Dr. Atul T. Patel, Baroda V. The Dy.CIT, Central Circle-2, Baroda

ITSSA 11/AHD/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5652 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 15-03-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Search and seizure; Source of fund; Set aside
• Section: 271(1)(c); 132

Judgement Text

IT(SS) A NO. 11 AND 12/AHD/2016 ASSESSMENT YEAR: 2007-08 AND 2008-09 IT(SS) A NO. 13/AHD/2016, 51/AHD/16 ASSESSMENT YEAR: 2008-09 AND 2012-13 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR (VICE PRESIDENT) AND MADHUMITA ROY (JUDICIAL MEMBER)] IT(SS) A NO. 11 AND 12/AHD/2016 ASSESSMENT YEAR: 2007-08 AND 2008-09 DR ATUL T PATEL .APPELLANT PADMALYA, NEAR DODSAL COLONY MUJHMAHUDA, AKOTA ROAD, BARODA 390 020 [PAN: ACQPP5804K] VS DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2, BARODA ..........RESPON DENT IT(SS) A NO. 13/AHD/2016, 51/AHD/16 ASSESSMENT YEAR: 2008-09 AND 2012-13 DR VANDANA U PATEL .APPELLANT 6-7, NIRMAL SOCIETY, BEHIND AKOTA STANDIUM, AKOTA ROAD, BARODA 390 020 [PAN: ADHPP9157D] VS DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2, BARODA ..........RESPON DENT APPEARANCES BY S N SOPARKAR AND PARIN SHAH FOR THE APPELLANT ALOK SINGH AND MUDIT NAGPAL FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JUNE 13, 2019 DATE OF PRONOUNCEMENT : JULY 31, 2019 O R D E R IT(SS) A NO. 11 AND 12/AHD/2016 ASSESSMENT YEAR: 2007-08 AND 2008-09 IT(SS) A NO. 13/AHD/2016, 51/AHD/16 ASSESSMENT YEAR: 2008-09 AND 2012-13 PAGE 2 OF 5 PER PRAMOD KUMAR, VP: 1. THESE FOUR APPEALS INVOLVE A COMMON ISSUE, ARISE OUT OF MATERIALLY SIMILAR FACTS AS THE APPELLANTS ARE BENEFICIARY OF THE SAME TRUST, AND W ERE HEARD TOGETHER. AS A MATTER OF CONVENIENCE, THEREFORE, ALL THE FOUR APPEALS ARE BE ING DISPOSED OF BY WAY OF THIS COMMON ORDER. 2. THE APPEALS ARE TIME BARRED BY 404 DAYS BUT THE ASSESSEE APPELLANTS HAVE MOVED PETITIONS SEEKING CONDONATION OF DELAY. THE DELAY IS SAID TO BE ATTRIBUTED TO THE CARELESSNESS OF THE ACCOUNTANT WHO KEPT THE IMPUGNED ORDERS IN H IS DRAWERS BUT TOOK NO FURTHER ACTION, AS WAS INDEED REQUIRED, ON THE SAME. THIS PERSON WAS S AID TO BE SUFFERING FROM TUBERCULOSIS AND IT WAS IN HIS ABSENCE THAT THE PAPERS IN HIS DRAWER S WERE CHECKED AND THIS LAPSE WAS DETECTED. THE ASSESSEE THEREAFTER TOOK THE IMMEDIATE REMEDIAL MEASURES AND THE APPEALS WERE FILED. THE DELAY IS CLAIMED TO BE BONAFIDE AND FOR THE REA SONS BEYOND CONTROL OF THE ASSESSEE APPELLANT. LEARNED DEPARTMENTAL REPRESENTATIVES, ON THE OTHER HAND, URGED US TO REJECT THESE REASONS AS INSUFFICIENT AND BASED ON SELF SERVING S TATEMENTS. HAVING GIVEN OUR CAREFUL CONSIDERATION TO THE RIVAL CONTENTIONS AND THE MATE RIAL ON RECORD, HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT THE EXPLANATION OF THE ASSESSE E FOR THIS DELAY IS A PLAUSIBLE EXPLANATION, AND, ACCORDINGLY, WE ARE INCLINED TO CONDONE THE DE LAY AND PROCEED TO TAKE UP THE MATTER ON MERITS. ORDERED, ACCORDINGLY. 3. ALL THESE APPEALS ARISE ON A COMMON SET OF FACTS . IT IS, THEREFORE, ONLY APPROPRIATE THAT THIS FACTUAL BACKDROP IS SET OUT FIRST. IT IS A CAS E IN WHICH A SEARCH AND SEIZURE OPERATION WAS CARRIED OUT, ON 19 TH SEPTEMBER 2011, UNDER SECTION 132 OF THE ACT, AND DURING THE COURSE OF THESE OPERATIONS, IT WAS FOUND THAT DR ATUL THAKORE BHAI PATEL HAD SET UP A PRIVATE DISCRETIONARY TRUST FOR THE BENEFIT OF HIS FAMILY M EMBERS. THIS TRUST WAS KNOWN AS ATHENA TRUST IN BRITISH VIRGIN ISLANDS UNDER TRUSTEESHIP OF HSBC TRUST CO (BVI) LIMITED AND THE IT(SS) A NO. 11 AND 12/AHD/2016 ASSESSMENT YEAR: 2007-08 AND 2008-09 IT(SS) A NO. 13/AHD/2016, 51/AHD/16 ASSESSMENT YEAR: 2008-09 AND 2012-13 PAGE 3 OF 5 TRUST FUNDS WERE HELD BY HSBC PRIVATE BANK (SUISEE) SA, GENEVA. IT IS ALSO AN ADMITTED POSITION THAT THIS TRUST WAS SETTLED ON 14 FEBRUARY 1989, AND IT WAS CLAIM OF THE ASSESSEE THAT THE ASSETS OF THIS TRUST WERE DERIVED FROM A EARLIE R STRUCTURE, BY THE SAME NAME, WHICH WAS SETTLED ON 4 TH NOVEMBER 1981 BY BARCLAYSTRUST INTERNATIONAL LIMIT ED, BVI. NONE OF THESE INVESTMENTS WERE HOWEVER, APPARENTLY, ACCOUNTED FOR AT ANY STAGE OR DISCLOSED TO THE TAX AUTHORITIES. AS PER THE INFORMATION ON RECORD, AS O N 19 OCTOBER 2011, THE BALANCE IN CAPITAL ACCOUNT OF THE TRUST WAS GBP 3,32,418.70 AND INCOME ACCOUNT WAS GBP 59,733.65. THE INFORMATION ALSO REVEALED THAT ON 1 ST JUNE 2006 AND 29 TH JANUARY 2008, DR A T PATEL RECEIVED GBP 5,000 AND GBP 3,050 RESPECTIVELY FROM THE TRUST , AND ON 13 TH FEBRUARY 2008 AND 6 TH JUNE 2011, MRS VU PATEL RECEIVED GBP 8,000 AND GBP 9,000 RESPECTIVELY FROM THE SAID TRUST. FINALLY, THIS TRUST WAS TERMINATED ON 16 JU LY 2013, AND THE AMOUNTS RECEIVED BY THE BENEFICIARIES WERE OFFERED TO TAX. IN THE COURSE O F THE ASSESSMENT PROCEEDINGS, HOWEVER, THE ASSESSING OFFICER ALSO BROUGHT TO TAX PARTIAL WITHD RAWALS TO TAX, AS INCOME OF THE BENEFICIARY WITHDRAWING THE MONEY, AND ALSO PROCEEDED TO IMPOSE PENALTY UNDER SECTION 271(1)(C) IN RESPECT OF INCOME ON ACCOUNT OF SUCH WITHDRAWALS. AGGRIEVED, THE ASSESSEES CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO CONFIRMED TH E ACTION OF THE ASSESSING OFFICER. THE ASSESSEES ARE NOT SATISFIED AND ARE IN FURTHER APPE AL BEFORE US. 4. LEARNED SENIOR COUNSELS MAIN PLANK OF ARGUMENT IS THAT WHAT CAN BE TAXED IN THE HANDS OF THE ASSESSEE IS ONLY ACCRETION TO THE CORP US OF THE TRUST, AND NOT THE ENTIRE WITHDRAWAL FROM THE TRUST AS THAT WOULD BE IN THE NATURE OF CA PITAL. IN SUPPORT OF THIS PROPOSITION, HE SEEKS TO RELY UPON A COORDINATE BENCH RULING IN THE CASE OF DCIT VS PRATIBHA PANKAJ PATEL [(2018) 173 ITD 593 (AHD)] . IT IS ALSO SUBMITTED THAT IN ANY EVENT ENTIRE TRU ST FUND HAS BEEN OFFERED TO TAX IN A SUBSEQUENT YEAR, AND, THEREFORE , PARTIAL WITHDRAWALS FROM THE TRUST SHOULD NOT BE SEPARATELY TAXED IN THE HANDS OF THE ASSESSE ES. HE HAS SUGGESTED THAT THE MATTER SHOULD BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER S O THAT HE CAN EXAMINE THE MATTER AFRESH IN THE LIGHT OF THE SUBSEQUENT DEVELOPMENT OF OFFERING THE ENTIRE TRUST FUNDS TO TAX. WE ARE THUS URGED TO REMIT THE MATTER TO THE FILE OF THE ASSESS ING OFFICER WITH APPROPRIATE DIRECTIONS. LEARNED COMMISSIONER (DR), ON THE OTHER HAND, SUBMI TS THAT THE QUESTION OF DIFFERENTIATING IT(SS) A NO. 11 AND 12/AHD/2016 ASSESSMENT YEAR: 2007-08 AND 2008-09 IT(SS) A NO. 13/AHD/2016, 51/AHD/16 ASSESSMENT YEAR: 2008-09 AND 2012-13 PAGE 4 OF 5 BETWEEN THE TRUST CORPUS AND ACCRETION OF INCOME CO ULD BE RELEVANT ONLY WHEN THE SOURCE OF CORPUS STANDS EXPLAINED. IT IS SUBMITTED THAT THERE IS NOTHING ON RECORD TO SHOW THAT THE SOURCE OF FUNDS IN THE HANDS OF THE TRUST STANDS EXPLAINED . HE THUS SUBMITS THAT THE FIRST THING TO BE EXAMINED IS WHETHER OR NOT THE SOURCE OF FUNDS IN T HE HANDS OF THE TRUST STAND EXPLAINED OR NOT. WE ARE THUS URGED TO REMIT THE MATTER TO THE F ILE OF THE ASSESSING OFFICER FOR EXAMINING THE MATTER AFRESH WITHOUT ANY FETTERS ATTACHED. LEA RNED SR COUNSEL, IN HIS BRIEF REJOINDER, SUBMITS THAT HE HAS NO OBJECTION TO THE MATTER BEIN G REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH EXAMINATION, INCLUDING ON THE ASP ECT OF THE SOURCE OF FUNDS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 6. WE FIND THAT THIS IS A CASE IN WHICH THE EXISTEN CE OF THE PRIVATE DISCRETIONARY TRUST HELD IN A TAX HAVEN JURISDICTION, I.E. BRITISH VIRGIN IS LANDS, HAS BEEN DETECTED DURING A SEARCH OPERATION, AND THE BONAFIDES OF THIS TRUST, AND THE SOURCE OF FUNDS IN THE HANDS OF THE TRUST, ARE NOT YET ESTABLISHED. NO DOUBT, DR A T PATEL HAS MAD E A STATEMENT, DURING THE COURSE OF SEARCH OPERATION RECORDED ON 29.9.2011- AND MORE SPECIFICA LLY IN RESPONSE TO QUESTION NO. 3, THAT DURING SEVEN YEARS OF HIS AND HIS WIFES EMPLOYMENT IN THE UNITED KINGDOM, THE ASSESSEE HAD ACCUMULATED FUNDS, ON WHICH TAXES WERE DULY PAID IN THE UK, WHICH WERE PARKED IN A BANK ACCOUNT IN BRITISH VIRGIN ISLANDS. IT WAS ALSO EXPL AINED THAT THESE MONIES WERE KEPT IN BVI BANK ACCOUNT SINCE, IN ACCORDANCE WITH THE LEGAL RE QUIREMENTS THEN IN EXISTENCE, THEY COULD NOT HAVE KEPT THESE MONIES IN THE UK. ONCE THIS PO SITION IS FOUND TO BE CORRECT, THE TAXATION WILL NO DOUBT BE CONFINED TO THE ACCRETION PART BUT THAT STAGE HAS NOT YET COME. AS FOR THE IMPACT OF PRATIBHA PANKAJ PATEL (SUPRA) , ON THE FACTS OF THIS CASE, THAT WAS A CASE IN WHI CH THE ASSESSEE BEFORE US WAS ONLY A BENEFICIARY AND NOT T HE SETTLOR. SO FAR AS THE BENEFICIARY IS CONCERNED, ONCE THE SOURCE OF FUNDS RECEIVED BY BEN EFICIARY IS EXPLAINED, TAXATION COULD POSSIBLY BE CONFINED ONLY TO THE INCOME COMPONENT, AND BUT THAT WOULD NOT ESSENTIALLY HOLD GOOD FOR THE SETTLOR AS WELL. HE HAS TO EXPLAIN TH E INVESTMENTS, WHICH WERE NOT ACCOUNTED FOR IN HIS BOOKS OF ACCOUNTS OR DISCLOSED TO THE INCOME TAX AUTHORITIES AT ANY STAGE EARLIER, DETECTED DURING THE SEARCH OPERATIONS. THERE IS NO ESCAPE FROM THE ONUS OF EXPLAINING THE IT(SS) A NO. 11 AND 12/AHD/2016 ASSESSMENT YEAR: 2007-08 AND 2008-09 IT(SS) A NO. 13/AHD/2016, 51/AHD/16 ASSESSMENT YEAR: 2008-09 AND 2012-13 PAGE 5 OF 5 INVESTMENTS MADE BY THE ASSESSEE. THE TRUST INVESTM ENTS WERE MADE MUCH EARLIER BUT SINCE THESE INVESTMENTS WERE UNACCOUNTED AND UNDISCLOSED, THE ASSESSEE HAS TO EXPLAIN THE SOURCE OF THESE INVESTMENTS NOW. WHEN THE INVESTMENT IN TR UST ITSELF STANDS UNEXPLAINED AND UNCORROBORATED, THE LEGAL POSITION WITH RESPECT TO TAXABILITY OF SUCH TRUST FUNDS IS ALTOGETHER AT A DIFFERENT LEVEL. AS WE SO OBSERVE, WE ARE CONSCIO US OF THE FACT THAT THE EVIDENCE OF TRUST INVESTMENTS IS FOUND IN THE SEARCH PROCEEDINGS AND THESE INVESTMENTS IN THE TRUST WERE PRIMA FACIE UNACCOUNTED AND UNDISCLOSED TO THE TAX AUTHORITIES . LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE MATTER CAN BE REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINATION DE NOVO ON ALL THESE ASPECTS, INCLUDING, BUT NOT LIMITED TO, I N RESPECT OF THE SUBSEQUENT TAXATION OF ENTIRE TRUST FUNDS IN THE HANDS OF THE BENEFICIARIES. ALL ASPECTS REMAIN OPEN. 7. IN THE RESULT, ALL THE FOUR APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 31 ST DAY OF JULY, 2019. SD/- SD/- MADHUMITA ROY PRAMOD KUMAR (JUDICIAL MEMBER) (VICE-P RESIDENT) AHMEDABAD, DATED THE 31 ST DAY OF JULY, 2019 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT/DEPUTY REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD