JAYANT B. PATEL, MUMBAI V. ACIT CEN CIR 13, MUMBAI

ITA 4152/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4032 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 20-10-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 06-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Income from undisclosed sources; Opportunity of being heard; Opportunity of cross examination; Third party statement
• Section: 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER. AND SMT ASHA VIJAY RAGHAVAN, JUDICIAL MEMBER ITA NO.4148, 4149, 4150, 4151 & 4152/MUM./2009 (A.Y : 2001 02, 2003 04, 2004 05, 2006 07 & 2007 08` ) DATE OF HEARING: 20.10.2010 JAYANT B. PATEL B 27, CLIFFTON SOCIETY NEAR CENTAUR HOTEL, JUHU MUMBAI 400 049 AACPP6414H .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 13, OLD CGO BUILDING ANNEXE M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO.4153, 4154, 4155, 4156 4157, 4158 & 4222/MUM ./2009 (A.Y : 2001 02, 2002 03, 2003 04, 2004 05, 2005 06, 2006 07, 2007 08 ) M/S. JAYANT B. PATEL (HUF) B 27, CLIFFTON SOCIETY NEAR CENTAUR HOTEL, JUHU MUMBAI 400 049 AACPP6414H .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 13, OLD CGO BUILDING ANNEXE M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ASSESSEE BY : NONE REVENUE BY : SMT. REENA JHA TRIPATHI JAYANT B. PATEL JAYANT B. PATEL (HUF) 2 O R D E R PER S.V. MEHROTRA, A.M. ALL THESE APPEALS RELATE TO SHRI JAYANT B. PATEL AN D M/S. JAYANT B. PATEL (HUF) FOR THE ASSESSMENT YEARS MENTIONED IN THE CAU SE TITLE AND ARE DIRECTED AGAINST THE ORDERS PASSED BY THE LEARNED CIT(A). AL L THESE APPEALS PERTAIN TO THE SAME ASSESSEE INVOLVING COMMON ISSUE ARISING OU T OF MATERIALLY SIMILAR SET OF CIRCUMSTANCES WHICH WERE HEARD TOGETHER. AS A MATTER OF CONVENIENCE, THEREFORE, ALL THE APPEALS ARE BEING DISPOSED OFF B Y WAY OF THIS CONSOLIDATED ORDER. 2. BRIEF FACTS OF THE CASE ARE THAT SHRI JAYANT B. PAT EL, OWNS PROPRIETARY BUSINESS CONCERN IN THE NAME AND STYLE OF M/S. UNIV ERSAL TASTE MAKER AND M/S. UNIVERSAL FLAVOURS & FRAGRANCE, BEING RUN FROM THE PREMISES 07, 120 AND 133, NEW APOLLO INDUSTRIAL ESTATE, MORGA VILLAG E ROAD, ANDHERI (EAST), MUMBAI. THE ASSESSEE HAD INTEREST IN THE COMPANIES M/S. UNIQUE AROMATICS P. LTD. AND M/S. SPECIALTY FOOD INGREDIENTS P. LTD. THE BUSINESS OF THESE CONCERNS IS MANUFACTURING AND SALE OF PROPRIETARY I TEMS BEING FOOD FLAVOURS MADE FROM COMBINATION OF SPICES, ETC. THE ASSESSEE WAS ALSO CARRYING ON BUSINESS IN THE CAPACITY OF M/S. JAYANT B. PATEL (H UF). A SEARCH AND SEIZER ACTION UNDER SECTION 132 OF THE ACT WAS CARRIED OUT IN ASSESSEES CASE AND THE PERSONS CONNECTED WITH HIM ON 10 TH JANUARY 2007. 3. IN RESPONSE TO THE NOTICE UNDER SECTION 153A OF THE ACT, THE ASSESSEE FILED ITS RETURN OF INCOME BOTH IN INDIVIDUAL CAPAC ITY AS WELL AS IN THE CAPACITY OF HUF FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERA TION. SINCE THE ADDITIONS MADE IN ALL THE ASSESSMENT YEARS ARE COMMON, THEREF ORE, WE, FOR THE SAKE OF CONVENIENCE, REFER TO THE FIGURES FROM THE ASSESSME NT ORDER FOR ASSESSMENT YEAR 2001 02, IN THE CASE OF JAYANT B. PATEL AND ALSO IN THE CASE OF M/S. JAYANT B. PATEL (HUF). JAYANT B. PATEL JAYANT B. PATEL (HUF) 3 4. THE ASSESSEE, IN ITS CAPACITY AS INDIVIDUAL , FILED RETURN OF INCOME DECLARING TOTAL INCOME OF ` 13,57,746 ON 19 TH MAY 2008. IN HIS COMPUTATION OF INCOME, THE ASSESSEE HAD SHOWN INCOME UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION, INCOME FROM OTHER SOURCES AND INCOME FROM CAPITAL GAIN , AS UNDER: STATEMENT OF TOTAL INCOME BUSINESS INCOME NET PROFIT AS PER P&L A/C 4,25,704 CAPITAL GAIN LONG TERM CAPITAL GAIN AS PER STATEMENT 10,581 LONG TERM CAPITAL GAIN AS PER SHARES SALE PRICE 9,68,959 LESS: WITHOUT INDEX COST 60,000 9,08,959 9,19,540 INCOME FROM OTHER SOURCES INTEREST ON BANK FD 6,034 CANPEP92 10,000 CANPEP91 10,000 26,034 INCOME OF MINOR SON PUNIT J. PATEL BANK INTEREST 600 FD BANK INTEREST __819 1,419 LESS; EXEMPT U/S 10(32) (1,419) __26,034 GROSS TOTAL INCOME 13,71,278 LESS : DEDUCTION UNDER CHP.VIA U/S 80L DIVIDEND & BANK INTT. 6,034 U/S 80D MEDICLAIM 7,498 ___13,532 TOTAL INCOME 13,57,746 ADD: AGRICULTURE INCOME __4,00,000 TOTAL INCOME _17,57,746 5. THE ASSESSEE, IN HIS CAPACITY AS HUF , FILED RETURN OF INCOME DECLARING TOTAL INCOME OF ` 19,49,171 UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION, INCOME FROM OTHER SOURCES AND INCOME FROM CAPITAL GAINS, AS UNDER: BUSINESS INCOME NET PROFIT AS PER P&L A/C 5,33,157 ADD: DECLARED PROFIT 9,45,000 14,78,157 JAYANT B. PATEL JAYANT B. PATEL (HUF) 4 LONG TERM CAPITAL GAIN AS PER SHARES SALE PRICE 4,86,110 LESS: WITHOUT INDEX COST 30,000 4,56,110 4,61,014 INCOME FROM OTHER SOURCES INTEREST ON BANK FD 11,828 CANPEP91 10,000 21,828 GROSS TOTAL INCOME 19,60,999 LESS : DEDUCTION UNDER CHP.VIA U/S 80L BANK INTT. 11,828 TOTAL INCOME 19,49,171 ADD: AGRICULTURE INCOME __1,00,000 TOTAL INCOME _20,49,171 6. THE ASSESSING OFFICER NOTED THAT SHRI JAYANT B. PAT EL, SMT. CHERYL JAYANT PATEL, SHRI PUNIT JAYANT PATEL AND THE HUF M /S. JAYANT B. PATEL, HAD LONG TERM CAPITAL GAIN FOR VARIOUS ASSESSMENT YEARS AS FOLLOWS: TABLE A S.NO. ASSESSEE SCRIP SALE IN A.Y. AMOUNT OF LTCG GROSS SALE OF SHARES BEING AMOUNT CR. IN THE BOOKS 1. JAYANT B. PATEL DATABASE FINANCE LTD. SURYADEEP SALT REFINERY & CHEMICAL WORKS M/S. OSIAN LPG 2003 04 2004 05 2006 07 9,91,739 8,45,138 4,48,949 10,11,382 8,92,265 4,67,600 2. JAYANT B. PATEL (HUF) DATABASE FINANCE LTD. 2003 04 4,89,807 5,00,962 3. CHERYL J. PATEL DATABASE FINANCE LTD. SURYADEEP SALT REFINERY & CHEMICAL WORKS M/S. OSIAN LPG 2003 04 2004 05 2006 07 4,89,807 6,30,414 4,28,189 5,00,962 6,64,990 4,50,800 4. PUNIT J. PATEL DATABASE FINANCE LTD. M/S. OSIAN LPG 2003 04 2006 07 3,76,358 51,67,981 3,94,250 53,84,213 JAYANT B. PATEL JAYANT B. PATEL (HUF) 5 TABLE B S.NO. ASSESSEE SCRIP PURCHASE BROKER SHRI NARENDRA R. SHAH SALE BROKER NO. OF SHARES SALE IN A.Y. AMOUNT OF LONG TERM CAPITAL GAIN GROSS SALE OF SHARES BEING AMOUNT CR. IN THE BOOKS 1. JAYANT B. PATEL ATN INTL. LTD. ABHISHEK FIN. & INV. CORP. RUSHABH INV. 22000 2001 02 916204 970104 2. JAYANT B. PATEL (HUF) SAWACA COMMUNI- CATION LTD. DO HMV CONSUL TANCY 8000 2001 02 456965 484965 3. CHERYL J. PATEL ATN INTL. LTD. DO HMV CONSUL TANCY 8700 2001 02 364442 386192 4. TOTAL 1737611 841261 TABLE C S.NO. ASSESSEE SCRIP PURCHASE BROKER SHRI NARENDRA R. SHAH SALE BROKER NO. OF SHARES SALE IN A.Y. AMOUNT OF LONG TERM CAPITAL GAIN 1. JAYANT B. PATEL PAINTER POLY LTD., IMPEX LTD. SANJEEV & CO. 2001 02 2003 04 2007 08 13500 4400 908959 476733 482284 NIL 508720 517000 2. JAYANT B. PATEL (HUF) TRIPEX LTD. G.R. PANDYA SHARE BROKING LTD. 2001 02 2007 08 4000 356192 487840 NIL 520000 3. PUNIT J. PATEL TRIPEX LTD. G.R. PANDYA SHARE BROKING LTD. 2007 08 4000 486640 518800 TOTAL 4185824 7. THE ASSESSING OFFICER OBSERVED THAT IN RESPECT OF L ONG TERM CAPITAL GAIN SHOWN AT ` 51,16,798 IN TABLE A, SHRI JAYANT B. PATEL, ADMITTED THAT THE SAID AMOUNT WILL BE DISCLOSED BY HIM IN THE HANDS OF RES PECTIVE ASSESSEES OF HIS GROUP FOR RESPECTIVE A.YS, FOR BEING TAXED AT NORMA L RATES. THE ASSESSING JAYANT B. PATEL JAYANT B. PATEL (HUF) 6 OFFICER HAS REPRODUCED THE LETTER OF ASSESSEE IN PA RA 8 OF THE ASSESSMENT ORDER. HE FURTHER NOTED THAT PURCHASE OF SHARES SHO WN AS TOTAL AT 53,84,213, 17,37,611, AND 41,85,824 IN THE TABLE A, B AND C RESPECTIVELY, WERE GOT ACCOMPLISHED THROUGH THE ENTITIES CONTROLL ED BY SHRI NARENDRA R. SHAH, WHO CATEGORICALLY ADMITTED THAT NO ACTUAL PUR CHASES WERE MADE OF THE AFORESAID SHARES, ON BEHALF OF THE AFORESAID FOUR P ARTIES BY THE CONCERNED SHRI JAYANT B. PATEL, SMT. CHERYL JAYANT PATEL, SHR I PUNIT JAYANT PATEL AND THE HUF M/S. JAYANT B. PATEL. HE HAS REPRODUCED THE ALLEGED ADMISSION LETTER OF SHRI NARENDRA R. SHAH, IN PARA 9 OF HIS ORDER. THE ASSESSING OFFICER ALSO OBSERVED IN PARA 10 OF HIS ORDER THAT THE ASSESSEE WAS DULY CONFRONT ED WITH THIS ASPECT AND HAD REPLIED THAT THE CAPITAL GAIN O F ` 51,69,981 WAS BOGUS. HE HAS REPRODUCED THE RELEVANT PORTIONS OF THE REPL Y IN THE SAID PARA. IN ORDER TO FURTHER PROVE THAT CAPITAL GAIN TRANSACTIO NS RELATING TO ` 41,85,824 AND ` 17,37,611 WERE BOGUS, ENQUIRIES WERE CONDUCTED FRO M BOMBAY STOCK EXCHANGE AND THE REPLY RECEIVED FORM BSE HAS BEEN R EPRODUCED IN PARA 12 OF HIS ORDER. ON THE BASIS OF THIS ENQUIRY, HE HELD THAT THE PURCHASE AND SALE OF SHARES WAS BOGUS. HE FURTHER OBSERVED THAT FOR T HESE TRANSACTIONS, A SUM EQUIVALENT TO 5% OF THE GROSS AMOUNT WAS PAYABLE FO R THE SERVICES OBTAINED. HE, ACCORDINGLY, HELD THAT THE ASSESSEE, ON THE DAT E WHEN HE SUPPOSEDLY EARNED LONG TERM CAPITAL GAIN, WAS IN POSSESSION OF UNEXPLAINED MONEY TO THE EXTENT OF SUPPRESSED GROSS SALE OF SHARES AMOUN TING TO ` 19,39,063, WHICH WERE AS FOLLOWS. S.NO. SCRIP A.Y. BOGUS LONG TERM CAPITAL GAIN GROSS SALE OF SUBJECT SHARE, BEING AMOUNT CR. IN THE BANK A/C 5% FEE ET. PAID FOR BOGUS LTCG 1. ATN INTL LTD. 2001 02 9,16,204 9,70,104 48,505 2. PLANTER POLY LTD. 2001 02 9,08,959 9,68,959 48,408 3. TRIPLEX LTD. TOTAL: 18,25,163 19,39,063 96,953 JAYANT B. PATEL JAYANT B. PATEL (HUF) 7 8. HE ALSO MADE ADDITION OF 5% TOWARDS SERVICE CHARGES OF ` 19,953. THE ASSESSEE HAD ALSO SHOWN AGRICULTURAL INCOME IN THE HANDS OF SHRI JAYANT B. PATEL, SMT. CHERYL JAYANT PATEL, SHRI PUNIT JAYANT PATEL AND THE HUF M/S. JAYANT B. PATEL. THE ASSESSING OFFICER ISSUED DETAI LED QUERY TO THE ASSESSEE WHICH HAS BEEN REPRODUCED IN PARA 19 OF HIS ORDER. HE OBSERVED THAT THE ASSESSEE FAILED TO ESTABLISH THE PERFORMANCE OF OR CARRYING OUT OF AGRICULTURAL OPERATIONS AND FURTHER THERE WAS NO THIRD PARTY EVI DENCE. HE, THEREFORE, ADDED THE IMPUGNED AMOUNT AS INCOME FROM UNDISCLOSED SOURCES . 9. THE ASSESSEE, BEING AGGRIEVED BY THE STAND OF THE A SSESSING OFFICER, CARRIED THE MATTER IN FIRST APPEAL, WHEREIN, BEFORE THE LEARNED CIT(A), IT WAS POINTED OUT THAT THE ADDITION HAD BEEN MADE WITHOUT FURNISHING THE COPY OF STATEMENT OF THE BROKER AND WITHOUT ALLOWING OPPORT UNITY TO CROSS EXAMINE THE BROKER. IT WAS, THEREFORE, REQUESTED THAT THE M ATTER REQUIRED TO BE RESTORED BACK TO THE FILE OF ASSESSING OFFICER. THE LEARNED CIT(A) OBSERVED THAT NO SUCH REQUEST HAD BEEN MADE BEFORE THE ASSES SING OFFICER AND WAS OF THE OPINION THAT ADEQUATE OPPORTUNITY OF HEARING HA D BEEN AFFORDED TO THE ASSESSEE. HE, THEREFORE, DISMISSED THE ASSESSEES A PPEAL. 10. WE HAVE HEARD THE SUBMISSIONS OF LEARNED DEPARTMENT AL REPRESENTATIVE, PERUSED THE ORDERS OF THE LOWER AUT HORITIES AND THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE WAS N OT GIVEN OPPORTUNITY TO CROSS EXAMINE THE BROKER. HON'BLE SUPREME COURT IN KRISHNACHAND CHELLARAM VS CIT(A), 125 ITR 713 (SC), HELD THAT BEFORE THE I NCOME TAX AUTHORITIES COULD RELY UPON THE THIRD PARTY STATEMENT, THEY WER E BOUND TO PRODUCE IT BEFORE THE ASSESSEE SO THAT THE ASSESSEE COULD CONT ROVERT THE STATEMENTS CONTAINED IN IT BY ASKING FOR AN OPPORTUNITY FOR CR OSS EXAMINATION. IF ANY EVIDENCE IS TO BE PLACED BY THE ASSESSING OFFICER I N THE STATEMENT OF ANY THIRD PARTY, THAT PARTY MUST BE OFFERED FOR CROSS E XAMINATION TO THE ASSESSEE. IN THIS CASE, THE ASSESSEE HAD AN OFFICE IN BOMBAY AND ONE IN MADRAS. ON RECEIVING INFORMATION THAT A SUM OF ` 1,07,350 WAS REMITTED BY THE ASSESSEE BY TWO TELEGRAPHIC TRANSFERS FROM MADRAS TO BOMBAY THROUGH A BANK, THE INCOME TAX OFFICER WROTE TWO LETTERS DATED 14 TH JANUARY AND 10 TH FEBRUARY 1955 TO THE MANAGER OF THE BANK MAKING ENQUIRIES AB OUT THE REMITTANCE. JAYANT B. PATEL JAYANT B. PATEL (HUF) 8 RELIANCE WAS PLACED ON THESE LETTERS FOR MAKING ADD ITIONS. THE HON'BLE SUPREME COURT IN KRISHNACHAND CHELLARAM (SUPRA), HA S HELD AS UNDER: . THE STATEMENTS OF THE MANAGER IN THOSE TWO LETT ERS WERE BASED ON HEARSAY, AS, IN THE ABSENCE OF EVIDENCE, IT COUL D NOT BE TAKEN THAT HE MUST HAVE BEEN IN CHARGE OF THE MADRAS OFFICE O N OCTOBER 16, 1946, SO AS TO HAVE PERSONAL KNOWLEDGE. THE DEPARTM ENT OUGHT TO HAVE CALLED UPON THE MANAGER TO PRODUCE THE DOCUMEN TS AND PAPERS ON THE BASIS OF WHICH HE MADE THE STATEMENTS AND CO NFRONTED THE ASSESSEE WITH THOSE DOCUMENTS AND PAPERS. IT WAS TR UE THAT PROCEEDINGS UNDER THE INCOME TAX LAW WERE NOT GOVER NED BY THE STRICT RULES OF EVIDENCE, AND THEREFORE, IT MIGHT BE SAID THAT EVEN WITHOUT CALLING THE MANAGER OF THE BANK IN EVIDENCE TO PROV E THE LETTER DATED FEBRUARY 18, 1955, IT COULD BE TAKEN INTO ACCOUNT A S EVIDENCE. BUT BEFORE THE INCOME TAX AUTHORITIES COULD RELY UPON IT, THEY WERE BOUND TO PRODUCE IT BEFORE THE ASSESSEE SO THAT THE ASSES SEE COULD CONTROVERT THE STATEMENTS CONTAINED IN IT BY ASKING FOR AN OPP ORTUNITY TO CROSS EXAMINE THE MANAGER OF THE BANK WITH REFERENCE TO T HE STATEMENT MADE BY HIM. 11. THEREFORE, IT IS THE FUNDAMENTAL PRINCIPLE OF NATUR AL JUSTICE THAT WHEN THE THIRD PARTY EVIDENCE IS USED AGAINST THE ASSESS EE, THEN HE SHOULD BE AFFORDED AN OPPORTUNITY TO CROSS EXAMINE THE THIRD PARTY TO REBUT THE STATEMENT MADE BY HIM. WE, THEREFORE, CONSIDER IT N ECESSARY, IN THE INTEREST OF JUSTICE, THAT THE ASSESSEE BE AFFORDED A REASONA BLE OPPORTUNITY OF BEING HEARD TO PROVE HIS CASE BY CROSS EXAMINING THE SHAR E BROKER AND CONSEQUENTLY WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER FOR DE NOVO ADJUDICATION IN THE LIGHT OF THE DISCUSSIONS MADE ABOVE. 12. IN THE RESULT, ALL THE APPEALS STAND ALLOWED FOR ST ATISTICAL PURPOSES IN TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 27.10.2010. SD/- ASHA VIJAY RAGHAVAN JUDICIAL MEMBER SD/- S.V. MEHROTRA ACCOUNTANT MEMBER MUMBAI, DATED: 27 TH OCTOBER 2010 JAYANT B. PATEL JAYANT B. PATEL (HUF) 9 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, J BENCH, ITAT, MUMBAI TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY DATE INITIAL 1. DRAFT DICTATED ON 22.10.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 25.10.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 25.10.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 25.10.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 25.10.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 27.10.2010 SR.PS 7. FILE SENT TO THE BENCH CLERK 28.10.2010 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER