR ASSESSMENT, IN CASE ASSESSMENT SOUGHT TO BE REOPENED IS BEYOND FOUR YEARS. THE REASONS RE CORDED BY THE AO IN THIS CASE ARE AS UNDER :- A SURVEY U/S 133A OF IT ACT, 1961 WAS CARRIED OUT IN THE CASE OF ONE SHRI PANKAJ DANAWALA (CA) BY THE DDIT (IN)-II, SURAT ON 11.03.2 005. DURING THE COURSE OF SURVEY, HE WAS FOUND TO HAVE CREATED LARGE NUMBER O F CAPITAL BUILD UP CASES. THE MODUS OPERANDI WAS OF MAINLY TWO CATEGORIES. THE FI RST CATEGORY WAS INFLATION OF OPENING CAPITAL SUBSTANTIALLY. IN THE SECOND CATEGO RY HE PREPARED PROFIT AND LOSS ACCOUNT, CAPITAL ACCOUNT AND BALANCE SHEET WITH INC OME LIKE AGRICULTURE INCOME, SMALL GIFTS AND ALSO WITH INCOME FROM INTEREST, BRO KERAGE, COMMISSION, ETC. FOR MANY YEARS. IN THIS WAY, SHRI PANKAJ DANAWALA CREATED HU GE CAPITAL THROUGH FICTITIOUS INCOME IN THE EARLIER YEARS AND THE ACCUMULATED CAP ITAL BALANCE WAS INTRODUCED IN THE CAPITAL ACCOUNT LATER ON AT A SINGLE STROKE WHI LE FILING THE RETURN OF INCOME FOR THE FIRST TIME BEFORE THE DEPARTMENT. 2. DURING THE COURSE OF SURVEY, A STATEMENT ON OATH OF SHRI PANKAJ DANAWALA WAS RECORDED. HE CATEGORICALLY ADMITTED THAT BOGUS CAPITAL WAS CREATED BY HIM IN THE MANNER AS STATED ABOVE FOR THE BENEFIT OF HIS VARIO US CLIENT GROUPS (BENEFICIARIES). SOME FICTITIOUS ASSETS LIKE LOANS AND ADVANCES/SUND RY DEBTOR/BOGUS INVESTMENT IN PLOT/FLATS WERE SHOWN IN THE ORIGINATING ACCOUNT AG AINST THE BOGUS CAPITAL. SUBSEQUENTLY, IN THE LATER YEARS, THESE ASSETS WERE LIQUIDATED AND PASSED ON TO THE BENEFICIARIES. IN OTHER WORDS, THE UNACCOUNTED INCO ME OF THE BENEFICIARY WAS BROUGHT INTO BOOKS THROUGH THIS MODUS OPERANDI. CERTAIN GRO UPS WERE IDENTIFIED AS MAJOR BENEFICIARIES. THE GROUP WISE IT RETURNS CAN BE IDE NTIFIED FROM THE INDEX DIARY IMPOUNDED AS PER ANNEXURE-A-699. THE NAME OF CONTRO LLING PERSON OF THE GROUP IS MENTIONED AT THE TOP AND THE ASSESSEES OF THE SAID GROUP ARE LISTED BELOW SHOWING 6 THEIR FILE NUMBERS. IN THE SAME FASHION, A GROUP WA S IDENTIFIED AS SHRI NAVINCHANDRA CHOKSI GROUP. THE ASSESSEE IS ONE OF THE MEMBERS OF THIS GROUP. 3. ON PERUSAL OF THE RECORD IT WAS FOUND THAT THE A SSESSEE DID NOT FILE ITS RETURN OF INCOME FOR THE ASST. YEAR 2003-04. AS PER THE RETUR N OF INCOME FILED BY THE ASSESSEE FOR THE ASST. YEAR 2001-02 THE ASSESSEE HAD SHOWN I NCOME FROM INTEREST ON LOAN/ADVANCES AT RS.48,770/- FOR THE ASST. YEAR 200 2-03 THE ASSESSEE HAD SHOWN INCOME FROM INTEREST ON LOAN/ADVANCES AT RS.54,260/ -. THUS, THERE WAS AN INCREASE OF 11.25% IN THE INTEREST INCOME OF THE ASSESSEE FROM ASST. YEAR 2001-02 TO ASST. YEAR 2002-03. AS NO RETURN OF INCOME HAS BEEN FILED FOR THE YEAR UNDER CONSIDERATION, IT IS ASSUMED THAT THE ADVANCES SHOWN IN THE PREVIOUS BAL ANCE SHEET REMAINED THE SAME AND THIS YEAR ALSO THERE WAS AN INCREASE OF 11.25% IN THE INTEREST INCOME OF THE ASSESSEE. FOLLOWING THIS METHOD, INTEREST INCOME OF THE ASSESSEE FOR THE YEAR WORKS OUT TO RS.60,370/-. SUCH INCOME IS REQUIRED TO BE T AXED. 4. THUS, THERE IS A REASON TO BELIEVE THAT THE INCO ME OF RS.60,370/- (AS DISCUSSED ABOVE) CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ASST. YEAR 2003-04. ACCORDINGLY, THIS CASE FALLS WITHIN THE MEANING OF SECTION 147 UNDER ESCAPEMENT OF ASSESSMENT, THEREFORE, A NOTICE U/S 148 IS ISSUED I N THIS CASE FOR ASST. YEAR 2003-04. 8. ANALYSIS OF ABOVE REASONS SHOW THAT THERE IS NO REAL ADVANCES GIVEN BY THE ASSESSEE. IN FACT ALLEGATION OF THE DE PARTMENT HAS BEEN THAT SHRI PANKAJ DANAWALA HAS BEEN FICTITIOUSLY CREATING CAPITAL BY SHOWING BOGUS INCOME FROM INTEREST, COMMISSION ETC., THEREA FTER SUCH BOGUS CAPITAL IS USED AS RECEIPT FOR CHANNELING UNACCOUNT ED MONEY. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT ASSESSEE HAS HEL D ANY REAL CAPITAL WHICH WAS REALLY ADVANCED AND WHICH HAD REALLY GIVEN ANY INCOME TO THE ASSESSEE. IF I GO THROUGH THE ENTIRE REASONS RECORD ED I FIND THAT ALLEGATION OF BUILT UP OF BOGUS CAPITAL BY PANKAJ DANAWALA FOR THE ASSESSEE GROUP IS BEING MADE; IF IT IS SO THERE COULD NOT BE ANY REAL INCOME WHICH COULD BE ADVANCED FOR GENERATING REAL INCOME ON WHICH TAX CO ULD BE LEVIED AND, THEREFORE, THE SAME COULD BE SAID TO HAVE ESCAPED A SSESSMENT. FURTHER IF ESCAPED INCOME WAS RS.60,370/- AS ALLEGED BY THE AO IN THE REASONS RECORDED THEN REASSESSMENT SHOULD HAVE BEEN MADE ON AN INCOME OF RS.1,03,840/- PLUS RS.60,370/- AND NOT MERELY ON 60 ,370/-. THUS ORIGINALLY ASSESSED INCOME UNDER SECTION 143(1) IS RS.1,03,860/- WHEREAS 7 AFTER REASSESSMENT ASSESSED INCOME IS ONLY RS.60,37 0/-. THUS THERE CANNOT BE A REAL ESCAPEMENT OF INCOME. FROM THIS POINT OF VIEW ALSO ASSESSMENT CANNOT BE SAID TO BE VALIDLY REOPENED. 9. I AM OF THE CONSIDERED VIEW THAT ACTION U/S 147/ 148(1) CAN BE TAKEN ONLY FOR ASSESSEES REAL ESCAPED INCOME NOT HYPOTHE TICALLY ESCAPED INCOME WITHOUT THERE BEING ANY EVIDENCE OF ASSESSEE EARNING SUCH INCOME. ESTIMATION OF ESCAPED INCOME FOR THE PURPOS E OF REOPENING OF ASSESSMENT WOULD BE JUSTIFIED PROVIDED THERE IS AN EVIDENCE THAT ASSESSEE HAS ACTUALLY EARNED ANY SUCH INCOME. SINCE REOPENIN G OF ASSESSMENT IS EVOLVING FROM HYPOTHETICAL DOMAIN, SUCH REOPENING C ANNOT BE UPHELD. THUS I CANCEL THE ASSESSMENT AND ALLOW THE APPEAL O F ASSESSEE. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 7/7/2010 SD/- (D.C.AGRAWAL) ACCOUNTANT MEMBER AHMEDABAD, DATED : 7/7/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD