NAGURAO MALKU GADGE, MUMBAI V. ITO WD 21(3)(4), MUMBAI

ITA 2279/MUM/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7300 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 12-07-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 22-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A N NAYAK
• Keywords: Search and seizure; Salary income; Source of fund; Difference of opinion
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH GMUMBAI BEFORE SHRI J. SUDHAKAR REDDY (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 2279/MUM/2010 ASSESSMENT YEAR-2002-03 SHRI NAGURAO MALKU GADGE, R. NO. 12, MAKDWALA COMPOUND, NAGURAO GADGE CHAWL, HALAV POOL ROAD, JAISHANKAR CHOWK, KURLA, MUMBAI-400 070 PAN-ADZPGH 0550H VS. THE ITO, WARD 21(3)(4), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAKESH JOSHI RESPONDENT BY: SHRI A.N. NAYAK O R D E R DATE OF HEARING : 12.07.2011 DATE OF PRONOUNCEMENT:7.10.2011 PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 7.1.2010 PASSED BY THE LD. CIT(A)-32 FOR THE ASSESS MENT YEAR 2002-03. 2. THE FACTS IN BRIEF ARE THAT ASSESSEE IS AN INDIV IDUAL, BEING A CLASS IV EMPLOYEE IN THE BOMBAY MUNICIPAL CORPORATION. HE IS HAVING INCOME FROM SALARY, INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SO URCES DURING THE YEAR. HE FILED HIS RETURN OF INCOME ON 17.08.2004 DECLARING INCOME OF RS.1,37,028/-. THE RETURN ALSO INCLUDED AGRICULTURAL INCOME OF RS.9,00 0/-. THE SAME WAS IN RESPONSE TO THE NOTICE ISSUED U/S.142(1) OF THE INCOME TAX A CT, 1961 DATED 28.03.2003. ITA NO. 2279/M/2011 2 THE CASE WAS SELECTED FOR SCRUTINY U/S.143(3) OF TH E INCOME TAX ACT, 1961 AND ORDER PASSED ON 18.03.2005 BY ASSESSING THE TOTAL I NCOME AT RS.81,94,710/-. THE ADDITION MADE WAS OF RS.80,57,680/- ON ACCOUNT OF THE CASH FOUND AT THE PREMISES OF THE ASSESSEE WHICH WAS SEIZED BY THE PO LICE DEPARTMENT, MUMBAI WHEN THEY RAIDED THE ASSESSEES PREMISES ON A TIP O FF THAT HE WAS POSSESSING CURRENCY TO BE TRANSFERRED TO SOMEBODY. THE HON'BLE CIT(A)XXI VIDE HIS ORDER NO.CIT(A)XXI/21(3(4)/IT-53/05-06 DATED 06-10-2005 D ISMISSED THE APPEAL OF THE ASSESSEE AGAINST WHICH A FURTHER APPEAL WAS FIL ED BEFORE THE HON'BLE ITAT. THE HON'BLE ITAT, F BENCH VIDE ORDER NO.ITA NO.67 19/MUM/05 DATED 30-05- 2006 SET ASIDE THE ISSUE AND SENT THE FILE BACK TO THE LD. AO FOR FRESH EXAMINATION. AT THE TIME OF THE FRESH PROCEEDINGS B EFORE THE LD.AO, SHRI C.K. DOSHI, CA ATTENDED THE PROCEEDINGS AND HAS FURNISHE D ALL THE DETAILS CALLED FOR FROM TIME TO TIME. THE STATEMENT OF THE ASSESSEE WA S ALSO RECORDED BY THE LD.AO. HOWEVER, THE LD.AO HAD ONCE AGAIN ADDED THE SUM OF RS.80,57,680/- AS UNEXPLAINED CASH FOUND IN THE POSSESSION OF THE ASS ESSEE AND PASSED HIS ORDER DATED 28.12.2007. THE QUANTUM APPEAL WAS DISMISSED BY THE HON'BLE CIT(A) VIDE ORDER DATED 28.01.2009. ACCORDINGLY, NOTICE U/ S.274 R.W.S. 271(1)(C) OF THE INCOME TAX ACT, 1961 WAS ISSUED ON 02.04.2009. AT T HE TIME OF THE PROCEEDINGS BEFORE THE LD. AO, SHRI C. K. DOSHI, CA ATTENDED TH E PROCEEDINGS AND HAS FURNISHED THE SUBMISSIONS. HOWEVER, THE LD. AO HAS LEVIED A PENALTY OF RS.24,56,500/- @ 100% OF THE TAX SOUGHT TO BE EVADE D VIDE HIS ORDER DATED 12.06.2009 BY CLAIMING THAT THE ASSESSEE HAS FURNIS HED INACCURATE PARTICULARS OF INCOME. 3. THE LD. CIT(A) CONFIRMED THE PENALTY BY HOLDING AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE ISSUE. THERE IS NO DENYING THE FACT THAT THE PENALTY PROCEEDINGS ARE DIFFERENT FROM THE ASSESSMENT PROCEEDINGS. IT IS A CASE WHERE REASONABLE AND SUFF ICIENT OPPORTUNITY HAS BEEN GRANTED TO THE APPELLANT TO EXTRICATE HIMSELF FROM THE MISCHIEF OF SECTION 271(1)(C). THE LD. AR HIMSELF HAS REFERRED TO THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF DHARMENDRA TEX TILES PROCESSORS AND ORS. (SUPRA) WHICH HAS FAIRLY SHIFTED THE ONUS TO P ROVE THE INNOCENCE ON ITA NO. 2279/M/2011 3 THE PART OF THE ASSESSEE. THERE ARE CERTAIN ADDITIO NS WHICH RESULT FROM CONCEALMENT OF INCOME OR FILING INACCURATE PARTICUL ARS OF INCOME. THE OTHER ADDITIONS COULD BE BECAUSE OF DIFFERENT INTER PRETATIONS POSSIBLE UNDER LAW. IN THE CASE OF THE APPELLANT, THE ADDITI ON IS U/S.68 OF THE INCOME TAX ACT AND IS IN RESPECT OF ADDITIONS MADE OF MONEY WHICH HAS BEEN CLAIMED BY THE APPELLANT TO BE BELONGING TO OT HER AND THE SAME HAS BEEN HELD BY THE ASSESSMENT AND APPELLATE ORDER, TO BE APPELLANTS OWN MONEY. IN SUCH A SITUATION, THE ADDITION WILL DEFIN ITELY ENTAIL PENALTY. IF AN ASSESSEE CLAIMED HIS MONEY TO BE BELONGING TO OTHER S AND THEREFORE DOES NOT REVEAL THE SAME TO THE DEPARTMENT IN THE RETURN OF INCOME, THEN THE ADDITION MADE IS ONLY IN RESPECT OF CONCEALED INCOM E BEING ATTEMPTED TO BE PASSED OFF AS MONEY BELONGING TO OTHERS. IT IS N OT A CASE WHERE ANY INTERPRETATION OF LAW IS INVOLVED OR THE APPELLANT S CLAIM OF DEDUCTION HAS BEEN REJECTED. UNDER THE CIRCUMSTANCES THERE IS NO REASON TO INTERFERE IN THE ORDER OF THE PENALTY. 4. AGGRIEVED ASSESSEE IS IN APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SHRI RAKESH JOSHI BROUGHT TO OUR NOTICE OF THE ORDER OF ITAT, MUMBAI B BENCH IN ITA NO. 1902/M/09 FOR ASSESSMENT YEAR 2002-03 WHEREIN THE RELEVANT PARAGRAPHS READ AS UNDER: THE ASSESSEE EXPLAINED BEFORE THE COURT THAT THE CA SH BELONGED TO 35 PERSONS INCLUDING THE ASSESSEE WHICH HAD BEEN CO LLECTED FOR CONSTRUCTING A COMMUNITY HALL AT KURLA IN THE NAME OF SHAHPUR SADAN AS ALL THE PERSONS BELONGED TO THE ASSESSEES NATIVE D ISTRICT. THE ASSESSEE PRODUCED ALL THE 34 PERSONS WHOSE STATEMENTS WERE R ECORDED AND THEY WERE ALSO SUBJECTED TO CROSS EXAMINATION BY PUBLIC PROSECUTOR. AFTER CONSIDERING THE EVIDENCE PRODUCED, THE MAGISTRATE A CQUITTED THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAD EXPLAINED HIS P OSSESSION OVER THE MONEY AND THE COURT WAS NOT CONCERNED WITH THE SOUR CE OF INCOME OF THE DEFENSE WITNESSES. ACCORDINGLY THE MONEY SEIZED FRO M THE ASSESSEE WAS RETURNED BACK TO HIM BY THE COURT. IN THE ORIGINAL ASSESSMENT MADE BY THE AO UNDER SEC TION 143(3) ON 18.3.2005 THE CASH SEIZED FROM THE ASSESSEE HAD BEEN TREATED AS HIS UNDISCLOSED INCOME. THIS WAS DISPUTED BY THE ASSESS EE WHO ARGUED THAT CASH COULD NOT BE ADDED IN CASE OF THE ASSESSEE IN VIEW OF THE JUDGMENT OF LD ADDITIONAL CHIEF METROPOLITAN MAGISTRATE ACQU ITTING THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAD SATISFACTORILY EXP LAINED THE POSSESSION OF CASH. THE TRIBUNAL HOWEVER DID NOT ACCEPT THE PL EA AND OBSERVED THAT UNDER THE PROVISIONS OF SECTION 124 OF BOMBAY POLIC E ACT, THE ONLY ASPECT WHICH WAS REQUIRED TO BE SEEN WAS WHETHER THE CASH WAS A STOLEN ITA NO. 2279/M/2011 4 PROPERTY OR HAD BEEN FRAUDULENTLY OBTAINED. THE COU RT WAS NOT CONCERNED WITH THE SOURCE OF CASH. HOWEVER FOR THE PURPOSES O F SECTION 69A OF THE I.T.ACT, IN CASE A PERSON WAS FOUND TO BE OWNER OF ANY MONEY ETC. AND FAILED TO EXPLAIN THE NATURE AND SOURCE OF ACQUISIT ION OR THE EXPLANATION OFFERED IS NOT FOUND SATISFACTORY BY THE AO THE MON EY CAN BE TREATED AS INCOME OF THE ASSESSEE. THE SECTION 124 OF BOMBAY P OLICE ACT AND SECTION 69A OF THE INCOME-TAX ACT OPERATED IN DIFFERENT FIE LDS. THE TRIBUNAL THEREFORE DID NOT ACCEPT THE PLEA OF THE ASSESSEE O N MERIT. HOWEVER THE TRIBUNAL ACCEPTED THE ALTERNATE PLEA OF THE ASSESSE E THAT HE HAD NOT BEEN PROVIDED SUFFICIENT OPPORTUNITY OF HEARING BEFORE T HE AO FOR PRODUCING THE 34 PERSONS OR FOR EXPLAINING HIS POSSESSION WITH RE GARD TO CASH FOUND. THE TRIBUNAL ACCORDINGLY SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR FRESH ORDER AFTER EXAMINATION AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. THE LD. COUNSEL FOR THE ASSESSEE FURTHER POINTED OUT THAT THE COURT WAS NOT CONCERNED WITH THE SOURCE OF INCOME OF THE DEFE NSE WITNESSES AND ADDITIONAL CHIEF METROPOLITAN MAGISTRATE ACQUITTING THE ASSESS EE ON THE GROUND THAT THE ASSESSEE HAD SATISFACTORILY EXPLAINED THE POSSESSIO N OF CASH. ON MERIT, THE TRIBUNAL CONFIRMED THE ORDER OF THE LOWER AUTHORITI ES IN CONFIRMING THE ADDITION OF RS.80,57,650/- IN THE HANDS OF THE ASSESSEE ON T HE PROPOSITION THAT IT DOES NOT CONFORM TO NORMAL HUMAN BEHAVIOR THAT SOMEONE H AVING BANK ACCOUNT WILL KEEP THE MONEY IDLE IN CASH AND NOT EARN INTEREST I NCOME I.E. THE TRIBUNAL POINTED OUT THAT WHEN A PERSON IS FOUND TO BE IN A POSSESSION OF ARTICLE OR THING ONUS OF PROVING THAT HE WAS NOT THE OWNER IS ON THA T PERSON. THE PERSON IS PRESUMED TO BE OWNER UNLESS PROVED OTHERWISE. THIS VIEW IS SUPPORTED BY THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF C HUHARMAL 172 ITR 250. THEREFORE THE TRIBUNAL CONFIRMED THE ADDITION. 6. THE LD. COUNSEL FOR THE ASSESSEE MADE THE FOLLOW ING SUBMISSIONS BEFORE US. THE FIRST ELEMENT FOR LEVY OF CONCEALMENT PENALTY IS NOT SATISFIED BECAUSE THE APPELLANT HAS OFFERED THE EXPLANATION A BOUT THE SOURCE OF THE CASH FOUND. THE CASE OF THE APPELLANT ALSO DOES NOT FALL IN THE SECOND CATEGORY. THE APPELLANT HAS PRODUCED ALL THE PARTIE S INVOLVED FOR EXPLAINING THE SAID SOURCE OF THE CASH NOT ONLY BEF ORE THE LD. AO BUT ALSO ITA NO. 2279/M/2011 5 BEFORE THE MAGISTRATE AND THEIR STATEMENTS HAVE BEE N RECORDED BY BOTH THE AUTHORITIES. SO IT CANNOT BE SAID THAT THE SAID EXPLANATION OFFERED IS FALSE OR PROVED AS SUCH. IN FACT, IT SHOULD BE APPR ECIATED THAT THE APPELLANT HAS CO-OPERATED AT ALL LEVELS. THUS IT IS CLEAR THAT THE APPELLANT OFFERED EXPLANATION, WHICH WAS NOT FOUND TO BE FALS E BY THE AO. THE THIRD INGREDIENT FOR THE APPLICABILITY OF THE DEEMING PRO VISION IS THAT THE PERSON OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBST ANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONAFIDE. THE APPELL ANTS CASE CERTAINLY DOES NOT FALL WITHIN THE PARAMETERS OF THIS PROVISI ON ALSO FOR THE REASON THAT HE OFFERED A BONAFIDE EXPLANATION AND HAS GONE AHEAD AND COMPLIED WITH THE REQUIREMENTS OF PROVING HIS CASE BEFORE AL L AUTHORITIES. HIS EXPLANATION IS BONAFIDE AND THIS FACT HAS NOT BEEN REFUTED BY THE AO. WHETHER AN EXPLANATION IS BONAFIDE OR NOT DEPENDS O N THE CUMULATIVE EFFECT OF THE APPELLANT CANNOT BE COVERED IN THIRD CATEGORY ALSO. UNDER THESE CIRCUMSTANCES IT IS PATENT THAT THE NECESSARY CONDITIONS FOR INVOKING EXPLANATION 1 TO SECTION 271(1)(C) ARE LACKING. THE PENALTY PROCEEDINGS ARE DISTINCT FROM THE ASSES SMENT PROCEEDINGS AND HENCE IT BECOMES AMPLY CLEAR THAT A NY ADDITION MADE SHOULD NOT AUTOMATICALLY LEAD TO THE IMPOSITION OF PENALTY U/S. 271(1)(C). IN THE PENALTY PROCEEDINGS THE APPELLANT IS GIVEN C HANGE TO EXPLAIN HIS CASE. IF HE SUCCESSFULLY EXPLAINS HIS POSITION AND IS NOT TRAPPED WITHIN THE PARAMETERS OF CLAUSE (C) OF SECTION 271(1) ALONG WI TH THE EXPLANATIONS DEEMING THE CONCEALMENT INCOME, THE PENALTY CANNOT BE IMPOSED. ADVERTING TO THE FACTS OF THE INSTANT CASE AT MOST IT MAY BE DEDUCTED, THAT THERE WAS A GENUINE DIFFERENCE OF OPINION BETWEEN T HE APPELLANT AND THE AO ON THIS ASPECT OF THE MATTER. IT CANNOT BE SAID THAT THE APPELLANT, UNDER SUCH CIRCUMSTANCES HAS CONCEALED HIS INCOME A ND IS CAUGHT WITHIN THE FOUR CORNERS OF SECTION 271(1)(C). 7. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION IN THE CASE OF ITO VS NAGARDAS JASHRAJ. HE ALSO POINTED OUT ADDITI ON HAS BEEN MADE U/S. 69A AND THEREFORE IN SUCH A SITUATION NO ONUS IS CAST O N THE ASSESSEE TO PROVE THE CREDIT WORTHINESS OF THE PEOPLE WHO HAVE DEPOSIT TH E MONIES WITH THE ASSESSEE. THE ASSESSEE ALSO RELIED ON THE DECISION IN 116 TT J 149. THE ASSESSEE STRESSED THE FACT THAT SINCE THE ASSESSEE GIVE SATISFACTORIL Y EXPLANATION AS A RESULT OF WHICH HE WAS ACQUITTED BY THE MAGISTRATE AND FILED THE COPY OF THE WRIT PETITION NO. 1216 OF 2008. ITA NO. 2279/M/2011 6 8. WE HEARD BOTH THE PARTIES. WE FIND THAT THE ASS ESSEE HAS OFFERED AN EXPLANATION FOR POSSESSION OF THE CASH THAT IT WAS RECEIVED FROM 34 AGRICULTURISTS WHICH WAS NOT FOUND TO BE FALSE IN AS MUCH AS THE P ERSONS KEPT THE MONEY IN THE CUSTODY OF THE ASSESSEE FOR THEMSELVES ADMITTED THAT IT BELONGS TO THEM. THE MAGISTRATE IN THE CRIMINAL PROCEEDINGS BY THE P OLICE DEPARTMENT HAS ALSO SATISFIED HIMSELF ON VERIFICATION FROM THE PERSONS WHO HAVE KEPT THE MONEY WITH THE ASSESSEE THAT THE SAME BELONGS TO THEM AND HAS ACQUITTED TO THE ASSESSEE. THEREFORE EVEN THOUGH ON MERIT, THE LEVY OF CONCEAL MENT PENALTY IS NOT CALLED FOR. THE ASSESSEE HAS ALSO SUBSTANTIATED THE BONAF IDE EXPLANATION PRODUCING THE 34 PERSONS BEFORE THE MAGISTRATE HENCE. THUS AS TH E SOURCE OF THE FUNDS HAS BEEN EXPLAINED BY THE ASSESSEE AND SUCH EXPLANATION HAS BEEN ACCEPTED BY THE MAGISTRATE IN CRIMINAL PROCEEDINGS. THEREFORE, WHE N THE ASSESSEE HAS OFFERED AN EXPLANATION FOR THE SOURCE OF FUNDS AND THE SAME HA S BEEN SUBSTANTIATED BY THE PERSONS WHO HAVE LENT THE MONEY AND SUCH EXPLANATIO N HAS BEEN ACCEPTED BY A JUDICIAL AUTHORITY, PENALTY CANNOT BE LEVIED. THE ADDITION OF QUANTUM BASED ON HUMAN PROBABILITIES AND PROOF TO THE SATISFACTION O F THE DEPARTMENT COULD NOT BE FURNISHED, CANNOT BE EXTENDED TO LEVY OF PENALTY IG NORING THE EXPLANATION OFFERED AND SUBSTANTIATED BY THE ASSESSEE. IN THESE CIRCUMS TANCES, WE DELETE THE PENALTY OF RS. 24,56,500/- LEVIED U/S. 271(1)(C). 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 7 TH DAY OF OCTOBER (J.SUDHAKAR REDDY) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 7 TH OCTOBER, 2011 SD/- SD/- I (J. SUDHAKAR REDDY) (D.K. AGARWAL) ACCOUNTANT MEMBER JUDICIA L MEMBER MUMBAI, DATED 7 TH OCTOBER, 2011 RJ ITA NO. 2279/M/2011 7 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 2279/M/2011 8 DATE INITIALS 1. DRAFT DICTATED ON: 23 . 9 . 2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 23.09.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: