ITO WD 1(3), THANE V. AMAR DIAMOND TOOLS, MUMBAI

ITA 7671/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3857 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 27-12-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S R SINGH
• Keywords: Source of fund; Onus to prove
• Section: 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI SANJAY ARORA , A M AND SHRI RAM LAL NEGI, JM ./ I.T.A. NO. 7671/MUM/2012 ( / ASSESSMENT YEAR: 2007 - 08 ) ITO, WARD 1(1), ROOM NO. 23, B - WING, 6 TH FLOOR, ASHAR IT PARK, ROAD NO. 16 - Z, WAGLE INDUSTRIAL ESTATE, THANE (W) - 400 604 / VS. AMAR DIAMOND TOOLS SHIVDARSHAN BUILDING, MUMBAI PUNE ROAD, MUMBRA, THANE (W) - 400 612 ./ ./ PAN/GIR NO. AAHFA 7543 D ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI S. R. SINGH / RESPONDENT BY : SHRI JAYANT BHATT / DATE OF HEARING : 05.5.2016 / DATE OF PRONOUNCEMENT : 02 .8.2016 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - II , MUMBAI (CIT(A) FOR SHORT) DATED 27.9.2012 , ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2007 - 08 VIDE ORDER DATED 24.12.2009 . 2. THE ISSUE ARISING IN THIS APPEAL IS THE VALIDITY OR OTHERWISE IN LAW OF T HE PENALTY LEVIED (AT THE MINIMUM RATE OF 100% OF THE TAX SOUGHT TO BE EVADED) U/S. 271(1)(C) OF THE ACT ON CASH CREDITS AGGREGATING TO RS.50 LACS, CONSIDERED 2 ITA NO. 7671/MUM/2012 (A.Y. 2007 - 08) ITO VS. AMAR DIAMOND TOOLS UNEXPLAINED AND, ACCORDINGLY, ASSESSED U/S. 68 OF THE ACT, HAVING BEEN SINCE DELETED BY THE FIRST APPELLATE AUTHORITY. 3. THE BACKGROUND FACTS ARE THAT THE ASSESSEE - FIRM WAS ASSESSED TO TA X AT AN INCOME RS.51.95 LACS BY BRINGING THE IMPUGNED SUM OF RS.50 LACS, CREDITED IN ITS ACCOUNTS TO THE ACCOUNT OF FIVE FAMILY MEMBERS OF A PARTNER, SHRI G. B. MAH AJAN, BEING CASH DEPOSITS AT RS.10 LAKH EACH ON 30.11.2006 , TO TAX . THE SAME, AS EXPLAINED DURING HEARING BY THE LD. C OUNSEL, SHRI JAYANT BHATT , WAS TO PAY OF F THE OTHER PARTNER, SHRI K. N. HINGE , WHO RETIRED ON 01.1.2007 FROM THE PARTNERSHIP, AND FROM WHICH DATE THE DEPOSITOR S WERE ALSO INTRODUCED AS PARTNERS IN THE ASSESSEE - FIRM. THE ASSESSING OFFICER (AO) INVOKED SECTION 68 IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION FURNISHED BY THE FIRM AS REGARDS THE NATURE AND SOURCE OF THE CREDIT/S , WHICH ST OO D CONFIRMED BY THE FIRST APPELLATE AUTHORITY FOR THE SAME REASON. THOUGH THE ASSESSEE DID NOT PREFER ANY FURTHER APPEAL, ITS CASE IS THAT THE CONFIRMATION IN QUANTUM WOULD NOT AUTOMATICALLY RESULT IN PENALTY FOR CONCEALMENT OF , OR FURNISHING INACCURATE , P ARTICULARS OF INCOME. EACH OF THE DEPOSITORS WERE SUMMONED U/S. 131 OF THE ACT, AND HAD , ON PERSONAL ATTENDANCE , CONFIRMED HAVING ADVANCED CASH LOAN TO THE ASSESSEE, SOURCE OF WHICH WAS EXPLAINED AS THE AMOUNT S COLLECTED FROM RELATIVES AND AGRICULTURE INCO ME. WHILE THIS MAY BE; THE EXPLANATION BEING NOT SUBSTANTIATED, GOOD FOR THE PURPOSES OF SECTION 68, IT IS NOT SUFFICIENT FOR THE PURPOSE OF LEVY OF PENALTY, PARTICULARLY CONSIDERING THAT THE CREDITORS HAD A P PEARED IN PERSON AND CONFIRMED THE TRANSACTION. THE SAME HAS ALSO NOT BEEN FOUND INCORRECT AND NEITHER THERE IS ANY REASON TO DOUBT THE SAME, CONSIDERING THAT THE Y LATER BECAME PARTNERS IN THE FIRM. FURTHER, RELYING ON CIT VS. RELIANCE PETROPRODUCTS (P) LTD. [2010] 322 ITR 158 (SC), IT IS ARGUED THAT MA KING AN INCORRECT CLAIM DOES NOT T A N TAMOUNT TO FURNISHING INACCURATE PARTICULARS OF INCOME. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD, AND GIVEN OUR CAREFUL CONSIDERATION TO THE MATTER. 3 ITA NO. 7671/MUM/2012 (A.Y. 2007 - 08) ITO VS. AMAR DIAMOND TOOLS THE PRIMARY FACTS OF THE CASE ARE SIMPLE AND UNDISPUTED. THE ADDITION STANDS MADE ON ACCOUNT OF FURNISHING NON - SATISFACTORY EXPLANATION BY TH E ASSESSEE - FIRM IN RESPECT OF THE CASH CREDIT APPEARING IN ITS BOOKS (AS TO NATURE AND SOURCE THEREOF) , I.E., ESTABLISHING THE SAME, DESCRIBED AS LOANS FROM FAMILY MEMBERS OF THE THE CONTINUING PARTNER, AS GENUINE CREDIT/S. THE SAME, AS IS WELL - SETTLED, RE QUIRES PROVING THE CREDIT ON THE PARAMETERS OF IDENTITY, CREDITWORTHINESS AND GENUINENESS, EACH OF WHICH IS TO BE INDEPENDENTLY ESTABLISHED. THE CONFIRMATIONS , VIDE STATEMENTS O N OATH BY THE CREDITORS , WOULD PROVE ONLY THE IDENTITY OF THE CREDITOR/S. THE O THER TWO ASPECTS OF THE TRANSACTION ARE COMPLETELY UNPROVED . TO BEGIN WITH, THEY ADMITTEDLY DO NOT HAVE ANY CAPACITY, ADMITTING TO HAVING NO SOURCE OF INCOME AND, FURTHER, OF HAVING SOURCED THE FUNDS FROM THE RELATIVES FROM THE IR NATIVE PLACE. WHY, TWO , SHR I PANKAJ P. MAHAJAN (NEPHEW OF SHRI G. B . MAHAJAN) (BEING THE SON OF HIS BROTHER, SH RI PANDITRAO MAHAJA N ) AND SHRI PRASHANT G . MAHAJAN (SON OF G. B . MAHAJAN) WERE STUDENTS OF ENGINEERING AT THE RELEVANT TIME, WHO COMPLET ED THEIR GRADUATION ONLY IN MAY, 200 7, FILING THEIR FIRST RETURN OF INCOME FOR A.Y. 2007 - 08 ( COPY NOT ON RECORD ). SIMILARLY, FOR THE WIVES OF THE TWO BROTHERS , I.E., SANGEETA P. MAHAJAN AND A SHA G. M AHAJAN, WHO ALSO DO NOT ADMITTEDLY HAVE ANY CAPACITY OR STATED SOURCE OF INCOME. IN FACT, ALL OF THEM DID NOT EVEN HAVE A BANK ACCOUNT, WHICH WAS OPENED ONLY SUBSEQUENTLY ON 09.1.2007, BY ALL OF THEM , AND BEING WITH THE SAME BANK, AS IT APPEARS, TOGETHER . THE FIFTH CREDITOR, SHRI PANDITRA O V. MAHAJAN , IS ALSO NOT A N INCOME - TAX ASSESSEE, DRAWING SA LARY AT A MERE RS.10,000/ - P.M. , UP FROM RS.7,000/ - P.M. , AT WHICH HE WAS EMPLOYED BY THE ASSESSEE - FIRM ONLY IN THE YEAR 2003. THE SAID INCOME WOULD SURELY BE , IF AT ALL, BARELY SUFFICIENT TO EKE OUT A L I VING. NO DOUBT NO SAVINGS ARE REFLECTED IN HIS SAVING BANK ACCOUNT (WITH SOUTH INDIAN BANK) , AS I S INFERABLE FROM THE FACT OF IT HAVIN G NOT BEEN PRODUCED AND , FURTHER, THE IMPUGNED LOAN/S BEING TAKEN AS WELL AS G I V E N IN CASH, AGAIN, S T ATED A S SOURCE D FROM RELATIVES . THAT IS, THE TRANSACTION IS CARRIED OUT IN A MANNER TO HAVE NO TRAIL, WITH NO SPECIFICS FORTHCOMING, SO AS NOT TO BE BORNE OUT BY ANY MATERIAL/ EVIDENCE AND/OR SUBJECT TO ANY VERIFICATION OR CONFIRMATION. FURTHER ON, THOUGH A LL 4 ITA NO. 7671/MUM/2012 (A.Y. 2007 - 08) ITO VS. AMAR DIAMOND TOOLS OF THEM (CREDITORS) ARE STATED TO ALSO HAVE SOME AGRICULTURAL INCOME, T HE SAME IS AGAIN WHOLLY UN - EVIDENCED. THERE IS NO MENTION OF LAND HOLDING, OR OF WHAT IS THE AGRICULTURAL PRODUC E , MUCH LESS ITS QUANTITY OR EVIDENCE QUA SALE THEREOF. THERE IS ALSO NO IOTA OF EVIDENCE TOWARD PROVING FINANCIAL CAPACITY TO ANY EXTENT, WITH FOUR OF THE FIVE CREDITORS BEING THEMSELVES DEP ENDENTS AND THE FIFTH, SHRI PANDITRA O MAHAJAN , HAVING NOMINAL INCOME, BARELY SUFFICIENT TO MEET THE REQUIREMENTS OF HIMS ELF AND HIS FAMILY. NO WONDER, NO RETURN OF INCOME IS ADMITTEDLY FILED EXCEPT FOR A.Y. 2007 - 08 , THE EXTENT OF WHICH IS ALSO NOT MENTIONED. THIS CLEARLY APPEARS TO BE BY DESIGN, WITH NO RETURNS FOLLOWING FOR THE SUBSEQUENT YEARS AS WELL. ALL THIS IN FACT BECOMES ACADEMIC IN VIEW OF THE ADMISSION OF THE SOURCE OF FUNDS LENT BEING BORROWINGS FROM RELATIVES FROM THEIR NATIVE PLACE, WHOSE IDENTITY /S IS CONSPICUOUS BY ITS ABSENCE . IT IS THE SE RELATIVES WHO THUS ARE THE STATED SOURCE OF FUNDS . WHO ARE THEY , I.E ., THEIR NAMES AND ADDRESSES ? WHAT IS THEIR OCCUPATION ; SOURCES OF INCOME, ETC., I.E., THEIR FINANCIAL CAPACITY? WHY WOULD THEY LEN D TO THE NAMED CREDITORS , CONSIDERING THAT THEY HAVE NO REPAYMENT CAPACITY? RATHER, CONSIDERING THAT THE AMOUNTS LENT TO THE FIRM ARE TOWARD ENABLING IT TO MAINTAIN ITS CAPITAL IN VIEW OF THE IMMINENT CAPITAL W ITHDRAWAL BY THE OUTGOING PARTNER (AND WHICH PERHAPS ALSO FORMS THE RE ASON FOR ADMITTING THE CREDITORS AS PARTNERS) AND, THEREFORE, NO OR LITTLE SCOPE FOR ITS RETURN, THE ADVANCING OF LOANS FROM THE SO - CALLED RELATIVES WHO REMAIN UN SPECIFIED, ITS ELF BECOMES HIGHLY SUSPECT AND QUIZZICAL. WHY, THE RAISING OF LOANS BY PERSON S WITH NO ESTABLISHED MEANS IS ITSELF FANTASTIC . THE ENTIRE STORY IS INCREDULOUS AND DE HORS ANY MATERIAL , I.E., UN - EVIDENCED AND UN - SUBSTANTIAT ED . THE SAME, THEREFORE, THOUGH NORMALLY LIABLE TO BE REGARDED AS OF SOME EVIDENTIARY VALUE, IS ONLY IN THE REAL M OF BA L D STATEMENT / S A N D , A S I T A P P E A R S , T U T O R E D . AS CLARIFIED BY THE HON BLE AP EX C OURT IN CIT VS. P. MOHANKALA [2007] 2 91 ITR 278 ( SC ) , THE EXPRESSION THE ASSESSEE OFFERS NO EXPLANATION IN SECTION 68 MEANS WHERE THE ASSESSEE OFFERS NO PROPER, REASONABLE AND ACCEPTABLE EXPLANATION (AT PG. 285) . IN FACT, THE ENTIRE TRANSACTION IS, AS APPARENT, CALCULATED TO INTRODUCE LIQUID CAPITAL IN THE FIRM FOR PAYMEN T TO THE OUTGOING PARTNER, WHOSE 5 ITA NO. 7671/MUM/2012 (A.Y. 2007 - 08) ITO VS. AMAR DIAMOND TOOLS SHARE THUS GETS ACQUIRED BY THE OUTGOING PARTNER, INTRODUCING HIS FAMILY MEMBERS AS PAR TNERS IN HIS STEAD. THE STATED DEPOSITORS, WITH NO FINANCIAL MEANS OF THEIR OWN, ARE ONLY OSTENSIBLE SOURCE S OF FINANCE, INTRODUCING CASH TOGETHER ON AN APPOINTED DAY, AS IF THEY WERE WAITING WITH CASH IN THE I R HANDS TO BE DEPOSITED WITH THE FIRM AND, FURTHE R, SHIFTING THE SOURCE THEREOF TO NON - SPECIFIED IDENTITIES. IT IS CLEARLY A CONCERTED ACTION WITH A VIEW AND TO WARD THE DIST INC T OBJECTIVE OF MAINTAINING THE CONTINUITY OF T H E BUSINESS OF THE FIRM IN WAKE OF THE DEPARTURE OF A PERSON HOLDING 50% INTEREST THEREIN . THERE IS A COMPLETE LACK OF BONA FIDES , AND THE GENUINENESS OF THE TRANSACTION S , HIGHLY SUSPECT . COMING TO THE AS PECT OF LEVY OF PENALTY, WE CANNOT HEL P BUT NOTE THAT THE ENTIRE CASE IS COMPLETELY WITHOUT SUBSTANCE , AND THE EXPL ANAT ION , I F WE MAY CALL IT SO , BIZARRE, WITH NO BASIS IN REALITY. COULD THE SAME, ONE MAY ASK, BY ANY STRETCH OF IMAGINATION , BE SAID TO BE A E XP LANAT ION ? WHY, THE LAW, WHICH SAVES A PLAUSIBLE EXPLANATION FROM PENALTY, CLEARLY REQUIRES ONE WHICH IS EITHER NOT FOUND AS FALSE OR INCORRECT OR, ALTERNATIVELY, IS SUBSTANTIATED . CAN A BALD STATEMENT, HOWSOEVER BASELESS AND FANCIFUL , BE REGARDED AS AN EXPLANATION, AS EMPHASIZED IN P. MOHANKALA (SUPRA), MUCH LESS TRUE , THE OPPOSITE OF FALSE . THE SAME IS , IN ANY CASE, COMPLETELY UNSUB STANTIATED. THE INSTANT CASE IS A CASE OF NO EXPLANATION, ATTRACTING EXPLANATION 1(A) TO SECTION 271(1)(C), AND W H E R E R E G A R D E D A S S O , BEING WHOLLY UNSUBSTANTIATED, I S IN ANY CASE COVERED BY EXPLANATION 1( B ) THERETO . AS EXPLAINED IN CIT VS. DURGA PRASAD MORE [1971] 82 ITR 540 (SC), IT IS THE TRUTH OF THE RECITALS IN THE DOCUMENTS (OR THE TRUTH OF THE IR CONTENTS) THAT IS RELEVANT AND IS TO BE ESTABLISHED, OR ELSE IT WOULD LEAVE THE DOOR WIDE OPEN FOR TAX EVASION BY MERELY EXECUTING SELF - SERVING DOCUMENTS , AND THAT THE REVENUE AUTHORITIES WERE FULLY ENTITLED TO LOOK AT THE SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY OF THE TRANSACTION AND NOT PUT BLINKERS WHILE LOOKING AT DOCUMENTS PRODUCED BEFORE THEM. IN THE PRESENT CASE, WE HAVE STATEMENTS INSTEAD OF DOCUMENTS, SO THAT THE SAID DECISION IS IN RATIO FULLY APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE APEX COURT THEREIN A L S O EMPHASIZED THE PRIMACY OF THE TEST OF HUMAN PROBABILITIES 6 ITA NO. 7671/MUM/2012 (A.Y. 2007 - 08) ITO VS. AMAR DIAMOND TOOLS IN APPRECIATING AND EVALUATING EVIDENCE ABSENT IN THE IN STANT CASE (ALSO REFER SS. 103 AND 114 OF THE INDIAN EVIDENCE ACT AND SUMATI DAYAL VS. CIT [ 1995 ] 214 ITR 801 (SC) ) . IN CHUHARMAL VS. CIT [1988] 7 2 ITR 250 (SC), THE HONBLE APEX COURT , APPLYING THE TEST OF HUMAN PROBABILITIES, UPHELD THE LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT ON A FAILURE TO SATISFACTORILY EXPLAIN THE POSSESSION OF WATCHES BY THE ASSESSEE. SECTIONS 68 AND 69/69A ARE PARA MATERIA IN - AS - MUCH AS THE ASSESSEE IS THE BENEFICIARY IN CASE OF SECTION 68 . THE RELIANCE BY THE ASSESSEE ON THE DEC ISION IN CIT VS. UPENDRA V. MITHANI (INCOME TAX APPEAL(L) NO. 1860 OF 2009 DATED 05.8.2009), HOLDING PENALTY AS NOT EXIGIBLE WHERE THE FACTS AND CIRCUMSTANCES ARE EQUALLY CONSISTENT WITH THE HYPOTHESIS THAT THE AMOUNT DOES NOT REPRESENT CONCEALED INCOME AS WITH THE HYPOTHESIS THAT IT DOES, IS CLEARLY MISPLACED. THE LD. CIT (A) HAS INCORRECTLY SHIFTED THE BURDEN OF PROOF AND FURNISHING A REASONABLE EXP LANAT ION, SUB STANTIATING THE SAME , ON THE R EVENUE. WHEN THE ASSESSEES CASE FALLS E ITHER UNDER PART ( A ) OR ( B ) OF EXPLANATION 1 TO SECTION 271 (1)(C) , HE IS DEEMED TO HAVE CONCEALED PARTICULARS OF INCOME. THERE IS, FURTHER, IN THE ADMITTED AND UNDISPUTED FACTS AND CIRCUMSTANCES, NO CASE FOR APPLICATION OF THE DECISION IN RELIANCE PETROPRODUCTS (P) LTD. (SUPRA) , WH ICH STANDS WRONGLY APPLIED BY THE LD. CIT (A) . W H A T THE SAID DECISION STATES IS THAT WHERE A CLAIM IS FOUND AS NOT CORRECT OR VALID IN LAW, THE SAME CANNOT BY ITSELF LEAD TO THE LEVY OF PENALTY. IT IS TRITE LAW THAT PENALTY PROCEEDINGS A RE SEPARATE AND D ISTINCT PROCEEDINGS, AND IS TO BE LEVIED ON ITS OWN MERITS. CASE LAW IN THE MATTER IS L EGION, AND TOWARD WHICH WE MAY ADVERT TO THE FOLLOWING DECISIONS , VIZ . MAK DATA (P.) LTD. VS. CIT [2013] 358 ITR 593 (SC); UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS [ 2008] 306 ITR 277 (SC); K.P. MADHUSUDHANAN VS. CIT [2001] 251 ITR 99 (SC); B.A. BALASUBRAMANIAM AND BROS V. CIT [1999] 236 ITR 977 (SC); ADDL. CIT VS. JEEVAN LAL SHAH [1994] 205 ITR 244 (SC); AND CIT VS. NATHULAL AGARWALA & SONS [1985] 153 ITR 292 (PAT)(FB) . 7 ITA NO. 7671/MUM/2012 (A.Y. 2007 - 08) ITO VS. AMAR DIAMOND TOOLS 5. IN VIEW OF THE FOREGOING, WE HAVE NO HESITATION IN , VACATING THE FINDINGS OF THE LD. CIT(A), UPHOLD THE LEVY OF PENALTY IN THE INSTANT CASE. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 02 , 2016 SD/ - SD/ - ( RAM LAL NEGI ) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 02 .0 8 .2016 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI