BHAGARAM P. MALI, MUMBAI V. ASST (OSD-I)CEN RG-7, MUMBAI

ITA 644/MUM/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7847 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 27-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINAYAK R
• Keywords: Unexplained expenditure; Gift; Search and seizure
• Section: 69C; 143(3); 142(1); 153A; 68; 132

Judgement Text

1 ITA 644/MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO. 644/MUM/2014) (ASSESSMENT YEAR: 2003-04) MR. BHAGARAM P MALI PROP OF TEE ENTERPRISES 15, ASHISH INDUSTRIAL ESTATE GOKHALE ROAD (S), DADAR (WEST), MUMBAI-25 PAN : AAZPM58598F VS ACIT, (OSD-I), CR-7, MUMBAI APPELLANT RESPONDEDNT APPELLANT BY SHRI GIRISH DAVE RESPONDENT BY SHRI VINAYAK R PANDYA DATE OF HEARING 04-12-2017 DATE OF PRONOUNCEMENT 29 -12-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-40, MUMBAI DATED 19-11-2013 AND IT PERTAINS TO A.Y. 2003-04. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES, IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER MAKING ADDITION RS. 3 1 00,0001- BY TREATING THE GIFT RECEIVED AS INCOME OF THE APPELLANT IGNORING ALL TH E DETAILS SUBMITTED TO HIM RELATING TO THE 'GIFT' INCLUDING T HE ORDER PASSED IN REGULAR ASSESSMENT BY THE PREDECESSOR-AO BY WAY OF SCRUTINY UNDER SECTION 143 (3) OF THE ACT. NOTHING INCRIMINA TING WAS FOUND AND RECOVERED IN THE COURSE OF SEARCH. 2 ITA 644/MUM/2014 1. THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES, IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER MAKING ADDITION RS. 1,00,000/ - BY TREATING AS CASH PAYMENT MADE FROM UNDISCLOSED SOURCE U/S.69 C. 2. THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON F ACTS AND IN THE CIRCUMSTANCES, IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER MAKING ADDITION RS. 2,71,250/- ON ACCOUNT O F AMOUNT CREDITED IN CAPITAL ACCOUNT AS PRIOR PERIOD ADJUSTM ENT. NOTWITHSTANDING THE FACT THAT ASSESSMENT WAS COMPLE TED BY WAY OF SCRUTINY UNDER SEC. 143(3) OF THE ACT AND NOTHIN G WAS RECOVERED IN THE COURSE OF SEARCH RELATING TO THIS ISSUE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN INDIVIDUAL CARRYING ON THE BUSINESS OF MANUFACTURING OF READYMADE SHIRTS I N THE NAME & STYLE M/S TELE ENTERPRISES. THE ASSESSEE IS ALSO THE PROPRIETOR O F M/S SUNDHA MAA CLOTHING CO. A SEARCH AND SEIZURE ACTION U/S 132 OF THE I.T . ACT WAS CARRIED OUT IN MALI GROUP OF CASES ON 28-02-2006. DURING THE COURSE OF SEARCH, CERTAIN MATERIAL RELATING TO THE ASSESSEE WAS FOUND AND SEIZED. ACC ORDINGLY, NOTICES U/S 153A OF THE ACT WAS ISSUED CALLING FOR RETURN OF INCOME. I N RESPONSE TO NOTICE U/S 153A, THE ASSESSEE HAS FILED RETURN OF INCOME ON 30-08-20 07 DECLARING TOTAL INCOME OF RS.2,55,530. THE CASE HAS BEEN SELECTED FOR SCRUTI NY AND NOTICE U/S 143(2) AND 142(1) WERE ISSUED. IN RESPONSE TO NOTICES, THE AU THORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED T HE DETAILS, AS CALLED FOR. ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S. 153A ON 29-12-2008 IN WHICH THE AO MADE ADDITION OF RS.1 LAKH AS UNEXPLAINED EXPEND ITURE U/S 69C OF THE ACT AND RS.3 LAKHS AS BOGUS GIFTS AND RS.2,71,290 AS UN EXPLAINED CASH CREDIT U/S 68 OF THE ACT. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL 3 ITA 644/MUM/2014 BEFORE THE CIT(A) BEFORE THE CIT(A), THE ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS TO CHALLENGE ADDITION MADE BY THE AO TO WARDS UNEXPLAINED EXPENDITURE U/S 69C, BOGUS GIFT AND UNEXPLAINED CAS H CREDIT. THE CIT(A) FOR THE DETAILED REASONS RECORDED IN HIS ORDER, CONFIR MED ADDITION MADE BY THE AO AND DISMISSED THE APPEAL FILED BY THE ASSESSEE. AG GRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 3. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.AO WAS ERRED IN MAKING ADDITION TOWARDS GIFTS OF RS.2,71,250 IN THE ASSESS MENT FRAMED U/S 153A WITHOUT THERE BEING ANY INCRIMINATING MATERIAL FOUN D AS A RESULT OF SEARCH. THE LD.AR FURTHER SUBMITTED THAT THE AO HAS MADE ADDITI ON OF RS.3 LAKHS GIFT RECEIVED FROM SHRI ANTHONY BONIFACIO ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH THE OCCASION OF THE GIFT AND EXISTENCE O F RECIPROCITY, IGNORING THE FACT THAT THE ISSUE HAS BEEN SUBJECT MATTER OF REGULAR A SSESSMENT ORDER PASSED BY THE AO U/S 143(3), WHEREIN THE AO HAS CALLED FOR DETAIL S OF GIFT AND HAD CHOSEN TO ACCEPT THE EXPLANATION OFFERED BY THE ASSESSEE. TH E LD.AR FURTHER SUBMITTED THAT IN THE ASSESSMENT FRAMED U/S 153A, NO ADDITION COULD BE MADE WITHOUT THERE BEING ANY INCRIMINATING MATERIAL FOUND AS A R ESULT OF SEARCH IN RESPECT OF ASSESSMENTS WHICH ARE NOT ABATED AS ON THE DATE OF SEARCH. THE LD.AR FURTHER SUBMITTED THAT THE AO ERRED IN MAKING ADDITION TOWA RDS AMOUNT CREDITED IN CAPITAL ACCOUNT OF RS.2,71,250 AS PRIOR PERIOD ADJU STMENT ON THE BASIS OF FINANCIAL STATEMENTS FILED BY THE ASSESSEE WHICH IS PART OF REGULAR RETURN OF INCOME AND ALSO WAS SUBJECT MATTER OF REGULAR ASSES SMENT U/S 143(3). THE AO 4 ITA 644/MUM/2014 DO NOT HAVE ANY INCRIMINATING MATERIAL TO MAKE ADDI TIONS. IN THE ABSENCE OF ANY INCRIMINATING MATERIALS, NO ADDITION COULD BE MADE TO THE RETURNED INCOME IN RESPECT OF ASSESSMENT YEARS, WHICH IS NOT ABATED AS ON THE DATE OF SEARCH. THE LD.AR FURTHER SUBMITTED THAT IN RESPECT OF ADDITION MADE ON THE BASIS OF SEIZED MATERIALS, WHICH IS NOT BELONGING TO THE ASSESSEE, THE ASSESSEE HADE EXPLAINED THE SEIZED MATERIAL WITH REFERENCE TO BOOKS OF ACCO UNT OF ANOTHER FIRM WHEREIN HE WAS A PARTNER, BUT THE AO HAS IGNORED ALL EVIDEN CES TO MAKE ADDITION ONLY ON THE BASIS OF SEIZED MATERIAL WHICH IS INCORRECT. 4. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTED TH E ORDER OF CIT(A) 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIA L AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE AO MADE ADDITION TOWARDS GIFT RECEIVED FROM ONE, MR. ANTHONY BONIFAC IO ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE THE OCCASION FOR GIFT AND ALSO THE RELATIONSHIP BETWEEN THE DONOR AND THE DONE. THE AO MADE ADDITI ON OF RS. 2,71,250 IN RESPECT OF AMOUNT CREDITED IN CAPITAL ACCOUNT ON TH E BASIS OF FINANCIAL STATEMENTS FILED BY THE ASSESSEE WHICH WAS PART OF REGULAR RET URN OF INCOME FILED U/S 139(1) OF THE ACT. THE AO ALSO MADE ADDITION OF RS.1 LAKH ON THE BASIS OF SEIZED MATERIALS ON THE GROUND THAT THE ASSESSEEE HAS FAIL ED TO EXPLAIN SOURCE OF RS.1 LAKH PAID TO GAJENDRA CARDS. IT IS THE CONTENTION OF THE ASSESSEE THAT IN RESPECT OF ADDITION TOWARDS ALLEGED GIFT AND CREDIT IN CAPI TAL ACCOUNT, THE AO WAS ERRED IN MAKING ADDITION IN THE ABSENCE OF ANY SEIZED MAT ERIALS FOUND AS A RESULT OF SEARCH IN RESPECT OF ASSESSMENT YEAR WHICH IS NOT A BATED AS ON THE DATE OF 5 ITA 644/MUM/2014 SEARCH. THE ASSESSEE FURTHER CONTENDED THAT IN RES PECT OF ADDITION OF RS.1 LAKH U/S 69C, HE HAS EXPLAINED THE SEIZED MATERIAL WITH REFERENCE TO BOOKS OF ACCOUNT OF ANOTHER PARTNERSHIP FIRM, HOWEVER, THE AO HAS NO T GIVEN ANY REASONS FOR MAKING ADDITION DESPITE FURNISHING NECESSARY EVIDEN CES. 6. HAVING HEARD BOTH SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND FORCE IN THE ARGUMENTS OF THE LD.AR OF THE ASSESSEE IN RE SPECT OF GROUNDS 1& 3 WHERE THE ASSESSEE HAS CHALLENGED ADDITION MADE BY THE AO TOWARDS GIFT RECEIVED FROM MR.ANTHONY BONIFACIO AND ADDITION OF RS.2,71,250 IN RESPECT OF CREDITS FOUND IN CAPITAL ACCOUNT AS PRIOR PERIOD ADJUSTMENTS. NO DOUBT, THE AO HAS MADE ADDITION ON THE BASIS OF FINANCIAL STATEMENT FILED BY THE ASSESSEE WHICH WAS PART OF REGULAR RETURN OF INCOME FILED U/S 139(1) WITHOU T THERE BEING ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. IT IS ALSO AN ADMITTED FACT THAT THE ISSUE OF GIFT RECEIVED FROM MR.ANTHONY BONIFACI O WAS SUBJECT MATTER OF DISCUSSION BY THE AO IN THE REGULAR ASSESSMENT ORDE R PASSED U/S 143(3) WHEREIN THE ISSUE HAS BEEN THOROUGHLY EXAMINED BY THE AO. IT IS ALSO AN ADMITTED FACT THAT THE ADDITION MADE BY THE AO TOWARDS CREDIT IN CAPITAL ACCOUNT IS NOT BASED ON ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. IT IS A SETTLED LEGAL POSITION OF LAW IN RESPECT OF ABATED AND UNABATED A SSESSMENTS WHERE THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS CON TINENTAL HOUSING CORPORATION LTD (2015) 274 ITER 645 (BOM) HELD THAT A PLAIN READING OF SECTION 153A OF THE ACT MAKES IT CLEAR THAT ON INIT IATION OF PROCEEDINGS U/S 153A, IT IS ONLY THE ASSESSMENT / RE-ASSESSMENT PRO CEEDINGS THAT ARE PENDING AS 6 ITA 644/MUM/2014 ON THE DATE OF SEARCH U/S 132 OF THE ACT STAND ABAT ED AND NOT THE ASSESSMENTS / RE-ASSESSMENTS ALREADY FINALISED FOR THOSE ASSESSME NT YEARS COVERED U/S 153A OF THE ACT. WE FURTHER NOTICE THAT THE SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD VS CIT 137 I TD 287(MUM)(SB) AFTER CONSIDERING THE PROVISIONS OF SECTION 153A HELD THA T NO ADDITION CAN BE MADE IN THE ABSENCE OF ANY INCRIMINATING MATERIAL FOUND DUR ING THE COURSE OF SEARCH IN RESPECT OF ASSESSMENT YEARS WHICH ARE NOT ABATED AS ON THE DATE OF SEARCH. IN THIS CASE, ADMITTEDLY, SEARCH TOOK PLACE ON 28-06-2 006. THE TIME LIMIT FOR ISSUE OF NOTICE U/S 143(2) FOR THE ASSESSMENT YEAR 2003-0 4 HAS BEEN EXPIRED ON 30-09- 2004. THE ASSESSMENT FOR THE ASSESSMENT YEAR 2003- 04 HAS BEEN CONCLUDED AS ON THE DATE OF SEARCH, THEREFORE, WE ARE OF THE VIE W THAT THE AO CANNOT MAKE ANY ADDITION WITHOUT THERE BEING ANY INCRIMINATING MATE RIAL FOUND AS A RESULT OF SEARCH. ADMITTEDLY, IN THIS CASE, THE AO HAS MADE ADDITION TOWARDS GIFT AND CREDIT FOUND IN CAPITAL ACCOUNT ON THE BASIS OF FIN ANCIAL STATEMENT FILED BY THE ASSESSEE AND SUCH ADDITION IS NOT BASED ON ANY SEIZ ED MATERIAL. THEREFORE, WE ARE OF THE VIEW THAT THE AO WAS INCORRECT IN MAKING ADDITION TOWARDS GIFT AND CREDIT FOUND IN CAPITAL ACCOUNT IN THE ASSESSMENT F RAMED U/S 153A. THE CIT(A), WITHOUT APPRECIATING THE FACTS HAS SIMPLY UPHELD AD DITION MADE BY THE AO. HENCE, WE ARE INCLINED TO REVERSE THE FINDINGS OF L D.CIT(A) AND DELETE THE ADDITION MADE BY THE AO TOWARDS GIFT AND CREDIT FOU ND IN THE CAPITAL ACCOUNT. 7. INSOFAR AS ADDITION OF RS.1 LAKH U/S 69C OF THE ACT , AS UNEXPLAINED EXPENDITURE, THE AO MADE ADDITION OF RS.1 LAKH ON T HE BASIS OF SEIZED MATERIAL 7 ITA 644/MUM/2014 WHICH INDICATES THAT THE ASSESSEE HAD PAID CASH OF RS.1 LAKH ON 24-01-2003 TO GAJENDRA CARDS. THE AO FURTHER OBSERVED THAT CASH PAYMENT OF RS.1 LAKH IS NOT REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE F OR THE RELEVANT ASSESSMENT YEAR. THEREFORE, HE OPINED THAT THE ASSESSEE HAS F AILED TO EXPLAIN SOURCE FOR PAYMENT OF RS.1 LAKH AND ACCORDINGLY MADE ADDITION U/S 69C OF THE ACT. IT IS THE CONTENTION OF THE ASSESSEE THAT THE AO HAS MADE ADDITIONS ON THE BASIS OF NOTING AVAILABLE ON PAGE 139 OF THE SEIZED MATERIAL S WITHOUT CONSIDERING THE EXPLANATION OFFERED BY THE ASSESSEE THAT THE SAID P AYMENT RELATES TO BUSINESS TRANSACTIONS TOWARDS PURCHASE OF CLOTH IN RESPECT O F ANOTHER FIRM WHERE THE ASSESSEE IS A PARTNER. THE ASSESSEE FURTHER CONTEN DED THAT THESE TRANSACTIONS WERE IN RELATION TO THE BUSINESS OF NIMBESHWAR CREA TION WHOSE INCOME WAS OFFERED BY WAY OF DISCLOSURE CONSEQUENT TO SEARCH U /S 132 OF THE ACT. 8. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT THE AO HAS MADE ADDITION OF RS.1 LAKH U/S 69C BY REFERRING TO A DOCUMENT IN ANNEXURE A-3 ON PAGE 139 WHEREAS THE ASSESSEE CL AIMS THAT REFERENCE MADE BY THE AO TO ANNEXURE A-3 ON PAGE 139 PERTAINS TO B USINESS OF NIMBESHWAR CREATION WHOSE INCOME HAS BEEN OFFERED BY DISCLOSUR E. THE FACTS ARE NOT CLEAR. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE I SSUE NEEDS TO BE RE-EXAMINED BY THE AO IN THE LIGHT OF EXPLANATION OF THE ASSESS EE; HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO CONSI DER THE ISSUE AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED, FOR STATISTICAL 8 ITA 644/MUM/2014 PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2017. SD/- SD/- (D.T. GARASIA) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 29 TH DECEMBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI