MANESH M SHAH, MUMBAI V. DCIT CC 6, MUMBAI

ITSSA 1/MUM/2013

AI Insights

The case involves Shri Mahesh M. Shah, who appealed against the order of the CIT(A) concerning additions made to his income for unexplained jewellery and cash credits under section 68 of the Income Tax Act, 1961, following a search and seizure operation. The Tribunal examined the validity of the CIT(A)'s decisions on the additions of unexplained jewellery exceeding 500 grams and the cash credit of Rs. 8,50,000 used for acquiring residential premises. The Tribunal found merit in the assessee's arguments regarding the jewellery, aligning with CBDT Instruction No. 1916, but upheld the addition concerning the cash credit due to lack of substantial evidence.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125110 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 02-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 29-11-2022
• Assessment Year: misc
• Appeal Filed On: 09-01-2013
• Other Referred Cases: V.G.P. Ravidas vs ACIT, (2015) 370 ITR 364 (Madras)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Search and seizure; Additional evidence; Validity of assessment
• Section: 68; 132; 250; 143(2); 158BC(c); 158BC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER IT(SS)A no.1/Mum./2013 (Block Period : from 01/04/1988 to 10/08/1998) Shri Mahesh M. Shah 108, Rajneelam CHS Ltd. Off: Bhulabhai Desai Road Breach Candy, Mumbai 400 026 PAN – AAEPS8051K ................ Appellant v/s Dy. Commissioner of Income Tax Central Circle–6, Mumbai ................Respondent Assessee by : None Revenue by : Dr. Mahesh Akhade Date of Hearing – 30/11/2022 Date of Order – 03/01/2023 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been filed by the assessee challenging the impugned order dated 23/10/2012 passed under section 250(6) of the Income Tax Act, 1961 (‘the Act’) by the learned Commissioner of Income Tax (Appeals)–4, Mumbai [‘learned CIT(A)’], for the block period 01/04/1988 to 10/08/1998. 2. When this appeal was called for hearing neither anyone appeared on behalf of the assessee nor was any application seeking adjournment placed Shri Mahesh M. Shah IT(SS)A no.1/Mum./2013 Page | 2 before us. Therefore, we proceed to dispose off the present appeal ex-parte qua the assessee after hearing the learned Departmental Representative (‘learned DR’), and on the basis of material available on record and written submission filed by the assessee in the earlier hearing. 3. In this appeal, the assessee has raised the following grounds: “1. Refusal to admit additional Ground on invalidity of assessment for want of valid service of notice U/s 143(2). Learned CIT(A) erred in facts and circumstances of the case and in law in refusing to admit a ground which is purely legal in nature - The ground taken being "Inappropriateness of framing assessment when the notice U/s 143(2) had not been served as per the provisions of Section 282 of The I.T.Act 1961." Reasons given by learned CIT (Appeal) for not admitting this ground are wrong, insufficient and contrary to facts and evidence on record and in law. 2. Sustaining of addition of Unexplained jewelry in excess of 500 gms of gold out of Rs.7,38,223/-.found during the search The Learned CIT (A) erred in facts and circumstances of the case and in law in confirming the addition in excess of 500 gms out of the actual jewelry and gold ornament found of Rs. 7,38,223/- Ignoring reconciliations. affidavits claiming ownership and judicial decisions relied upon by the appellant. Reasons given by learned CIT (A) for confirming this addition of Rs. 4,74,583/- are wrong, insufficient and contrary to facts and evidence on record and in law. 3. Sustaining of addition U/s 68 Rs 8,50,000/- the cash credit availed for acquisition of residential premises. The Learned CIT (A) erred in facts and circumstances of the case and in law in confirming the addition U/s 68 of The Income Tax act 1961 Rs. 8,50,000/-, the cash credit for acquiring property ignoring confirmation bank statements and judicial decisions relied upon. Reasons given by learned CIT (A) for confirming this addition of Rs 8,50,000/- are wrong, insufficient and contrary to facts and evidence on record and in law The Appellant craves leave to add amend, alter, modify or omit any of the aforesaid Grounds of Appeal as occasion may arise or demand.” Shri Mahesh M. Shah IT(SS)A no.1/Mum./2013 Page | 3 4. The issue arising in ground No. 1, raised in assessee’s appeal, is pertaining to the validity of assessment for want of alleged service of notice under section 143(2) of the Act. From the written submission of the assessee dated 15/01/2020, forming part of the record, we find that the assessee wishes not to press this ground. Therefore, ground No. 1 is dismissed as not pressed. 5. The issue arising in ground No. 2 raised in assessee’s appeal, is pertaining to addition on account of unexplained jewellery in excess of 500 gms of gold ornaments. 6. The brief facts of the case pertaining to this issue are: The assessee is an individual and is a director in various companies. Search and seizure action under section 132 of the Act was conducted at the premises of the assessee on 10/08/1998. Thereafter, notice under section 158BC of the Act was issued and served on the assessee for the block period from 01/04/1988 to 10/08/1998. During the search action, cash and jewellery were found from the residence and locker of the assessee. As regards the jewellery, the assessee submitted that Rs. 5,84,628 is the current value of part of jewellery brought on by the spouse of the assessee at the time of marriage. The assessee further submitted that the jewellery of Rs. 1,48,025 belongs to the spouse of which Rs. 41,111 was acquired out of the client's income which has been included in the income tax return. Further, the balance is the market value of the part of the jewellery brought on by her at the time of marriage. Silver articles are pooja articles with the assessee from the period prior to the block period. The Assessing Officer (‘AO’) vide order dated 23/08/2000 passed under section Shri Mahesh M. Shah IT(SS)A no.1/Mum./2013 Page | 4 158BC(c) of the Act did not agree with the submissions of the assessee in absence of income tax/wealth tax return of the spouse showing this jewellery. Accordingly, the value of the jewellery of Rs. 7,38,223 was added to the total income of the assessee. In appeal, learned CIT(A) vide order dated 15/03/2002, passed in the first round of proceedings, granted partial relief to the assessee in view of CBDT Instruction No. 1916 and held that it would be reasonable and fair to accept 500 gms and 100 gms of gold ornaments as explained, respectively, in the hands of the wife and in the assessee’s hand. The learned CIT(A), however, did not extend the similar benefit to the minor daughters of the assessee, following the Board’s Instructions, in absence of any specific claim made supported by any material. The learned CIT(A) also granted relief in respect of silver articles/items on the basis that they are personal belongings and some of them are ancestral in nature and the balance was received as gifts. Accordingly, learned CIT(A) directed the deletion of the addition of Rs. 2,63,640. In further appeal by the assessee, the coordinate bench of the Tribunal vide order dated 30/06/2009 remanded the issue to the file of learned CIT(A) for deciding the same afresh on merits after taking into consideration the additional evidence, which was filed by the assessee before the learned CIT(A). The coordinate bench also directed the learned CIT(A) to consider other contention of the assessee claiming the benefit of the CBDT Instruction No. 1916. 7. In the remand proceedings, the learned CIT(A) vide impugned order dated 23/10/2012 only granted relief up to 500 gms of gold by treating the same as explained in the hands of the wife of the assessee. The learned CIT(A) Shri Mahesh M. Shah IT(SS)A no.1/Mum./2013 Page | 5 also rejected the reliance placed by the assessee on copies of bills etc. on the basis that no original bills or document was produced by the assessee. The relevant findings of learned CIT(A) in this regard are as under: “11. I have considered the facts of the case and submissions of the assessee. Total jewellery worth Rs.5,84,628/ was found at the residence and jewellery worth Rs.1,53,595/ was found in the locker. At the time of search it was claimed by the assessee and his wife that it was brought by his wife Mrs. Bhavna Shah, at the time of marriage, whereas, during appellate proceedings, both the times it is claimed that benefit of Board's Circular No. 1916 is to be given to the assessee. It is also claimed that the notings for purchase of jewellery were merely estimates. The Board's Circular No. 1916 is with regard to seizure of the jewellery at the time of search and it does not provide for any jewellery to be accepted as explained in the assessment proceedings, of course it may give a guidance in accepting any jewellery as explained on the basis of the status of the assessee, its income and other factors. Therefore, merely harping on benefit under Circular No. 1916 does not help the assessee in directly accepting the jewellery without reference to other factors. Initially the jewellery was claimed to be belonging to assessee's wife and, therefore, subsequent claim on the basis of circular No. 1916 or on other basis are merely after thought without any evidence. The assessee has filed certain copies of bills etc. but no original bill or document were produced and, therefore, no benefit can be given merely on the basis of the photocopies even if they are admitted as directed by Hon'ble ITAT. Such photocopies cannot be the basis of the further inquiry or investigation. They are no evidence unless the originals are produced. Hence, no further benefit can be given on the basis of such photocopies. Earlier the CIT(A) had confirmed the addition on the basis of notings for Rs.2,02,408/, though no separate addition was confirmed because the same was already added and confirmed on account of jewellery found. Since assessee had initially claimed the entire jewellery belonging to his wife and the same was confirmed by his wife, but no concluding evidence in this regard is produced to show that either the jewellery belonging to the assessee, his wife or other family members, therefore, keeping in view the findings of the A.O., that of my predecessor, Instruction No. 1916, status and other aspects, jewellery upto 500 gms. of gold is treated as explained in the hands of the wife of the assessee and no other benefit is allowed. A.O. is directed to accordingly recalculate the disallowance.” Being aggrieved, the assessee is in appeal before us. 8. We have considered the submissions of the learned DR and perused the material available on record and written submission filed by the assessee. In the present case, during the search total jewellery worth Rs. 5,84,628, was found at the residence, and jewellery worth Rs. 1,53,595, was found in the Shri Mahesh M. Shah IT(SS)A no.1/Mum./2013 Page | 6 locker. As per the assessee, its house was jointly occupied by the assessee, his wife, and their 3 children – 2 daughters and a son. Further, the bank locker was in the joint name of the assessee and his spouse. In the first round of proceedings before the learned CIT(A), relief to an extent of 600 gms of gold ornaments was granted (i.e. 500 gms in the hands of the wife and 100 gms in assessee’s hand) in view of CBDT Instruction No. 1916. The learned CIT(A) also granted relief in respect of the silver articles found during the course of search. However, pursuant to remand by the Tribunal, the learned CIT(A) vide impugned order restricted the relief granted earlier to only 500 gms of gold ornaments in the hands of the wife of the assessee by treating the same as explained in view of CBDT Instruction No. 1916. In support of its claim that the jewellery belonged to his wife and a small portion was purchased by the wife at the time of the marriage, the assessee placed on record the affidavit sworn by assessee’s wife. The assessee has also placed on record photocopy of invoices in respect of jewellery purchased at the time of marriage. 9. During the hearing, learned DR placed reliance on the decision of the Hon’ble Madras High Court in V.G.P. Ravidas vs ACIT, (2015) 370 ITR 364 (Madras), wherein it was held that CBDT instruction No. 1916 which enables the AO to exclude a larger quantity of jewellery and ornaments from seizure will be applicable only if assessee offers an explanation that status of family and customs and practices of community required holding of such jewellery. In the present case, as is evident from the record, in order to substantiate the fact that jewellery found during the course of the search belonged to his wife, the assessee had not only submitted the affidavit sworn by his wife but has Shri Mahesh M. Shah IT(SS)A no.1/Mum./2013 Page | 7 also produced photocopy of invoices of purchase of jewellery at the time of marriage. Once the learned CIT(A), vide impugned order, after taking into consideration the findings of the AO, findings of the predecessor in the first round of proceedings, the status of the family, Instruction No. 1916, and other aspects treated the jewellery of up to 500 gms as explained in the hands of the wife of the assessee, we see no reason as to why the complete benefit of Instruction No. 1916 be not granted to the assessee. Therefore, in view of the above, we are of the considered opinion that in the peculiar facts of the present case, the assessee is entitled to relief as per CBDT instruction No. 1916, i.e. 500 gms of jewellery in the hands of the wife, 250 gms of jewellery each in the hands of 2 unmarried daughters, 100 grams of jewellery in the hands of the assessee and 100 gms of jewellery in the hands of the unmarried son. We order accordingly and direct the AO to delete the addition to this extent. Accordingly, ground No. 2 raised in assessee’s appeal is partly allowed. 10. The issue arising in ground No. 2, raised in assessee’s appeal, is pertaining to the addition under section 68 of the Act in respect of cash credit availed for the acquisition of residential premises. 11. The brief facts of the case pertaining to this issue are: During the course of search, documentary evidence in the form of an agreement was found showing the acquisition of residential premises by the assessee. During the course of block assessment proceedings, the assessee claimed before the AO that the entire consideration of Rs. 8,50,000 was borrowed from M/s Seva Enterprises for the acquisition of the residential premises. In order to substantiate its claim, the assessee provided the bank statement showing the Shri Mahesh M. Shah IT(SS)A no.1/Mum./2013 Page | 8 receipt of the said loan and the payment thereof. In absence of confirmation of the said lender, the AO vide order passed under section 158BC(c) of the Act made the addition of the entire amount of Rs. 8,50,000 under section 68 of the Act on the basis that the assessee has failed to establish the identity, genuineness, and creditworthiness for the creditor. During the first round of proceedings before the learned CIT(A), the assessee furnished a copy of the loan confirmation stating that the same was obtained only after a lot of persuasions. The learned CIT(A) forwarded the additional evidence filed by the assessee to the AO and sought a remand report. The learned CIT(A) accepted the objection of the AO against the admission of additional evidence that the loan confirmation has been obtained and produced after a gap of 10 years. The learned CIT(A) accordingly proceeded to reject the admission of the additional evidence and upheld the addition of Rs. 8,50,000 made by the AO. In further appeal by the assessee, the coordinate bench of the Tribunal vide order dated 30/06/2009 remanded the issue to the file of learned CIT(A) for deciding the same afresh on merits after admitting and considering the additional evidence, which was filed by the assessee before the learned CIT(A). 12. In remand proceedings, the learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on the basis that the assessee has not filed original copy of the bank statement or original copy of the confirmation and has merely relied on the details and evidence filed in the earlier proceedings. The learned CIT(A) also noted that without any PAN no. or address the identity of the loan lender is not established. Further, the learned CIT(A) noted that the assessee has not furnished any evidence regarding the Shri Mahesh M. Shah IT(SS)A no.1/Mum./2013 Page | 9 capacity of the lender. The relevant findings of learned CIT(A) in this regard are as under: “14. I have considered the facts of the case and submissions of the assessee. For any loan the assessee has to prove the identity, creditworthiness and genuinenity of the transaction. The assessee has claimed that the loan was taken from M/s. Seva Enterprises and only a bank account was filed during assessment proceedings showing loan transaction and later on during appellate proceedings only a confirmation was filed. Neither any original copy of bank account or copy of confirmation is produced during present appellate proceedings nor any other evidence is produced and the assessee has merely relied on the details and evidences filed in earlier proceedings. Without any PAN number or address etc. even the identity of the person giving loan is not established. Further, signature by same PAN and filing of confirmation at a later stage leads to further suspicion. It is for the assessee to prove the capacity of the lender, but a loan has been taken without any interest and no evidence with regard to the capacity of the lender has been filed. The transaction is completely suspicious because interest has not been charged, whereas, assessee claims strain relations with the lender. No other motive for lending money to the assessee by the lender is shown. No original evidence is produced during present appellate proceedings. Therefore, the assessee has clearly failed to prove the capacity of the person giving loan and also failed to prove the genuineness of the transaction. Even the identity of the lender is in doubt. Therefore, the addition is confirmed and the ground of appeal is rejected.” Being aggrieved, the assessee is in appeal before us. 13. We have considered the submissions of the learned DR and perused the material available on record and written submission filed by the assessee. As per the assessee, the residential property, whose agreement was found during the course of search, was acquired on the basis of loan availed from M/s Seva Enterprises. During the block assessment proceedings, the assessee in order to substantiate the transaction only furnished copies of bank account statements reflecting the receipt and payment of the loan. During the first round of proceedings before the learned CIT(A), the assessee also furnished the loan confirmation from the loan lender. Since the aforesaid loan confirmation, filed by way of additional evidence, was rejected by the learned Shri Mahesh M. Shah IT(SS)A no.1/Mum./2013 Page | 10 CIT(A) under Rule 46A, the coordinate bench of the Tribunal directed the learned CIT(A) to decide the issue afresh on merits after considering the additional evidence filed by the assessee. In remand proceedings, the learned CIT(A) vide impugned order upheld the addition made by the AO under section 68 of the Act on the basis that apart from furnishing loan confirmation the assessee has not furnished any other evidence regarding the identity and creditworthiness of the lender. 14. It is the plea of the assessee that the residential flat was purchased in the year 1989–99 for a total consideration of Rs. 8,50,000, besides the stamp duty of Rs.38,330, paid in cash on 04/10/1995. Further, the loan of Rs. 8,50,000 was received by the assessee by way of 4 cheques in quick succession between 19/12/1989 to 06/01/1990. The said amount was returned by the assessee between 29/08/1990 to 20/03/1991. It is further the plea of the assessee that the loan confirmation could not be furnished during the block assessment proceedings due to strained relations with the loan lender. And it is only with the assistance of a common friend that the assessee received loan confirmation, which was furnished as additional evidence in first round of proceedings before the learned CIT(A). 15. From the perusal of loan confirmation, a copy of which forms part of the paper book from page 28–29, we find that the said loan confirmation and return of payment are dated 31/03/1990 and 22/03/1991, respectively. We further find that apart from the signatures of the assessee as well as the partner of M/s Seva Enterprises, the said document also mentions the address of both parties. Further, there is no mention of any PAN No. of either of the Shri Mahesh M. Shah IT(SS)A no.1/Mum./2013 Page | 11 parties. Even if, for a moment, we may agree with the plea of the assessee that due to strained relation the loan confirmation could not be furnished within the time during the block assessment proceedings, however, it is pertinent to note that the said loan confirmation and confirmation of the return of payment is dated 31/03/1990 and 22/03/1991, which is much prior to the date of search and seizure action at the premises of the assessee on 10/08/1998. Further, it is surprising to note that the assessee did not keep a copy of the loan confirmation as well as the confirmation of the return of payment with himself even when he has signed both documents. Such conduct does not inspire our confidence in the genuineness of the transaction. Under section 68 of the Act, the primary onus to establish the identity and creditworthiness of the lender and genuineness of the transaction is on the assessee, and only when the said onus is discharged, the burden shift on the Revenue. In the present case, apart from furnishing the copy of the bank statement and the copy of loan confirmation and confirmation of the return of payment dated 31/03/1990 and 22/03/1991 respectively, the assessee has not brought anything on record to prove the identity and creditworthiness of the lender, which fact also raises doubt on the genuineness of the loan transaction. Even though the assessee claimed that with great difficulty, by the intervention of a common friend, the aforesaid loan confirmation was obtained, however, the assessee did not furnish the current address of the loan lender and stated no reason for failure to do so. As noted above even the PAN No. of the parties is also not mentioned on the aforesaid document for the Revenue to make any independent enquiry regarding the identity and creditworthiness of the creditor and genuineness of the transaction. Further, it is also a settled Shri Mahesh M. Shah IT(SS)A no.1/Mum./2013 Page | 12 legal position that the onus of the assessee, of explaining the nature and source of credit, does not get discharged merely by demonstrating that the transactions are done through the banking channels. In view of the above findings, we find no merit in the plea of the assessee, and accordingly, the addition made by the AO is upheld. As a result, ground No. 3 raised in assessee’s appeal is dismissed. 16. In the result, the appeal by the assessee is partly allowed. Order pronounced in the open Court on 03/01/2023 Sd/- OM PRAKASH KANT ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 03/01/2023 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai