ACIT, CHENNAI V. M/s. Phalodi Investments P. Ltd., CHENNAI

ITSSA 3/CHNY/2011

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 8777 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 07-03-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-02-2013
• Assessment Year: misc
• Appeal Filed On: 28-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: D FRANCIS ROZARIO AR UN RAJ
• Keywords: Unexplained investment; Scheme of amalgamation; Block assessment; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.(SS) A. NO. 3/MDS/2011 (BLOCK ASSESSMENT : 1989-90 TO 1998-99 UPTO 15.12 .1998) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(2), CHENNAI - 600 034. (APPELLANT) V. M/S PHALODI INVESTMENTS P. LTD., NO.12, POES ROAD, 4 TH STREET, OFF. ELDAMS ROAD, TEYNAMPET, CHENNAI - 600 018. PAN : AAACP 4366 K (RESPONDENT) APPELLANT BY :SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY :SHRI D. FRANCIS ROZARIO AR UN RAJ, ADVOCATE DATE OF HEARING : 21.02.2013 DATE OF PRONOUNCEMENT : 07.03.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, IT HAS RAISE D FIVE GROUNDS, OF WHICH, GROUND NOS.1 AND 5 ARE GENERAL NEEDING NO AD JUDICATION. 2. VIDE GROUND NOS.2 AND 3, REVENUE IS AGGRIEVED ON DELETION OF ADDITION OF ` 1,79,44,640/- BEING CAPITAL GAINS ON SALE OF SHARE S AND 2 I.T.(SS) A. NO. 3/MDS/11 DELETION OF AN ADDITION OF ` 8,32,601/- BEING INTEREST FOR DELAYED PAYMENT OF SALE CONSIDERATION OF SHARES. 3. WHEN THE MATTER CAME UP BEFORE US, LEARNED A.R. POINTED OUT THAT ASSESSMENT OF CAPITAL GAINS ON SALE OF SHARES AND I NTEREST ON DELAYED PAYMENTS, AROSE OUT OF SEARCH PROCEEDINGS ON A GROU P OF CONCERNS AND INDIVIDUALS OF WHICH ASSESSEE WAS A PART. AS PER L EARNED A.R., IN THE CASE OF ONE OF THE MEMBERS OF THE GROUP CONCERNS, N AMELY, SHRI S. MOHANCHAND DADHA (HUF), THIS TRIBUNAL HAD HELD THAT THERE WAS NO SALE OF SHARE INVOLVED AT ALL AND THERE WAS NO QUESTION OF ANY DELAYED PAYMENT ON SALE CONSIDERATION. 4. LEARNED D.R. FAIRLY AGREED THAT THE ISSUES REGAR DING CAPITAL GAINS ON SALE OF SHARES AND INTEREST ON DELAYED PAYMENT S TOOD COVERED BY VIRTUE OF ORDER OF THIS TRIBUNAL IN THE CASE OF I.T .(SS) A. NO. 178/MDS/2005 DATED 16.11.2007. 5. WE HAVE PERUSED THE ORDERS AND HEARD THE SUBMIS SIONS. CAPITAL GAINS IMPOSED BY THE ASSESSING OFFICER RELATES TO A LLEGED SALE OF SHARES OF TAMILNADU DADHA PHARMACEUTICALS LTD. (TDPL) TO M /S SUN PHARMA INDUSTRIES LTD. (SPIL). SUCH ALLEGED CAPITAL GAINS ARISING OUT OF THE SALE OF SHARES WERE ASSESSED IN THE HANDS OF VARIOUS PER SONS OF THE GROUP OF WHICH, SHRI S. MOHANCHAND DADHA WAS ONE. IN THE APP EAL OF SHRI S. 3 I.T.(SS) A. NO. 3/MDS/11 MOHANCHAND DADHA, THIS TRIBUNAL HAD HELD IN I.T.(SS ) A. NO. 178/MDS/2005 DATED 16.11.2007, AS UNDER:- FROM THE FOREGOING PARAGRAPHS IT IS TO BE NOTED THA T THE THEORY OF SALE OF TDPL SHARES BY THE ASSESSEE TO SP IL AND EARNING OF ON MONEY THEREFROM, AS ALLEGED BY THE CIT(A) IS NOT COGENT AS AMALGAMATION OF TDPL WITH SPIL IS A REALITY. THERE IS NO REASON FOR THE SUN GROUP TO PAY ONMONEY TO THE DADHAS AFTER TH EY WERE ALLOTTED SHARES OF SPIL ON AMALGAMATION AT THE SWAP RATIO DETERMINED IN THE APPROVED SCHEME OF AMALGAMATION. WE HAVE ALSO FOUND THAT ON FACTS OF THIS CASE THE SEIZED LOOSE S HEETS OF PAPER ON THE BASIS OF WHICH THE THEORY OF ON MONEY RECEIPT O F THE ASSESSEE IS SOUGHT TO BE ESTABLISHED BY THE DEPARTMENT ARE BY T HEMSELVES NOT ADEQUATE TO PROVE THAT ANY SUCH INCOME WAS EARNED B Y THE ASSESSEE. WE ALSO NOTE THAT IT IS THE UNIFORM VIEW OF COURT S AND ALSO HELD BY THE HON'BLE APEX COURT AS REPORTED IN K.P. V ARGHESE VS. ITO (1981) 131 ITR 597 THAT THE BURDEN OF PROVING ACTUAL CON SIDERATION IN SUCH TRANSACTION IS THAT OF REVENUE. THE FACT THAT THE REVENUE HAS NOT BEEN ABLE TO DISCHARGE THE ONUS IS GLARING IN T HE CONCLUSION OF THE CIT(APPEALS) THAT HE WAS PERSUADED BY THE PREPONDER ANCE OF PROBABILITY THEORY THAT THE SAID ON MONEY WAS PAID BY THE SPIL GROUP OF DADHA GROUP. THIS TRIBUNAL IN THE CASE OF P.V. KALYANASUNDARAM IN IT(SS)A NO.118/MDS/2001 TO WHICH ONE OF US, ACCOUNTANT MEMBER WAS A PARTY HAD ALREADY HELD THAT MERELY ON CONFLICTING STATEMENTS AND UNCONVINCING LOOSE SHEET S, ADDITION AS UNDISCLOSED INCOME ON ACCOUNT OF ON MONEY TRANSACTI ON CANNOT BE MADE BY THE REVENUE AS THE SAME WAS MERELY ON SURMI SES AND CONJECTURES AND SUCH ACTION OF THE REVENUE CANNOT B E ALLOWED. THE AFORESAID TRIBUNALS ORDER WAS AFFIRMED BY THE HON' BLE JURISDICTIONAL HIGH COURT IN 282 ITR 259 AND WAS SUBSEQUENTLY AFFIRMED B Y THE HON'BLE APEX COURT IN 294 ITR 49. IT IS ALSO PERTINENT TO NOTE HERE THAT THE ADDITI ON WAS MADE BY THE ASSESSING OFFICER IN THIS CASE ON ACCOUNT SU PPRESSED CAPITAL GAIN. THE CIT(APPEALS) ACCEPTED THAT THE ADDITION AS CAPITAL GAIN WAS NOT SUSTAINABLE ON THE FACTS OF THIS CASE. HE WENT ON TO CONCLUDE THAT IT WAS AN INCOME FROM OTHER SOURCES. IN OUR O PINION, THIS ACTION OF THE REVENUE IS NOT SUSTAINABLE ION VIEW OF THE H ON'BLE APEX 4 I.T.(SS) A. NO. 3/MDS/11 COURTS DECISION IN CIT V. D.P. SANDU BROS. CHEMBUR P. LTD. (2005) 273 ITR 1. IN THIS CASE, THE HON'BLE APEX COURT HAD HE LD THAT IF A PARTICULAR INCOME FALLING UNDER A PARTICULAR HEAD O F INCOME CANNOT BE TAXED, THE SAME CANNOT BE TAXED IN ANY OTHER HEAD. T HE HON'BLE APEX COURT HAS OBSERVED AT PAGE 6 AS UNDER: BUT BECAUSE WE HAVE HELD THAT SECTION 45 CANNOT BE APPLIED, IT IS NOT OPEN TO THE DEPARTMENT TO IMPOSE TAX ON SU CH CAPITAL RECEIPT BY THE ASSESSEE UNDER ANY OTHER SECTION. T HIS COURT, AS EARLY AS IN 1957 HAD, IN UNITED COMMERCIAL BANK LTD. V. CIT ( 1957) 32 ITR 688 (SC), HELD THAT THE HEADS OF INCOME PROVIDED FOR I N THE SECTIONS OF THE INDIAN INCOME TAX ACT, 1922 ARE MUTUALLY EXCLUSIV E AND WHERE ANY ITEM OF INCOME FALLS SPECIFICALLY UNDER O NE HEAD. IT HAS TO BE CHARGED UNDER THAT HEAD AND NOT OTHER. IN OTHER WORDS, INCOME DERIVED FROM DIFFERENT SOURCES FALLING UNDER A SPEC IFIC HEAD TO BE COMPUTED FOR THE PURPOSES OF TAXATION IN THE MANNER PROVIDED BY THE APPROPRIATE SECTION AND NO OTHER. IT HAS BEEN FURT HER HELD BY THIS COURT IN EAST INDIA HOUSING AND LAND DEVELOPMENT TR UST LTD. V. CIT (1961) 42 ITR 49 THAT IF A INCOME FROM A SOURCE FALLS WIT HIN A SPECIFIC HEAD THE FACT THAT IT MAY INDIRECTLY BE CO VERED BY ANOTHER HEAD WILL NOT MAKE THE INCOME TAXABLE UNDER THE LATT ER HEAD (SEE ALSO CIT V. CHUGANDAS AND CO. (1965) 55 ITR 17 (SC). IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, WE SET ASIDE THE ORDER OF THE CIT(APPEALS) AND DECI DE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. WITH REGARD TO THE INTEREST, THIS TRIBUNAL IN THE S AME ORDER HELD AS UNDER:- WE HAVE HEARD BOTH THE SIDES AND PERUSED THE RELEVA NT RECORDS AVAILABLE WITH US ON THE ISSUE IN DISPUTE. WE HAVE GONE THROUGH THE ORDERS OF THE REVENUE AUTHORITIES AS WE LL AS THE COPIES OF RELEVANT LOOSE SHEET SEIZED UNDER ANNEXURE A6 OF T HE PANCHANAMA DATED 07.12.1988 OF ACME PLAZA OFFICE OF SPIL. AT THE OU TSET, IT MAY BE STATED THAT SINCE WE HAVE ALREADY HELD THAT NO ON MONEY WAS RECEIVED BY THE ASSESSEE BY SELLING TDPL SHARES TO SPIL, THE QUESTION OF RECEIVING INTEREST DUE TO DELAYED RECEI PT OF THE SAME DOES NOT ARISE. WE FIND THAT THE AFORESAID SEIZED LOOSE SHEETS DO NOT PROVE THAT THE ASSESSEE RECEIVED THE AFORESAID AMOUNT BY WAY OF 5 I.T.(SS) A. NO. 3/MDS/11 INTEREST DUE TO DELAYED PAYMENT OF SALE CONSIDERATI ON BY THE SPIL. AS FAR AS THE CASH PAYMENT OF ` 1,23,50,000/- IS CONCERNED, THE SAID AMOUNT HAS ALREADY BEEN OWNED UP AND OFFERED FOR TA XATION BY THE SPIL. ACCORDINGLY, THIS GROUND IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. ASSESSEE HAD ALSO PRODUCED A COPY OF THE TRIBUNAL O RDER IN THE CASE OF SHRI SURENDRA DADHA AND SMT. SNEHALATHA DADHA IN I. T.A. NO. 16/MDS/2010 AND I.T.A. NO. 17/MDS/2010 RESPECTIVELY DATED 16.12.2010, WHERE SIMILAR ADDITIONS WERE DELETED. WE, THEREFOR E, DO NOT FIND ANY MERIT IN GROUND NOS. 2 AND 3 RAISED BY THE REVENUE. HENCE THESE TWO GROUNDS ARE DISMISSED. 6. ONLY OTHER GROUND RAISED BY THE REVENUE IN GROUN D NO.4 IS REGARDING DELETION OF ADDITION OF ` 67,32,933/- MADE ON UNEXPLAINED INVESTMENTS. 7. ASSESSING OFFICER, DURING THE COURSE OF ASSESSME NT PROCEEDINGS, BASED ON CERTAIN MATERIAL SEIZED AT THE TIME OF SEA RCH ON 15.12.1998, CAME TO A CONCLUSION THAT ASSESSEE HAD MADE AN INVE STMENT OF ` 25 LAKHS IN ONE M/S BHASKARA HOTELS LTD., GIVEN A LOAN OF ` 3 LAKHS TO ONE SHRI G. RAJARATHINAM, MADE AN UNEXPLAINED INVESTMEN T IN SHARES ` 24,09,449/-, EARNED SHORT-TERM CAPITAL GAINS OF ` 23,484/- AND HAD CREDITED UNACCOUNTED INTRA GROUP TRANSFER OF ` 15 LAKHS. ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE ASKING THE ASSES SEE WHY THE ABOVE 6 I.T.(SS) A. NO. 3/MDS/11 AMOUNTS SHOULD NOT BE ADDED. AN EXTRACT OF THE SHO W CAUSE NOTICE IS REPRODUCED HEREUNDER:- (I) ON VARIOUS PAGES OF ANNEXURE ANN/RG/B&D/S IN ITEM NO.12 WHICH IS NOTE PAD, THERE ARE NOTINGS OF A LOAN OF ` 25 LACS TO ONE SHRI BHASKAR. MMD VIDE ITS REPLY ON PAGE 28 TO Q.NO.7 D OF THE QUEST IONNAIRE STATED THAT THE LOAN HAS BEEN GIVEN BY M/S PHALODI INVESTM ENTS PVT. LTD. FURTHER, ON PAGE 1 OF ANNEXURE ANN/RJK/L.S/S.II THER E ARE NOTINGS THAT SHRI BHASKAR WOULD PURCHASE THE LAND AND ENTER INTO SALE DEED WITH MMD AND EXECUTE A POWER OF ATTORNEY IN FAVOUR OF MMD . IT IS PROPOSED TO MAKE AN ADDITION OF ` 25 LACS AS UNEXPLAINED INVESTMENT. YOU MAY SHOW HOW THIS INVESTMENT IS REFLECTED IN YOUR BOOKS OF A CCOUNTS AND ROI FILED. (II) ON VARIOUS PAGES OF ANNEXURE ANN/RG/B&D/S IN IT EM NO.12 WHICH IS A NOTE PAD, THERE ARE NOTINGS OF A LOAN TO G. RA JARATHINAM, MMD VIDE ITS REPLY VIDE ON PAGE 28 TO Q.NO.7 H OF THE QUESTIONNAIR E STATED THAT THE LOAN HAS BEEN GIVEN BY M/S PHALODI INVESTMENT PVT. LTD. YOU MAY SHOW HOW THE LOAN IS REFLECTED IN YOUR BOOKS OF ACCOUNTS AND ROI FILED, ELSE THE LOAN MAY ALSO BE ADDED AS UNEXPLAINED INVESTMENT S. (III) ON PAGES 1 TO 9 OF ANNEXURE ANN/RJK/LS/S-1, C ERTAIN SHARES LIST HAVE BEEN SEIZED, IT HAS BEEN EXPLAINED TO AS PERTAI NING TO MMDS SON SHRI SURENDRA DADHA, ANJALI DADHA AND M/S PHALODI I NVESTMENTS PVT. LTD. AN EXTRACT IS ENCLOSED WITH THE NOTICE AS ANNEXURE A. YOU MAY EXPLAIN AS TO WHICH OF THESE SHARES BELONG TO YOU AND HOW THEY HAVE BEEN ACCOUNTED FOR IN YOUR BOOKS OF ACCOUNTS. IN THE ABSENCE OF A RESPONSE FROM YOU, THE ENTIRE STOCK OF SHARES WILL BE TREATED AS UNEXPL AINED INVESTMENT AND ADDED TO UNDISCLOSED INCOME ALONG WITH THE CAPITAL GAINS ARISING ON SALE OF SHARES. (IV) ON PAGES 56 TO 64 OF ANNEXURE RG/LOOSE SHEETS/S.1 NOTINGS OF CASH HAVE BEEN MADE. MMD HAD EXPLAINED THAT THESE A RE NOTINGS OF PROPOSED TRANSACTIONS AND TO BE GIVEN AS INSTRUCTIO NS TO THE ACCOUNTANT. THE ENTRIES ARE FOR TRANSFER OF FUNDS FROM ONE OF T HE GROUP ACCOUNT TO ANOTHER OR FROM ONE FAMILY MEMBERS ACCOUNT TO THAT OF ANOTHER. UNDER THE SAME, THERE IS A NOTING THAT INDICATES THAT YOU HAVE TRANSFERRED CASH TO THE ACCOUNT OF LMD. YOU MAY EXPLAIN THIS ENTRY AND THE NATURE OF EACH TRANSACTION, ELSE THE SAME WILL ALSO BE TREATE D AS UNEXPLAINED INVESTMENT. 7 I.T.(SS) A. NO. 3/MDS/11 TO THIS, ASSESSEE REPLIED THAT IT WAS NOT GIVEN A C OPY OF THE SEIZED MATERIAL AND SEIZURE OF MATERIAL WERE EFFECTED FROM THE PREMISES OF SHRI S. MOHANCHAND DADHA, IT HAD NO ACCESS TO SUCH RECOR DS. HOWEVER, THE ASSESSING OFFICER WAS OF THE OPINION THAT DESPITE V ARIOUS OPPORTUNITIES, ASSESSEE HAD NOT APPLIED FOR A COPY OF THE SEIZED M ATERIAL. HE, THEREFORE, CONSIDERED THAT THE EXPLANATION WAS INSU FFICIENT AND MADE AN ADDITION OF ` 67,09,449/-. 8. IN ITS APPEAL BEFORE CIT(APPEALS), ASSESSEE ARGU ED THAT INVESTMENT IN M/S BHASKARA HOTELS LTD. AND LOAN TO SHRI S. RAJARATHINAM WERE RECORDED IN ITS BOOKS. ASSESSEE ALSO FILED A COPY OF THE ACCOUNT OF SHRI S. RAJARATHINAM AND BANK STATEMENTS WITH REGAR D TO INVESTMENT IN M/S BHASKARA HOTELS LTD. BEFORE THE CIT(APPEALS). WITH REGARD TO UNEXPLAINED INVESTMENT IN SHARES, EXPLANATION OF TH E ASSESSEE WAS THAT THE SAID SHARES DID NOT BELONG TO IT AT ALL AND THE SEIZED RECORD DID NOT REFER ASSESSEES NAME. INSOFAR AS INTRA-GROUP TRAN SFER OF ` 15 LAKHS WAS CONCERNED, EXPLANATION OF THE ASSESSEE WAS THAT THE AMOUNT INVOLVED WAS ONLY ` 15,000/- AND THE TRANSACTION WAS DULY RECORDED IN THE BOOKS OF ACCOUNTS. LD. CIT(APPEALS), BASED ON THE ABOVE SUBMISSIONS OF THE ASSESSEE, DELETED THE ADDITION OF ` 67,32,933/-. 8 I.T.(SS) A. NO. 3/MDS/11 9. NOW BEFORE US, LEARNED D.R. SUBMITTED THAT CIT(A PPEALS) RELIED ON FRESH EVIDENCE PRODUCED BY THE ASSESSEE WITHOUT GIV ING ANY OPPORTUNITY TO THE ASSESSING OFFICER FOR OFFERING HIS COMMENTS. THEREFORE, THERE WAS A VIOLATION OF RULE 46A OF INCOME-TAX RULES, 1962. 10. LEARNED A.R. FAIRLY ADMITTED THAT THE ISSUE REQ UIRED RE-EXAMINATION BY THE ASSESSING OFFICER. 11. WE HAVE PERUSED THE ORDERS AND HEARD THE SUBMI SSIONS. IT HAS BEEN AGREED BY BOTH THE PARTIES THAT THE RELEVANT P APERS, WHICH WERE PRODUCED BY THE ASSESSEE TO THE CIT(APPEALS), WERE NOT MADE AVAILABLE TO THE ASSESSING OFFICER. THEREFORE, IN THE INTERE ST OF JUSTICE, WE ARE OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOOK B Y THE ASSESSING OFFICER. ASSESSEE SHALL PRODUCE ALL THE EVIDENCE I N SUPPORT OF VARIOUS INVESTMENTS AND LOAN BEFORE THE ASSESSING OFFICER. ASSESSING OFFICER SHALL PROCEED IN ACCORDANCE WITH LAW. ORDERS OF LO WER AUTHORITIES ARE SET ASIDE. 12. GROUND NO.4 RAISED BY THE REVENUE IS ALLOWED FO R STATISTICAL PURPOSES. 13. IN THE RESULT, APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. 9 I.T.(SS) A. NO. 3/MDS/11 ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 7 TH OF MARCH, 2013, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 7 TH MARCH, 2013. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-V, CHENNAI-34 (4) CIT, CHENNAI-III, CHENNAI (5) D.R. (6) GUARD FILE