Sunil Kumar Agarwal, Hyderabad V. ACIT, Circle-1(1), Hyderabad

ITSSA 26/HYD/2011

• Counselvise Citation: [2012] 124 COUNSELVISE.COM (IT) 7663 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 10 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 24-02-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 13-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUDHAKAR RAO
• Assessee Lawyers: SYED JAMEELUDDIN
• Keywords: Unexplained investment; Document seized; Share purchase agreement; Reasonable cause; Block assessment; Documents seized
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER IT(SS)A NO. 26/HYD/2011 ASSESSMENT YEAR 1997-98 TO 2002-03 BLOCK PERIOD UPTO 21.1.2003 SHRI SUNIL KUMAR AGARWAL, (INDIVIDUAL) HYDERABAD (PAN ABGPA5781M) VS THE ACIT, CIRCLE 1(1), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI SYED JAMEELUDDIN RESPONDENT BY : SHRI SUDHAKAR RAO DATE OF HEARING : 19.1.2012 DATE OF PRONOUNCEMENT : 24.2.2012 ORDER PER ASHA VIJAYARAGHAVAN, JM . THIS APPEAL PREFERRED BY THE ASSESSEE IS DIREC TED AGAINST THE ORDER PASSED BY THE CIT(A) II, HYDERABAD DATED 27.7.2011 AND IT PERTAINS TO BLOCK ASSESSMENT YEAR 1997-98 T O 2002-03 & UPTO 21.1.2003. 2. BRIEF FACTS OF THE CASE ARE THAT SEARCH AND SE IZURE OPERATION U/S 132 OF THE IT ACT, 1961 WERE CONDUCTE D ON 21.1.2003 AT THE RESIDENTIAL PREMISES OF SRI SUNIL KUMAR AGARWAL. SHRI GYANKUMAR AGARWAL (BROTHER OF SRI SK AGARWAL) AND OTHER MEMBERS OF HIS FAMILY. CONSEQUENT TO SEA RCH, BLOCK ASSESSMENT U/S 158BD OF THE ACT, WERE COMPLETED IN THE CASE OF THE ASSESSEE AS WELL AS IN THE CASE OF OTHER MEMBER GROUPS. IT(SS)A NO.26 OF 2011 SHRI SUNIL KUMAR AGARWAL, HYDERABAD 2 BLOCK ASSESSMENT IN THE CASE OF THE ASSESSEE SRI SU NIL KUMAR AGARWAL (INDIVIDUAL) WAS COMPLETED U/S 158BD OF THE IT ACT, 1961 ON 28.1.2005 DETERMINING THE TOTAL UNDISCLOSED INCOME OF THE ASSESSEE FOR THE BLOCK PERIOD OF ASSESSMENT YEA RS 1997-98 TO 2002-03 & UPTO 21.1.2003 AT RS.10,73,300/-. THE ON LY ADDITION MADE IN ASSESSMENT WAS UNEXPLAINED INVESTMENT IN TH E EQUITY OF M/S JEEVIKA LEASING & FINANCE COMPANY LIMITED. THE FACTS LEADING TO ADDITION TOWARDS UNEXPLAINED INVESTMENT IN THE SHARES OF JLFCL ARE BRIEFLY DISCUSSED AS FOLLOWS. 3. M/S JLFCL WAS INCORPORATED ON 26.7.1993 WITH AN AUTHORISED CAPITAL OF RS.50 LAKHS COMPRISING OF 500 ,000 EQUITY SHARES OF RS.10/- EACH AND ISSUED CAPITAL AS ON 31. 3.1994 WAS RS.16 LAKHS. THE ORIGINAL PROMOTERS OF THE COMPANY ARE I) SRI PRABHUDAYAL AGARWAL II) SHRI GYAN KUMAR AGARWAL (SON OF P. AGARWAL) III) SRI SUNIL KUMAR AGARWAL (SON OF SRI P. AGARWAL ). 4. THESE PROMOTER DIRECTORS CONTRIBUTED FOR 111,90 0 SHARES AMOUNTING TO RS.11,19,000/- DURING THE FINAN CIAL YEARS 1993-94 TO 1998. THE BALANCE EQUITY 387 608 SHARES OF FACE VALUE OF RS.48,76,080/- WAS CONTRIBUTED BY PERSONS OTHER THAN THE FAMILY MEMBERS. 5. DURING THE COURSE OF SEARCH CERTAIN SHARE CERTI FICATES WERE FOUND AND SEIZED. AS PER THESE SHARES CERTIFI CATES, THE SHARES CONTRIBUTED BY PERSONS OTHER THAN FAMILY MEM BERS WERE TRANSFERRED IN THE NAMES OF SRI SK AGARWAL AND HIS BROTHER SRI GYANKUMAR AGARWAL DURING THE FINANCIAL YEAR 1999-20 00 AND 2001-02 AS UNDER: IT(SS)A NO.26 OF 2011 SHRI SUNIL KUMAR AGARWAL, HYDERABAD 3 A) SHRI GYAN KUMAR AGARWAL (144,200 SHARES) RS.14,4 2,000 B) SRI SUNIL KUMAR AGARWAL (107,336 SHARES) RS.10,7 3,360 C)SRI GYAN KUMAR AGARWAL (HUF) 70,650 R S.7,06,500 D) SRI S.K. AGARWAL (HUF) 65,422 SHARES) RS.6,54,2 20 6. THE SAID SHARES HAVING FACE VALUE OF RS.10 WERE ACQUIRED FOR A CONSIDERATION OF RS.1/- AS MENTIONED IN THE SHARE TRANSFER CERTIFICATES. 7. SINCE THE ASSESSEE RECORDED RS.1 PER SHARE IN T HE BOOKS OF ACCOUNTS, THE DIFFERENCE OF RS.10/- PER SH ARE HAS BEEN TREATED AS UNEXPLAINED INVESTMENT IN ACQUISITION OF SHARES OF JLFCL. THUS, AN AMOUNT OF RS.6,54,220/- WAS ADDED AS UNDISCLOSED INCOME FOR THE ASSESSMENT YEAR 2000-01 FALLING UNDER THE BLOCK PERIOD. PENALTY PROCEEDINGS U/S 1 58BFA(2) OF THE ACT HAVE BEEN INITIATED SEPARATELY. 8. THEREAFTER, THE ASSESSEE ALSO WENT IN THE QUANT UM ASSESSMENT BEFORE THE TRIBUNAL BUT FAILED TO SUCCEE D. IN THE EVENT OF THE ASSESSEES FAILURE IN THE QUANTUM APPE AL, PENALTY PROCEEDINGS WHICH WERE KEPT IN ABEYANCE HAVE BEEN T AKEN UP. A LETTER DATED 2.6.2008 WAS ISSUED SEEKING OBJECTIONS OF THE ASSESSEE, IF ANY, AS TO WHY THE PENALTY U/S 158BFA( 2) OF THE IT ACT 1961 SHOULD NOT BE IMPOSED UPON HIM. 9. IN RESPONSE TO THE SAID LETTER, THE ASSESSEE FU RNISHED WRITTEN SUBMISSIONS VIDE LETTER FILED ON 5.6.2008. 10. THE ASSESSEE OBJECTED TO THE ADDITION MADE AND SUBMITTED THAT WHEN THE DOCUMENT HAS BEEN ACCEPTED AS TRUE DOCUMENT AS PER SECTION 132(4A), THE CONTENTS OF SU CH DOCUMENTS CANNOT BE IGNORED. THE AMOUNT FOR WHICH THE SHARES IT(SS)A NO.26 OF 2011 SHRI SUNIL KUMAR AGARWAL, HYDERABAD 4 WERE TRANSFERRED AS PER THE SEIZED DOCUMENTS WILL H AVE TO BE ACCEPTED AND THE DEPARTMENT CANNOT SUBSTITUTE ITS O WN FIGURES ON ESTIMATE BASIS. 10.1. IT WAS SUBMITTED THAT NOMINAL VALUE HAS BEEN MENTIONED FOR PURCHASE OF SHARE TRANSFER FORMS, SHA RE TRANSFER STAMPS AND CLERICAL AND OTHER MISCELLANEOUS EXPENSE S TO COMPLETE THE FORMALITY OF ENTERING THE ASSESSEES N AMES IN THE REGISTER OF SHARE HOLDER TO SHOW THE REAL SHARE HOL DER BECAUSE THE ASSESSEE WAS THE REAL OWNER AND THE TRANSFER DE EDS WERE SHAM DOCUMENTS, AS THERE ARE NO REAL PERSONS AT ALL WITH THOSE NAMES. BUT, THE DEPARTMENT HAS CONSIDERED THOSE TR ANSFER DEEDS AS GENUINE TRANSFER DEEDS BUT HELD THAT THE A MOUNT MENTIONED IN THOSE DOCUMENTS IS NOT CORRECT. THUS, THE DEPARTMENT HAS ACCEPTED THAT THESE DOCUMENTS AS GEN UINE SO FAR AS THE NAMES OF THE PERSONS MENTIONED IN THE TR ANSFER DEEDS, THOUGH THEY ARE NOT EXISTING. BUT, AT THE SAME TIM E THE DEPARTMENT HAS NOT ACCEPTED THE AMOUNTS MENTIONED I N THE TRANSFER DEEDS. THUS, THE DEPARTMENT HAS PARTLY AC CEPTED THE CONTENTS AND PARTLY REFUSED TO ACCEPT THE CONTENTS. 10.2. THE AO HIMSELF ACCEPTED THE FACT THAT THE AS SESSEE RECORDED RS.1/- PER SHARE IN THE BOOKS OF ACCOUNT A ND THE SAME WAS ALSO RECORDED IN SHARE TRANSFER FORMS. THUS, T HE AO PARTLY ACCEPTED THE CONTENTS OF THE SEIZED DOCUMENTS AND P ARTLY REJECTED, WHICH IS CONTRARY TO THE PROVISION OF SEC TION 132(4)(A) OF IT ACT, 1961. HENCE, THE LEVY OF PENALTY ON THE BA SIS OF SUCH AN ASSESSMENT IS NOT ONLY ILLEGAL BUT AGAINST THE FACT S OF THE CASE. 11. HOWEVER, THE AO LEVIED PENALTY U/S 158BFA (2) OF THE IT ACT FOR AN AMOUNT OF RS.6,35,270/-. IT(SS)A NO.26 OF 2011 SHRI SUNIL KUMAR AGARWAL, HYDERABAD 5 12. ON FURTHER APPEAL BEFORE THE CIT(A) CONFIRMED THE PENALTY OF RS.6,35,220/- LEVIED BY THE ACIT. 13. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US . 14. THE LEARNED COUNSEL FOR THE ASSESSEE FIRST CON TENDED THAT WHEN THE DOCUMENTS HAVE BEEN ACCEPTED AS TRUE AS PE R SECTION 132(4A) THE CONTENTS OF SUCH CANNOT BE IGNORED AND THE DEPARTMENT CANNOT SUBSTITUTE ITS OWN FIGURE ON ESTI MATE BASIS AND ONCE THE DEPARTMENT HAS ESTIMATED THE PENALTY P ROVISIONS WILL FAIL. 15. THE LEARNED COUNSEL RELIED ON THE FOLLOWING CA SE LAWS: 1. KODEESWARAN L/H OF LATE A. THANGAM VS. ITO (123 TTJ (CHENNAI) VS.230) 2. DR. HAKEEM SA SYED SATHAT VS. ACIT (123 TTJ ) 573 (CHENNAI) 3. DCIT VS. SURESH KUMAR 95 TTJ(CAL.) 926 (97 ITD 527) (CAL.) 4. SMT. MALA DAYANITHI VS. DCIT (92 TTJ )(BANG.) 270 ( 91 ITD 46) (BANG.) 5. CIT VS. DODSAL LTD. (312 ITR 112) (BOM.) 16. WE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIALS AVAILABLE ON RECORD. WE FIND THAT THE AO HAS NOT A CCEPTED THE AMOUNT RECORDED IN SHARE CERTIFICATES AND RESORTED TO ESTIMATION OF SHARE VALUE AT RS.11 PER SHARE ON THE BASIS OF B REAK UP VALUE. THIS ESTIMATION IS BASED ON THE PRESUMPTION THAT TH E ASSESSEE MIGHT HAVE PAID THE SAME TO THE ALLEGED TRANSFERORS AND THE ADDITION WAS MADE TO THE UNDISCLOSED INCOME. 17. IT IS SETTLED LAW THAT WHEN ADDITIONS HAVE BEE N MADE ON ESTIMATE BASIS, PENALTY U/S 158BFA(2) CANNOT BE LEV IED. THE IT(SS)A NO.26 OF 2011 SHRI SUNIL KUMAR AGARWAL, HYDERABAD 6 WORD USED IN SUB-S (2) OF S.158BFA BEFORE THE WORD SHALL IS MAY UNLIKE THE WORD SHALL IN SUB SECTION (1). SAME EXPRESSION THAT HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY W AY OF PENALTY IS CONTAINED U/S 271(1) (C ). IN THE CONTEXT OF 27 1(1)( C) IT IS SETTLED THAT FIRST MAY IS DISCRETIONARY WHILE THE OTHER WORD SHALL, I.E. QUANTUM OF PENALTY IS FIXED, CERTAIN AND MANDATORY. SINCE THE PROVISIONS OF S.271(1)(C ) ARE SIMILAR TO THE PROVISION OF S. 158BFA(2), THE SAME WILL APPLY MUTATIS MUTANDIS. 18. IN THE CASE OF SMT. MALA DAYANIDI VS. DCIT (9 1 ITD 46) (BANG.) IT HAS BEEN HELD THAT, PENALTY U/S 158BFA(2 ) IS NOT MANDATORY. IN THAT CASE, IT WAS HELD THAT IF THE A SSESSEE OFFERS A CONVINCING REASON OR IF ANY REASONABLE CAUSE IS DEM ONSTRATED FOR NON INCLUSION OF SUCH INCOME, THE PENALTY IS NOT AT TRACTED FURTHER ADDITION IS NOT BASED ON MATERIAL FOUND DU RING SEARCH OR MATERIAL IN POSSESSION OF AO BUT BASED ON DIFFERENT IN VALUATION OF PROPERTY AS DISCLOSED BY THE ASSESSEE AND AS EST IMATED BY DVO IT WAS HELD THAT THERE WAS NO CONCEALMENT ATTR ACTING PENALTY U/S 158BFA(2). THE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. DODSAL LTD. (312 ITR 112) (BOM.), HAS CON FIRMED THAT PENALTY U/S 158BFA(2) IS DISCRETIONARY AND NOT MAND ATORY. 19. THE PRESENT CASE BEFORE US THAT THE AO HAS NOT ESTABLISHED THAT THE SHARES WERE ACTUALLY PURCHASED BY THE ASSESSEE FOR ALLEGED VALUE OF RS.11 FROM THE ALLEGE D TRANSFERORS. THE ADDITION HAS BEEN MADE ON ESTIMATION AND THEREF ORE PENALTY U/S 158BFA(2) CANNOT BE LEVIED. FURTHER, THE ASSES SEE HAS GIVEN AN EXPLANATION AND IN OUR OPINION THIS IS A R EASONABLE CAUSE AND THEREFORE DISCRETION NOT TO LEVY THE SAME IS WITH THE AUTHORITIES AND HENCE WE HOLD THAT THE SAME IS NOT LEVIABLE. IT(SS)A NO.26 OF 2011 SHRI SUNIL KUMAR AGARWAL, HYDERABAD 7 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON: 24.2. 2012 SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER DATED THE 24 TH FEB., 2012 COPY FORWARDED TO: 1. SHRI SYED JAMEELUDDIN, IT CONSULTANT, 16-7-302, ERR AM COTTAGE, AZAMPURA, HYDERABAD 2. THE ACIT, CIRCLE 1(1), HYDERABAD 3. THE CIT(A)-II, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/