V. SANJAY KUMAR, CHENNAI V. DCIT CEN CIR 44, MUMBAI

ITA 5206/MUM/2011

• Counselvise Citation: 520619914 RSA 2011
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 17-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 07-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: J PRABHAKAR
• Keywords: Unexplained investment; Capital asset; Search and seizure
• Section: 143(3); 2(14); 142(1); 69; 132

Judgement Text

ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 1 OF 15 IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NOS.5205 & 5206/MUM/2011 (ASSESSMENT YEARS: 2006-07 & 2007-08) SHRI V. SANJAY KUMAR C/O M/S JAGADISAN & CO. CAS VS DCIT CENTRAL CIRCLE -4 MUMBAI RESIDENCY APARTMENTS, 245 TTK ROAD, ALWARPET CHENNAI 600 018 PAN AAKPM 5971 G (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI J. PRABHAKAR RESPONDENT BY: SHRI D.S. SUNDER SINGH, DR DATE OF HEARING: 22/03/2012 DATE OF PRONOUNCEMENT: 30/04/2012 O R D E R PER B.RAMAKOTAIAH AM. BY THESE TWO APPEALS ASSESSEE CONTESTS THE ORDERS O F CIT(A) FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08. SINCE FACTS ARE IDENTICAL AND ISSUE INVOLVED IS COMMON, BOTH THESE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 2. BRIEFLY STATED FACTS OF THE CASE EXTRACTED FROM THE ASSESSMENT YEAR 2006-07 AS OBSERVED BY AO ARE THAT THE ASSESSE E IS A PROMOTER DIRECTOR OF SYNERGY ART FOUNDATION LIMITED (SAFL) O WING AROUND 82% OF THE SHAREHOLDING EITHER IN HIS OWN NAME OR I N THE NAMES OF COMPANIES CONTROLLED BY HIM, WITH THE BALANCE SHARE S OWNED BY HIS CO-PROMOTER MS. GEETHA MEHRA. THE ACTUAL DAY TO DAY RUNNING OF ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 2 OF 15 THE BUSINESS OF PURCHASE AND SALE OF PAINTINGS BY T HE COMPANY IS CARRIED OUT BY MS. GEETHA MEHRA, WHO IS AN ART HIST ORIAN, WHILE THE ASSESSEE IS THE MAIN FINANCIER AND BUSINESS PLANNER AND DEVELOPER. THE ASSESSEE IS A FINANCE MANAGEMENT EXPERT IN RAIS ING OF FINANCES, WHO HAS PROMOTED MANY COMPANIES. IN HIS I NDIVIDUAL CAPACITY, HE HAS A LONG HISTORY OF BEING ASSOCIATED WITH NEW ARTISTS AND THE PAINTINGS MADE BY THEM HAVE BEEN TRADED OVE R THE YEARS. THE AO FURTHER OBSERVED THAT MOST OF THE TRADING IN PAINTINGS DONE BY THE ASSESSEE IS THROUGH HIS INDIVIDUAL RUNNING A CCOUNT HE MAINTAINS WITH SYNERGY ART FOUNDATION LIMITED, ONLI NE AUCTION HOUSES AND ART GALLERIES. AO FURTHER OBSERVED THAT THERE WAS A SEARCH AND SEIZURE ACTION U/S 132 OF THE ACT TAKEN BY THE DEPARTMENT ON THE BUSINESS PREMISES OF SYNERGY ART FOUNDATION ON 17.4.2007 AND CERTAIN INCRIMINATING DOCUMENTS WERE FOUND AND SEIZED. ON SCRUTINY OF THE SEIZED MATERIAL THE AO O BSERVED THAT THE ASSESSEE IN HIS INDIVIDUAL CAPACITY WAS ALSO FOUND TO HAVE INDULGED IN THE UNACCOUNTED PURCHASES AND SALES OF PAINTINGS . ACCORDINGLY, A NOTICE U/S 153C WAS ISSUED TO THE ASSESSEE AND IN R ESPONSE, THE ASSESSEE FILED RETURN DECLARING A TAXABLE INCOME OF RS.30,25,536/- AS DECLARED BY HIM IN THE ORIGINAL RETURN FILED ON 9.1.2007. THE AO AFTER ISSUING A STATUTORY NOTICES UNDER SECTION 143 (2) AND 142(1) OF THE INCOME TAX ACT, 1961(IN SHORT THE ACT) AND AFTE R EXAMINING THE SEIZED MATERIAL ALSO ISSUED A SHOW CAUSE NOTICE TO EXPLAIN ALL THE ENTRIES FOUND RECORDED IN THE SEIZED MATERIAL AND T O FILE OTHER RELEVANT DETAILS. IN RESPONSE TO THE SAID NOTICE, T HE ASSESSEE FILED REPLY VIDE HIS EXPLANATION DATED 14.12.2009. THE AO AFTER CONSIDERING THE SAME OBSERVED THAT THE ASSESSEE FOR THE YEARS HAS BEEN CONDUCTING BUYING AND SELLING OF PAINTINGS AS A BUSINESS ACTIVITY AND USING HIS PURCHASES AS STOCK-IN TRADE THROUGH HIS COMPANY SAFL OR DIRECTLY THROUGH ONLINE AUCTION PUR CHASE AND SALES. THUS ACCORDING TO THE AO THE PROFITS FROM TH E SALE OF PAINTINGS NEEDS TO BE ASSESSED AS BUSINESS PROFITS AND NOT AS ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 3 OF 15 CAPITAL GAINS AND ACCORDINGLY, HE ASSESSED THE PROF IT FROM SALE OF PAINTINGS AT RS.80,74,480/- AND COMPLETED THE ASSES SMENT AT AN INCOME OF RS.1,11,00,016/- VIDE ORDER DATED 21.12.2 009 PASSED U/S 143(3) READ WITH SECTION 153C OF THE ACT FOR AY 200 6-07 3. THE AO ON THE SIMILAR LINES ALSO COMPLETED THE ASSE SSMENT FOR THE ASSESSMENT YEAR 2007-08 AT AN INCOME OF RS.39,9 2,709/- INCLUDING UNEXPLAINED INVESTMENT U/S 69 OF RS.9,00, 000/- AND PROFIT FROM SALE OF PAINTINGS RS.15,93,149/-, VIDE ORDER DATED 21.12.2009 PASSED U/S 143(3) READ WITH SECTION 153C OF THE ACT. ON APPEAL, THE LD. CIT(A) WHILE CONFIRMING THE ADDI TION OF PROFIT ON SALE OF PAINTINGS AS TRADING PROFIT FOR THE ASSESSM ENT YEARS 2006-07 AND 2007-08 REDUCED THE ADDITION OF UNEXPLAINED INV ESTMENT MADE IN THE ASSESSMENT YEAR 2007-08 TO RS.5,00,000/- AS AGAINST RS.9,00,000/- ADDED BY THE AO AND ACCORDINGLY DISMI SSED THE APPEAL FOR THE ASSESSMENT YEAR 2006-07 AND PARTLY A LLOWED THE APPEAL FOR THE ASSESSMENT YEAR 2007-08. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE FILED APPEALS BEFORE THE TRIBUNAL. ASSESSEE ALSO PL ACED ON RECORD A PAPER BOOK CONTAINING 50 PAGES INCLUDING NOTES ON I SSUES FOR CONSIDERATION, PROOF OF PURCHASE OF PAINTINGS, SALE S INVOICE, COPIES OF INCOME TAX RETURNS AND PETITION REGARDING TRANSF ER OF FILE TO AO. DURING THE COURSE OF HEARING THE COUNSEL ALSO PLACE D A NEWS PAPER PROFILE OF ASSESSEE FOR HIS DEBUT NOVEL ARTIST, UNDONE AND DETAILS OF SALE OF PAINTINGS AND YEAR OF PURCHASE WITH PURCHAS E PRICES IN TABULAR FORM IN THESE TWO YEARS. 5. IT WAS ASSESSEES CONTENTION THAT THE CIT (A) WITHO UT VERIFICATION OF FACTS AND RELYING ON THE DISTORTED FACTS STATED IN THE ASSESSMENT ORDER HAS NOT CONSIDERED THE SUBMISSIONS WHILE DISPOSING OFF TWO APPEALS BEFORE HIM. THE REASONS S TATED BY THE CIT (A) TO DISMISS THE SUBMISSIONS ARE REBUTTED AS UNDE R: ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 4 OF 15 A) ASSESSEE THOUGH A PROMOTE DIRECTOR OF SYNERGY ART F OUNDATION LTD IS NOT A 82% SHAREHOLDER THEREOF AS ALLEGED IN THE ORDER. ASSESSEE AND HIS WIFE HOLD TOGETHER ONLY 0.37% SHAR ES IN THE COMPANY AND ANOTHER 65.94% IS HELD BY COMPANIES OWN ED BY HIM. THUS CUMULATIVE CONTROLLING INTEREST IN THIS C OMPANY BY ASSESSEE IS ONLY 66.31% WHICH DOES NOT ENABLE HIM T O TAKE ABSOLUTE CONTROL (76%) IN THIS PUBLIC LIMITED COMPA NY. HENCE TO ALLEGE CONTROLLING INTEREST AS A RUSE TO ACQUIRE PA INTINGS IN AN ADVANTAGEOUS PORTION, IS A MISCHIEVOUS ATTEMPT BY B OTH AO AND CIT (A) TO THROW ASSESSEE IN POOR LIGHT AND THEREBY ALLEGE CONTUMACIOUS CONDUCT IN THE PRESENT ASSESSMENT PROC EEDINGS. B) ASSESSEE HAS PURCHASED ONLY 61 PAINTINGS FROM SYNER GY ART FOUNDATION LTD, OUT OF THE TOTAL PAINTINGS OF 7547 NOS. FROM THE STOCK OF THE COMPANY SINCE INCEPTION, WHICH INDICAT E THAT THE PURCHASES BY ASSESSEE USING THE COMPANY AS A PLATFO RM (TO BORROW THE WORDS OF THE CIT (A)) IS ONLY 0.81% OF T HE TOTAL PURCHASES MADE BY THE COMPANY IN WHICH HE IS A PROM OTER DIRECTOR ALLEGEDLY HOLDING 82% SHARES. C) THE PURCHASES ALLEGEDLY AS FREQUENTLY MADE FROM THE COMPANY IS ALSO NOT AT COST PRICE IN THE BOOKS OF THE COMPANY BUT WERE SOLD AT ARMS-LENGTH MARGINS TO ASSESSEE AND HENCE THERE IS NO GAIN SAYING THE FACT THAT ASSESSEE WAS TREATING THE COMP ANY AS HIS BUYING PLATFORM (FOR E.G. SYNERGY ART FOUNDATION LT D MADE A PROFIT OF ` .1,50,000/- ON THE SALE OF PAINTING BY ANJU DODIYA TO ASSESSEE). D) AO AND THE CIT (A) FAILED TO NOTICE THAT THE COMMOD ITY DEALT WITH BY ASSESSEE ARE UNIQUE PRICES OF ART, WHICH ARE NOT AVAILABLE ACROSS THE SHELF IN THE MARKET AND HIS DESIRE TO AC QUIRE A PAINTING (BEING THE SINGULAR PIECE OF AN ARTIST) FR OM THE COMPANY WHICH IS NOT AVAILABLE ELSEWHERE) AS A CONNOISSEUR OF ART TO ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 5 OF 15 POSSESS IT AS A MATTER OF PRESTIGE AND NOT TO MAKE A KILLING PROFIT, BY IMMEDIATELY OFF-LOADING IT IN THE MARKET. E) THE ALLEGATION THAT ASSESSEE IS INDULGING IN FREQUE NT PURCHASES AND SALE OF PAINTINGS IS ALSO NOT PROVED BY FACTS S INCE NONE OF THE SEIZED OR IMPOUNDED MATERIALS SUPPORT SUCH A SURMIS E OF THE DEPARTMENT; IN FACT ASSESSEE HAS PURCHASED THE FOLL OWING PAINTINGS SINCE THE EARLY 80S IN HIS QUEST FOR REC OGNITION IN THE ART FIELD. PRIOR TO 1991 - 26 NOS BETWEEN 1991-96 21 NOS PURCHASES FROM SYNERGY ART FOUNDATION DURING 1996-9 7- 3 NOS PURCHASES FROM SYNERGY ART FOUNDATION DURING 2002-0 3- 3 NOS PURCHASES FROM SYNERGY ART FOUNDATION DURING 2005-0 6- 2 NOS PURCHASES FROM SYNERGY ART FOUNDATION DURING 2006-0 7- 6 NOS. OUT OF THE ABOVE, ONLY 15 PAINTINGS WERE SOLD TO SA F BETWEEN 1998-99 TO 2006-07 AND THAT TO SPORADICALLY AND NOT REGULARLY. IN VIEW OF THIS IT IS INCORRECT TO SAY THAT ASSESSE E IS FREQUENTLY INDULGING IN PURCHASE AND SALE OF PAINTING USING SA F AS A PLATFORM. THE SALE OF SOME OF THESE PAINTINGS WAS DONE ONLY F ROM 2005 WHICH SHOW THAT THE ALLEGATION THAT ASSESSEE IS TRA DING IN PAINTINGS BY FREQUENT PURCHASE AND SALE THEREOF IS UNTRUE AND UNSUBSTANTIATED. 6. IT WAS THE CONTENTION OF THE LEARNED COUNSEL THAT E VEN THOUGH ASSESSEE USED ONLINE PLATFORM, IT IS NOT FOR MAXIMI ZING THE PROFITS BUT ONLY TO GET A BETTER PRICE FOR THE INVESTMENT M ADE. HE FURTHER SUBMITTED THAT FREQUENCY OF OPERATIONS TAKING RISK DOES NOT INDICATE THAT ASSESSEE IS INVOLVED IN TRADING BUT ONLY HAPPE NS TO HOLD AS ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 6 OF 15 INVESTMENT BECAUSE OF HIS PASSION AND INTEREST IN P AINTINGS. IT WAS FURTHER SUBMITTED THAT ASSESSEE FURNISHED ALL THE D ETAILS TO AO AS WELL AS CIT, YEAR OF PURCHASE TO THE EXTENT ASSESSE E IS HAVING DETAILS AND SO CONSIDERING THE NATURE OF THE PAINTINGS HELD BY HIM THESE ARE TO BE CONSIDERED AS CAPITAL ASSETS AND AS PER T HE DEFINITION OF SECTION 2(14) OF ACT AVAILABLE THEN, THE PAINTINGS ARE PERSONAL EFFECTS WHICH DOES NOT ATTRACT CAPITAL GAIN. THE LE ARNED COUNSEL PLACED HIS RELIANCE ON THE ORDER OF ITAT IN THE CA SE OF ACIT VS. MRS. DILNAVAZ S. VARIAVA, 87 ITD 113, MUMBAI TO SUBMIT T HAT ON SIMILAR FACTS IT WAS HELD THAT PAINTINGS COULD BE CONSIDERE D TO BE THE PERSONAL EFFECT, AS SUCH NOT EXIGIBLE TO TAX. THE L EARNED DEPARTMENTAL REPRESENTATIVE HOWEVER, RELIED ON THE ORDERS OF AO AND THE CIT (A) TO SUBMIT THAT ASSESSEE IS NOT INVO LVED AS AN INVESTER BUT AS A TRADER AND REFERRED TO THE PROFI TS EARNED IN SHORT TERM OUT OF PURCHASES MADE FROM SYNERGY ART FOUNDAT ION. HE REITERATED THAT ASSESSEE IS INVOLVED IN TRADING ACT IVITY, THEREFORE, THE AUTHORITIES ARE CORRECT IN BRINGING IT TO TAX AS BU SINESS INCOME. 7. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE DETAI LS PLACED ON RECORD INCLUDING THE ORDERS OF THE AUTHOR ITIES AND THE COORDINATE BENCH IN THE CASE OF ACIT VS. MRS. DILNA VAZ S. VARIAVA, 87 ITD 113. 8. BEFORE ADVERTING TO VARIOUS ARGUMENTS IT IS IMPORTA NT TO NOTE THAT ASSESSEE HAS NOT FURNISHED THE COMPLETE DETAIL S OF HIS PURCHASES AND SALES OF PAINTINGS YEAR-WISE. BEFORE US ALSO IN THE WRITTEN SUBMISSIONS, ASSESSEE SUBMITTED CERTAIN FAC TS, WHICH COULD NOT BE CORRELATED WITH OTHER CONTENTIONS. FOR EXAMP LE IN PARA-5.B EXTRACTED ABOVE, IT WAS ADMITTED BY ASSESSEE THAT H E HAS PURCHASED ONLY 61 PAINTINGS FROM SYNERGY ART FOUNDATION LTD O UT OF THE TOTAL STOCK PAINTINGS (7547 NOS.) FROM STOCK OF THE COMPA NY WHICH HE SAYS THAT HIS IS ONLY 0.81% OF THE TOTAL PAINTINGS PURCHASED BY HIM. HOWEVER, HE FAILED TO FURNISH COMPLETE DETAILS OF V ALUE OF THE ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 7 OF 15 PURCHASES MADE BY HIM AND THE PROFITS EARNED THEREO F, IF AT ALL THEY ARE SOLD OR THE PROFITS EARNED BY THE SYNERGY FOUND ATION BY SELLING TO ASSESSEE. 8.2 ANOTHER ASPECT WHICH ALSO IS AT VARIANCE WITH T HE SUBMISSIONS IS THE TABLE GIVEN IN PARA 5.E. IN ORDE R TO COUNTER THAT ASSESSEE HAS NOT INDULGED IN FREQUENT PURCHASE AND SALE OF PAINTINGS, IT WAS SUBMITTED THAT ASSESSEE PURCHASED 26 NOS. OF PAINTINGS BEFORE 1991, 21 BETWEEN1991 TO 1996 AND A NOTHER 14 FROM 1996-97 TO 2006-07 TOTALING TO 61. HOWEVER, IT IS REFERS ONLY TO THE PURCHASES MADE FROM SYNERGY FOUNDATION LTD AND DOES NOT INCLUDE PURCHASES FROM KALAYATRA AND FROM OTHER ART FOUNDATIONS/ PAINTERS. IF HE HAD PURCHASED ONLY 61 PAINTINGS FRO M SYNERGY ART FOUNDATION ALONE AS PER THE PARTICULARS PLACED IN P ARA-5.E, WHAT ABOUT THE PAINTINGS PURCHASED FROM OTHER SOURCES. T HEREFORE, THE FACT THAT HE HAS PURCHASED ONLY 61 NOS. IN THE YEAR -WISE BREAKUP GIVEN AND THAT TO ONLY FROM SYNERGY ART FOUNDATION IS NOT TALLYING WITH THE FACTS ON RECORD AS THERE IS EVIDENCE THAT ASSESSEE HAS ALSO PURCHASED FROM OTHER ART CENTRES LIKE KALAYATRA, IN DIVIDUAL PAINTERS ETC., 9. COMING TO THE SAME PARA5.E IT WAS SUBMITTED THAT ON LY 15 PAINTINGS WERE SOLD TO SYNERGY ART FOUNDATION BETWE EN 1998-99 TO 2006-07, THE DETAILS OF WHICH WERE NOT FURNISHED EI THER BEFORE AO OR BEFORE THE CIT (A) NOR BEFORE US SO AS TO VERIFY WH ETHER THERE IS ANY GAIN OR PROFIT EARNED IN SELLING THESE PAINTINGS TO THE FOUNDATION IN WHICH HE IS HAVING INTEREST. FURTHER, EVEN THOUGH A SSESSEE CONTENDS THAT HE HAS PURCHASED MANY PAINTINGS BEFOR E 1996, EXCEPT FEW PAINTINGS WITH REFERENCE TO CORRESPONDEN CE WITH KALAYATRA, NOTHING WAS PLACED ON RECORD TO VERIFY T HE PRICE OR DATE OF PURCHASE. THEREFORE, IT IS VERY DIFFICULT TO ASCERT AIN WHETHER ASSESSEE HAS INDULGED IN TRADING OR INVESTMENT IN T HE ABSENCE OF ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 8 OF 15 COMPLETE DETAILS THAT ARE WITHIN THE KNOWLEDGE OF A SSESSEE, BUT NOT PLACED ON RECORD. 10. COMING TO THE CONTENTION THAT WHETHER THESE PAINTIN GS CAN BE CONSIDERED AS PERSONAL EFFECT, ASSESSEE RELIED ON T HE DECISION OF ITAT IN CASE OF ACIT VS. MRS. DILNAVAZ S. VARIAVA, 87 ITD 113, MUMBAI. THE FACTS IN THE SAID CASE ARE AS UNDER: 3. WE HAVE HEARD THE RIVAL SUBMISSIONS IN THE LIGH T OF MATERIAL PLACED BEFORE US AND PRECEDENTS RELIED UPO N. A SUM OF ` .1,00,000/- WAS CREDITED INTO THE BANK ACCOUNT OF ASSESSEE ON 26-8-1991. THIS WAS STATED TO BE REA LIZED FROM THE SALE PROCEEDS OF FOUR PAINTINGS. THE SAID PAINTINGS WERE DISPOSED OF IN FAVOUR OF SHRI N.D. S IDHWA AS UNDER: 1 OIL PAINT LANDSCAPE WITH SHR IN BY ` .36 X 41 BADRI NARAYAN 10000 1 OIL PAINTING VIEW FROM WINDOW 26X34 BY J. SABAVALA 50000/- 1 OIL PAINTING OIL NO.VI 48X36 BY RASIK SONHI 30000 1 OIL PAINTING FLOWERS 32 X 42 BY ARA 10000. IT WAS NOTED THAT FIRST PAINTING WAS PROCURED IN198 0 FOR RS 3,000. SECOND WAS INHERITED FROM HER FATHER. THE THIRD AND FOURTH PAINTINGS WERE PURCHASED AT A PRIC E OF RS.2,000, AND 1,550 DURING FINANCIAL YEARS 1974 AND 1978 RESPECTIVELY. CONSEQUENT TO THE ABOVE FACTS, T HE ITAT CONSIDERED THE ISSUE AND HELD THAT 8. THE NEXT QUESTION IS WHETHER PAINTINGS COULD BE CONSTRUED TO BE ARTICLES OF PERSONAL EFFECTS. AS PE R THE PRESCRIPTION OF SECTION 2(14)(II) OF THE ACT, PERSO NAL EFFECTS, THAT IS TO SAY, MOVABLE PROPERTY (INCLUDIN G WEARING APPAREL AND FURNITURE, BUT EXCLUDING JEWELL ERY) HELD FOR PERSONAL USE BY THE ASSESSEE OR ANY MEMBER OF HIS FAMILY DEPENDENT ON HIM. THE MEANING OF 'PERSON AL EFFECT' IS NOT EXHAUSTIVELY DEFINED IN THE ACT. IT ONLY REFERS THAT MOVABLE PROPERTY HELD FOR PERSONAL USE BY THE ASSESSEE OR ANY MEMBER OF HIS FAMILY DEPENDENT ON H IM ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 9 OF 15 CAN BE CONSTRUED AS PERSONAL EFFECT. MOVABLE PROPER TY INCLUDES WEARING APPAREL AND FURNITURE, BUT EXCLUDI NG JEWELLERY. 9. IN THE CASE OF G.S. PODDAR V. CWT [1965] 57 ITR 207 (BOM.), TWO GOLD CASKETS, A GOLD TRAY AND TWO GOLD GLASSES WERE PRESENTED TO THE ASSESSEE. HE KEPT THESE ARTICLES IN THE GLASS SHOW-CASE FOR D ISPLAY IN HIS DRAWING ROOM. HE CLAIMED EXEMPTION IN RESPEC T OF THESE ARTICLES UNDER SECTION 5(1)(VII) OF THE WEALT H-TAX ACT, 1957. HON'BLE HIGH COURT HAS HELD THAT MERELY BECAUSE THE GOLD CASKETS WERE KEPT IN THE SHOW-CASE DID NOT MAKE THEM PART OF THE FURNITURE AND THE REST OF THE ARTICLES COULD NOT BE CONSIDERED TO BE THE HOUSEHOL D UTENSILS. IT WAS FURTHER HELD THAT THE USE AS A DEC ORATION IN THE DRAWING ROOM, WHICH IS ONLY CALCULATED TO GE T A PRIDE OF POSSESSION IS NOT CONTEMPLATED BY THE EXEMPTION. THIS DECISION WAS RENDERED IN THE CONTEX T OF WEALTH-TAX ACT. 10. IN THE PRESENT CASE WE FIND THAT THE ASSESSEE I S A CONNOISSEUR OF ART. THE OBJECT OF ART IS NOT ONLY T HE PRIDE POSSESSION BUT IT ALSO SATIATES THE AESTHETIC QUENC H FOR THE ART OF THE CONNOISSEUR. IT GIVES JOY TO THE POS SESSOR WHICH IS DIFFERENT FROM THE PRIDE OF POSSESSION. TH E EXPRESSION 'PERSONAL EFFECT' AS PER THE BLACK'S LAW DICTIONARY MEANS ARTICLES ASSOCIATED WITH PERSON, A S PROPERTY HAVING MORE OR LESS INTIMATE RELATION TO P ERSON OF POSSESSOR. IN RE COLLINS WILL TRUSTS V. HEWETSON [1971] 1 W.L.R. 37, VALUABLE STAMP COLLECTION WAS H ELD TO BE PERSONAL EFFECT. IN THE CASE OF LIPPINCOTT'S ESTATE 173 PA. 368, 34 ATL. 58, FURNITURE AND PICTURES WER E HELD TO BE ARTICLES OF PERSONAL EFFECTS. THE APEX COURT IN THE CASE OF H.H. MAHARAJA RANA HEMANT SINGHJI V. CIT [1976] 103 ITR 61 HAS SAID THAT AN INTIMATE CONNECT ION BETWEEN THE EFFECTS AND THE PERSON OF THE ASSESSEE MUST ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 10 OF 15 BE SHOWN TO EXIST TO RENDER THEM 'PERSONAL EFFECTS' WITHIN THE MEANING OF THAT EXPRESSION USED IN CLAUSE (II) OF THE EXCEPTIONS IN SECTION 2(4A) OF THE INDIAN INCOME-TA X ACT, 1922. THE LEGISLATURE INTENDED ONLY THOSE ARTICLES TO BE INCLUDED WITHIN THE EXPRESSION 'PERSONAL EFFECTS' W HICH WERE INTIMATELY AND COMMONLY USED BY THE ASSESSEE. 11. THE PAINTINGS WERE USED TO DECOR THE HOUSE. ASSESSEE LOVED PAINTINGS. A GOOD PAINTING TRANSMITS GOOD VIBE ACROSS THE ELEMENT OF PERSONAL ATTACHMENT WITH THE OBJECT DID EXIST IN THE FACTS OF THE CASE. THEREFORE, IN OUR OPINION, PAINTINGS COULD BE CONST RUED TO BE THE PERSONAL EFFECTS, AS SUCH NOT EXIGIBLE TO TA X. ACCORDINGLY WE UPHOLD THE IMPUGNED ORDER. 11. AS CAN BE SEEN FROM THE ABOVE, ASSESSEE THEREIN HAD ONLY 4 PAINTINGS OUT OF WHICH ONE WAS INHERITED AND WERE D ISPLAYED IN THE HOUSE AND SUBSEQUENTLY SOLD. ON THOSE FACTS IT WAS CONSIDERED THAT ASSESSEE IS NOT A TRADER AND THE TRANSACTIONS CANNO T BE HELD AS ADVENTURE IN NATURE OF TRADE. IT IS ALSO TO BE NOTE D THAT ALL THE PAINTINGS WERE SOLD ONLY ONCE AND THERE IS A FINDIN G THAT THERE ARE NO FURTHER SALES IN THE LATER YEAR OR EARLIER YEARS . IN THOSE CIRCUMSTANCES, IT WAS CONSIDERED AS PERSONAL EFFECT . HOWEVER, THE FACTS IN ASSESSEES CASE ARE DIFFERENT. ACCORDING T O HIS OWN ADMISSION, HE HAD PURCHASED 61 PAINTINGS FROM SYNER GY ART FOUNDATION ALONE AND THERE ARE OTHERS FROM KALAYATR A AND FROM INDIVIDUAL PAINTERS. THEREFORE, HOLDING THAT MANY P AINTINGS CANNOT BE CONSIDERED AS PERSONAL EFFECTS. THUS, IT IS TO B E HELD THAT THE PAINTINGS ARE NOT PERSONAL EFFECTS. ASSESSEES CONT ENTION THAT IT IS COVERED BY SECTION 2(14) BEFORE IT IS AMENDED, HAS NO RELEVANCE TO THE FACTS. 12. NOW THE ISSUE TO BE CONSIDERED IS WHETHER ASSESSEE IS HOLDING THE PAINTINGS AS INVESTMENT OR FOR TRADING. IN ORDE R TO CONSIDER WHETHER ASSESSEE IS A TRADER OR NOT VARIOUS PARAMET ERS ARE LAID ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 11 OF 15 DOWN, WHICH BOTH ASSESSEE AND THE REVENUE ARE RELYI NG ON IN THEIR PERSPECTIVE. HOWEVER, AS SEEN FROM THE DETAILS PLAC ED ON RECORD, WITH REFERENCE TO THE TRANSACTIONS UNDERTAKEN BY AS SESSEE IN ASSESSMENT YEARS 2006-07 AND 2007-08, THE FOLLOWING DETAILS ARE FILED. ASSESSMENT YEAR 2006-07 S.NO PURCHASE YEAR PURCHASE PRICE ARTIST NAME SALE DATE SALE PRICE PROFIT 1 1991* 21,250 NATRAJ SHARMA MARCH 2006 1,732,518 3,625,327 1994* NATRAJ SHARMA MARCH 2006 1,914,059 2 1-3-2006** 337,500 ANJU DODIYA MARCH 2006 4,786,653 4,449,153 TOTAL 358,750 8,433,230 8,074,480 * BOTH PAINTINGS PURCHASE IN 1991 & 1994 RESPECTIVELY FOR AGGREGATE VALUE OF ` `` ` .21,250/- BREAK UP NOT AVAILABLE, SINCE PURCHASED O N RUNNING ACCOUNTS. ** PURCHASE BY SYNERGY ART FOUNDATION LTD FOR ` `` ` .1,50,000/- ASSESSMENT YEAR 2007-08 S.NO PURCHASE YEAR PURCHASE PRICE ARTIST NAME SALE DATE SALE PRICE PROFIT 1 DECEMBER 1991 OR THEREABOUT 32,000 K.G.SUBRAM ANYAN MAY 2006 1,371,130 1,339,130 2 YEAR 1989 OR THEREABOUT 15,000 GANESH PYNE MAY 2006 269,019 254,019 TOTAL 47,000 1,640,149 1,593,149 13. AS CAN BE SEEN FROM THE ABOVE, IT WAS THE SUBMISSIO N THAT ASSESSEE PURCHASED MANY OF THE PAINTINGS WAY BACK I N 1991 TO 1994 AND AO ACCEPTED THE COST EVEN THOUGH THERE IS NO EVIDENCE WITH REFERENCE TO THE DATE OF PURCHASE OF MANY PAIN TINGS. SINCE AO ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 12 OF 15 CONSIDERED AS TRADING ACTIVITY YEAR OF PURCHASE HAS NO RELEVANCE, BUT COST. AS STATED ABOVE, ASSESSEE HAS ALSO NOT PL ACED ON RECORD COMPLETE DETAILS OF THE PURCHASES, YEAR-WISE OR PAI NTINGS WISE AND THERE IS ALSO EITHER OVERLAPPING OR SUPPRESSING OF INFORMATION WITH REFERENCE TO VARIOUS CLAIMS OF PAINTINGS PURCHASES/ SALES. BE THAT AS IT MAY, WHAT IS NOTICED OF SALE OF ANJU DODIYA I N MARCH, 2006, IS THAT THE SAME WAS PURCHASED ON 1/3/2006 FROM M/S S YNERGY ARTS FOUNDATION LTD, WHICH IN TURN AS SUBMITTED WAS PURC HASED FOR ` .1,50,000/- THEREBY SYNERGY FOUNDATION GOT A PROFIT IN THE MARKET. FROM THE SALE BY ASSESSEE HE GOT SUBSTANTIAL PROFIT /GAIN OF ` .44,49,153/-. THIS GAIN HAS OCCURRED ONLY IN A MONT HS TIME (MARCH 2006) AND IT IS NOT KNOWN ON WHICH THE DATE ASSESSEE SOLD EVEN THOUGH IT WAS STATED AS MARCH, 2006. THE DATE OF PURCHASE GIVEN AS 1-3-2006 BUT WHEN ASSESSEE HAS REMITTED TH E AMOUNT AGAINST THAT PURCHASE OR ADJUSTED IN THE RUNNING AC COUNT SUBSEQUENTLY WERE ALSO NOT ON RECORD SO AS TO CONSI DER WHETHER ASSESSEE PLACED THE SALE IMMEDIATELY AFTER PURCHASE . IT IS ALSO NOT ON RECORD WHETHER THE SYNERGY ART FOUNDATION LTD PU RCHASED MUCH EARLIER OR WITHIN FEW DAYS OF THE SALE TO ASSESSEE. 14. SINCE THESE DETAILS ARE NOT AVAILABLE, WE ARE UNABL E TO GIVE ANY FINDING WHETHER THE SAID TRANSACTION IS IN THE NATURE OF ADVENTURE IN THE NATURE OF TRADE SO AS TO CONSIDE R IT AS BUSINESS OR AS AN INVESTMENT BY ASSESSEE. SIMILARLY VARIOUS D ETAILS OF PURCHASES AND EVIDENCES OF OTHER PAINTINGS AND SALE S IN RESPECTIVE YEARS AS CLAIMED BY ASSESSEE WERE NOT ON RECORD SO AS TO CONSIDER WHETHER ASSESSEE IS MAKING FREQUENT INVESTMENT OR U NDERTAKING IT AS TRADE. IT IS TO BE NOTED THAT ASSESSEE IS IN THE EXPERT IN FINANCE AND IS DIRECTOR IN OTHER COMPANIES INVOLVING FINANC E BUSINESS. AT THE SAME TIME, IT IS ALSO ON RECORD THAT ASSESSEE A S A CONNOISSEUR OF ART AND IS PURCHASING PAINTINGS FROM 1990 ONWARDS. HOWEVER, AS SEEN FROM THE SUBMISSIONS PLACED ON RECORD, THERE A RE ACQUISITIONS ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 13 OF 15 BEFORE 1991 TO AN EXTENT OF 26 NOS. BETWEEN 1991 TO 1996 21 NOS., FROM 1996 TO 2007 ONLY 14 NOS. THERE IS NO FREQUENC Y IN THESE TRANSACTIONS. HOWEVER, AS EXPRESSED ABOVE, THE DETA ILS STATED IN ASSESSEES WRITTEN SUBMISSION ARE NOT COMPLETE AND COULD NOT BE CO- RELATED WITH CERTAIN PURCHASES PLACED IN THE PAPER BOOK. 15. THEREFORE, IN THE INTEREST OF JUSTICE, WITHOUT GIVI NG ANY FINDING ON THE ISSUE, WE RESTORE THE MATTER TO THE FILE OF AO TO EXAMINE THE ENTIRE GAMUT OF PURCHASES OF ASSESSEE FROM INCEPTIO N, THE DETAILS OF PURCHASE AND SALE THEREIN YEAR-WISE AND ALSO TO ANA LYZE WITH REFERENCE TO THE PURCHASES FROM M/S SYNERGY ART FOU NDATION LTD, THE TIME GAP OF HOLDING AND THE AMOUNTS ITS PURCHAS ES AND SALE SO AS TO EXAMINE WHETHER ASSESSEE IS AN INVESTOR OR TR ADER. SINCE COMPLETE DETAILS ARE REQUIRED TO BE EXAMINED BY AO, THE ISSUE WHETHER ASSESSEE IS A TRADER OR AN INVESTOR IS REST ORED TO THE FILE OF AO TO EXAMINE COMPLETE DETAILS AND ANALYZE THE FACT S CORRECTLY SO AS TO COME TO A CORRECT CONCLUSION. WE MAKE IT CLEAR T HAT THESE HOLDINGS OF PAINTINGS CANNOT BE CONSIDERED AS PERSO NAL EFFECTS. IT IS ALSO ON RECORD THAT ASSESSEE WAS HOLDING THESE PAIN TINGS IN A PACKED CONDITION AND IS PRESERVING THEM ACCORDING T O THE NORMS REQUIRED AND IS NOT DISPLAYING THEM AT HIS HOUSE. T HESE ASPECTS WERE ADMITTED IN THE COURSE OF ARGUMENTS. THEREFORE , THESE PAINTINGS CANNOT BE HELD AS PERSONAL EFFECTS. TO TH AT EXTENT ASSESSEES CONTENTIONS ARE REJECTED. FOR DECIDING W HETHER TRADE OR INVESTMENT, IT IS TO BE EXAMINED AFRESH IN THE LIGH T OF PAST CONDUCT OF ASSESSEE AND NECESSARY DETAILS/EVIDENCES, INCLUD ING THE RUNNING ACCOUNT IN SYNERGY ART FOUNDATION. ASSESSEE IS DIRE CTED TO FILE COMPLETE DETAILS OF HOLDINGS/ PURCHASE OF PAINTINGS , SALES, YEAR-WISE AMOUNT INVOLVED, EVIDENCE OF PURCHASE DATE /YEAR, S O THAT AO CAN TAKE NECESSARY EXAMINATION OF THE ISSUES. WITH THES E DIRECTIONS, THE MATTER IS RESTORED TO THE FILE OF AO FOR FRESH ADJU DICATION AFTER EXAMINING THE FACTS. ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 14 OF 15 16. ONE MORE ISSUE IN ASSESSMENT YEAR 2007-08 IS WITH R EFERENCE TO THE AMOUNT OF ` .5 LAKHS STATED TO HAVE BEEN DISCHARGED AFTER THE SEARCH BUT TREATED AS UNEXPLAINED INVESTMENT. AS BR IEFLY STATED EARLIER, ASSESSEE PURCHASED PAINTINGS OF SHRI RIYAZ KOMU FOR A PRICE OF ` .24 LAKHS. THE AMOUNT OF ` .15 LAKHS WAS PAID WHICH AO HAS GIVEN CREDIT AND BALANCE ` .9 LAKHS WAS TREATED AS UNEXPLAINED INVESTMENT. THE CIT (A) ACCEPTED THE AMOUNT OF ` .4 LAKHS PAID BY CHEQUE AND CONFIRMED AN AMOUNT OF ` .5 LAKHS. IT WAS THE SUBMISSION THAT THESE AMOUNTS OF ` .5 LAKHS WERE ALSO PAID BY WAY OF CHEQUES SUBSEQUENTLY ON 10/08/2007 AND 7/01/2008 BY WAY OF CHEQUES. IT WAS SUBMITTED THAT THE PURCHASE CONSIDE RATION WAS PAID IN INSTALLMENTS AND ASSESSEE HAS DISCHARGED THE ENT IRE THE ENTIRE AMOUNT. WHILE ACCEPTING THAT THE AMOUNT OF ` .5 LAKHS WAS MADE SUBSEQUENT TO THE SEARCH AND SEIZURE PROCEEDINGS, T HE CIT (A) SURPRISINGLY CONFIRMED THE SAME AS AN AFTERTHOUGHT TO EXPLAIN THE DISCREPANCIES DETECTED. WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE REVENUE. THERE IS NO DISPUTE WITH REFERENCE TO THE COST OF THE PAINTING AND ALSO NO DISPUTE WITH REFERENCE TO THE PAYMENT OVER 2 YEARS. AO HAS ALREADY ACCEPTED THE PAYMENT OF ` .15 LAKHS WHICH WAS STATED TO HAVE BEEN PAID BY WAY OF CHEQUES AND SUBSEQUENTLY ` .9 LAKHS WAS PAID IN THREE INSTALLMENTS OF ` .4 LAKHS AND ` .2.5 LAKHS EACH AND WERE EVIDENCED BY THE STATEMENTS OF ICICI BANK. IN THE LIGHT OF THE FACTS ABOVE, NO AMOUNT CAN BE CONSIDER ED AS UNEXPLAINED INVESTMENT, UNLESS THERE IS CONFIRMATIO N FROM THE OTHER PARTY THAT THE AMOUNTS WERE PAID IN CASH OTHER THAN WHAT WAS STATED BY ASSESSEE. SINCE THE AMOUNTS WERE PAID BY WAY OF CHEQUES, THE CONTENTION OF THE REVENUE CANNOT BE ACCEPTED. J UST BECAUSE ASSESSEE PAID SUBSEQUENT TO SEARCH, AMOUNT PAID THR OUGH CHEQUES CAN NOT DOUBTED AND TREATED AS UNEXPLAINED. THEREFO RE, AO IS DIRECTED TO DELETE THE AMOUNT OF ` .5 LAKHS, WHICH WAS UPHELD BY THE CIT (A). ITA NOS 5205 AND 5206 OF 2012 V SANJAY KUMAR CHENNAI-F BENCH PAGE 15 OF 15 17. IN THE RESULT, APPEAL IN BOTH THE YEARS IS CONSIDER ED ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL, 2012. SD/- SD/- (R.S. PADVEKAR) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 30 TH APRIL, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI