PRAKASH KAPOORCHAND KOTHARI,MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), MUMBAI

ITA 3082/MUM/2024

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The case involves Prakash Kapoorchand Kothari, who was subjected to a search and seizure operation under Section 132 of the Income-tax Act at his business premises in Goa. During the search, gold weighing 4,525.92 grams, valued at Rs. 1,32,79,048.80, was seized. Kothari had declared an income of Rs. 1,40,00,000 from brokerage and commission, which he reported in his income tax returns for Assessment Year 2018-19. The Assessing Officer treated the seized jewelry as undisclosed income under Section 69A and taxed it at a higher rate under Section 115BBE. The CIT(A) upheld this decision, leading Kothari to appeal to the Tribunal. The Tribunal found that the addition under Section 69A was inappropriate for the Assessment Year 2018-19 and that the income had been properly declared and taxed.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470906 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Other Referred Cases: Sumati Dayal Vs. CIT(A) [1995] 214 ITR 801 (SC)
• Laws Referred To: Income-tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deemed to accrue or arise in india; Maximum Marginal Rate
• Section: 132; 153A; 139(1); 68; 131; 13; 69A; 139; 28; 44AB

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 3082/MUM/2024 Assessment Year: 2018-19 Prakash Kapoorchand Kothari, 1, Osia Paradise, Dawood Baug Lane, Andheri West, Mumbai – 400 058 (PAN : AACPK5765G) Vs. Deputy Commissioner of Income-tax, Central Circle 2(1), Mumbai (Appellant) (Respondent) Present for: Assessee : Shri Dharan Gandhi, CA and Shri Vipul Jain, CA Revenue : Shri Amol Kirtane, CIT DR Date of Hearing : 18.12.2024 Date of Pronouncement : 13.03.2025 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of ld. CIT(A)– 48, Mumbai, vide order no. ITBA/APL/M/250/2023- 24/1053568384(1), dated 06.06.2023, passed against the assessment order by Deputy Commissioner of Income-tax, Central Circle-2(1), 2 ITA No. 3082/Mum/2024 Prakash Kapoorchand Kothari, AY 2018-19 Mumbai, u/s. 153A of the Income-tax Act (hereinafter referred to as the “Act”), dated 24.03.2021 for Assessment Year 2018-19. 2. Grounds taken by assessee are reproduced as under: “1. The Ld. Commissioner of Income Tax (A)-48, Mumbai has erred in confirming order of the Assessing Officer wherein commission and brokerage income of Rs. 1,40,00,000/- offered by the appellant in the ITR under the head income from other sources, has been treated as income deemed to be income under section 69A of the Act and consequently taxed the same at higher rate of 60% us 115BBE of the Act. Your appellant submits that on the facts and circumstances of the case and in law, the deeming provisions of Section 69A of the Act are not applicable. 2. The Ld. Commissioner of Income Tax (A)-48, Mumbai failed to appreciate that appellant has not offered the income of Rs. 1,40,00,000/- under section 69A of the Act also the AO has not made any separate addition under Section 69A of the Act and therefore merely re-characterization of the nature of income offered by the appellant does not attract the provisions of sections 115BBE of the Act. Your Appellant submits that treating the income of Rs. 1,40,00,000/- as income deemed to be income under section 69A r.w.s 113BBE of the Act is wholly unjustified, improper, bad in law and deserves to be quashed. 3. On the facts and circumstances of the case and in law learned Commissioner of Income Tax (A)-48, Mumbai erred in not accepting the submission made by the appellant in the course of appellant proceedings that commission and brokerage income earned during the year amounting to Rs. 1,40,00,000/- was his casual and incidental income and not regular in the nature and therefore the same should have been assessed as income from other sources. 4. The learned CIT(A) erred in not appreciating the fact that the income from other sources of Rs. 1,40,00,000/- has been offered for tax in the return of income filed u/s. 139(1) as well as u/s.153A of the Act for the A.Y. 2018-19 and on the facts of the case does not tantamount to undisclosed income and thus the provisions of Section 115BBE of the Act are not applicable.” 3 ITA No. 3082/Mum/2024 Prakash Kapoorchand Kothari, AY 2018-19 2.1. Assessee has also raised additional grounds challenging legal issues vide application dated 21.09.2024 which are reproduced as under: Additional Grounds: “1.0 On the facts and in circumstances of the case, the Ld. AO erred in making the additions u/s 69A in the year under consideration as unexplained jewellery in the assessment order which is confirmed by the L.d. CIT(A). 2.0 On the facts and in circumstances of the case, the order passed by Ld. CIT(A) confirming the additions made in the assessment order passed by Ld. AO is bad-in-law. 3.0 That on the facts and in the circumstances of the case, the approval granted u/s 153D by Ld. Addl. CIT is bad in law and mechanical in nature.” 3. Brief facts of the case are that assessee is associated with real estate development activity under M/s. Swapna Developers which is a partnership firm having its business activity solely in South Goa. Assessee also runs his proprietary business under the name and style of Osia Multiplex from the premise S-11, Osia Mall, second floor, SGPDA market complex, Margoa, Goa and T-15, Osia Mall, Third floor, SGPDA market complex, Margoa, Goa. In this case, one Shri Vikram Singh Rathod was caught in Hubballi by the Police. This information was passed to the Income Tax Department. Upon receipt of the information, a statement on oath u/s. 131 of the Act, was recorded by ADIT(Inv.) U- 2, Hubbali on 09.04.2018 from Shri Vikram Singh Rathod, during the course of which, it was learnt that Shri Vikram Singh Rathod along with Shri Pratik Narvenkar, Manager of M/s. P.K. Jewellers Pvt. Ltd. had received the key of the Margoa office situated at Osia Mall, 3rd Floor, Near Kadamba Bus Stop, Margoa, Goa from Shri Rahul Kothari, CEO of M/s. P.K. Jewellers Pvt. Ltd. where part of the jewellery was lying at the aforesaid office. 4 ITA No. 3082/Mum/2024 Prakash Kapoorchand Kothari, AY 2018-19 3.1. Accordingly, a warrant u/s. 132 of the Act was issued by PDIT(Investigation), Panaji and was executed upon the assessee at the business premises belonging to entity M/s. Swapna Developers, T-15, Osia Mall, 3rd floor SGPDA Market Complex, Margoa, Goa on 10.04.2018 and gold weighing 4,525.92 grams valued at Rs. 1,32,79,048.80 was found and seized. This gold was found from a almirah in the office of M/s. Swapna Developers at the above address in the presence of the assessee who happens to be the managing partner in the said firm and the same was valued at Rs. 1,32,79,048.80 by Shri Vivek Jain, a government approved valuer, excluding making charges of the seized ornaments. 3.2. Assessee is found to have filed his regular returns of income from his Mumbai address, although his business was conducted in Goa. Accordingly, the case was centralised to the undersigned vide Centralisation order No. CCIT (Central)-1/Centralisation/2018-19 dated 27.03.2019. 3.3. Assessee filed his return u/s. 139 on 05.10.2018 reporting total income at Rs. 2,86,97,720/-. Notice u/s. 153A was issued on 05.02.2020 and duly served upon the assessee Thereafter, assessee filed his return in response to the said notice on 03.03.2020, reporting Rs. 2,86,64,850/-. 4. In respect of gold ornaments found and seized during the course of search operation on 10.04.2018, in his statement, assessee stated that the said gold ornaments are his personal assets which were acquired out of his personal source of income earned by way of brokerage and commission in cash during the financial year 2017-18 5 ITA No. 3082/Mum/2024 Prakash Kapoorchand Kothari, AY 2018-19 relevant to Assessment Year 2018-19. In his statement recorded u/s.132(4) in the course of search, assessee stated that income by way of brokerage and commission will be offered to tax in the regular return of income which is due to be filed on or before 31.10.2018 relevant to Assessment Year 2018-19. Pursuant to this, assessee filed his return u/s. 139 on 05.10.2018 reporting total income at Rs.2,86,97,720/- which included the sum of Rs.1,40,00,000/- as his income from brokerage and commission under the hear “income from other sources”. Copy of ITR-3 in respect of return filed u/s.139(1) including income of Rs.1.40 crores as “income declared u/s.132(4)” is placed in the paper book at page 27 to 30. Subsequent to this, assessee also filed return, in Form ITR-3 on 03.03.2020, reporting total income at Rs.2,86,64,850/- , pursuant to notice issued u/s. 153A. This return form also included the income declared u/s.132(4) amounting to Rs.1.40 crores. Assessee paid necessary tax along with interest on the returned income. 4.1. In the course of assessment, ld. Assessing Officer took note of statement recorded on oath u/s.132(4) on 10.04.2018 of the assessee. In his answer to question No.15 and 16, as reproduced in the impugned order at para-6, assessee clarified about carrying out his real estate business through partnership firm and proprietary concern as already already stated above. Assessee also clarified about the business entity P.K. Jewellers Pvt. Ltd., which is managed and run by his son, Shri Rahul Prakash Kothari which runs its business from premises outside Goa. In answer to question no.21, as reproduced in para-3, assessee confirmed that jewellery found during the course of search is his personal asset which were purchased by him in cash, from income earned during the year under consideration, i.e., from 01.04.2017 onwards. In answer to question no.26, he explained the source of 6 ITA No. 3082/Mum/2024 Prakash Kapoorchand Kothari, AY 2018-19 investment in gold jewellery to be brokerage and commission income earned during the year, Assessment Year 2018-19. 4.2. After considering the statement of the assessee recorded during the course of search and both the returns filed by the assessee, i.e., u/s. 139(1) as well as pursuant to notice u/s.153A, ld. Assessing Officer observed that unaccounted jewellery weighing 4525.92 grams valued at Rs.1,32,79,048.80 belongs to assessee as personal asset and represents unaccounted/undisclosed investment at the time of search. He also noted in para – 8 that income offered amounting to Rs.1.40 crores is more than the value of jewellery seized on which assessee has paid the required tax along with interest on or before the specified date. He took note of the fact that assessee has furnished the income-tax return for the specified previous year, i.e., Assessment Year 2018-19 declaring the undisclosed income on or before the specified date. Ld. Assessing Officer also observed that assessee is required to prove with evidence from whom the cash was received towards commission and brokerage income. According to him, since no books of accounts were maintained, merely stating income is generated out of commission and brokerage do not suffice the fact and therefore cannot fall under the head “income from other sources”. 4.3. Another show cause notice was issued which was replied by the assessee, contents of the which are reproduced in the impugned assessment order. Assessee reiterated the above stated facts and further submitted that income of Rs.1.40 crores was generated out of liaisoning and facilitating real estate transactions which is casual and non recurring activity. It was further, asserted that on the date of search action, return for the year under consideration, i.e., Assessment Year 7 ITA No. 3082/Mum/2024 Prakash Kapoorchand Kothari, AY 2018-19 2018-19 was due by 31.10.2018, as the financial year ending on 31.03.2018 had just ended before the search action, i.e., 10.04.2018. 4.4. After considering the submissions made by the assessee, ld. Assessing Officer made following observation to conclude that income shown from commission and brokerage is not an income to be excluded from the head “business and profession” and so cannot be included in “income from other sources”- i. Activity undertaken by the assessee is in the nature of adventure and falls within the purview of Section 28 liable to audit. ii. For income earned out of casual and non recurring activity received in cash, no party would undertake transactions in cash of such volume. iii. No evidence are placed on record to substantiate earning of income from brokerage and commission. iv. Assessee has controverted the provisions of Section 44AA and Section 44AB regarding maintenance of books of accounts and audit thereof. v. Assessee’s regular business activity is that of real estate development and the ancillary income also revolves around his own business activity and therefore income from commission and brokerage cannot be excluded from the head “business and profession” so as to put it under the head “income from other sources”. 4.5. Based on these observations, ld. Assessing Officer resorted to provisions of Section 69A, since according to him, assessee has shown that the source of purchase of gold jewellery amount is out of cash 8 ITA No. 3082/Mum/2024 Prakash Kapoorchand Kothari, AY 2018-19 receipts from brokerage and commission income. According to him, since assessee is found to be the owner of money/jewellery not recorded in the books of accounts and nature and source of which is not identifiable, it was added as deemed income u/s.69A. For this, ld. Assessing Officer relied upon the decision of Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT(A) [1995] 214 ITR 801 (SC). 4.6. In the conclusion, ld. Assessing Officer noted in the para as reproduced below: “……assessee purchased jewellery amounting to Rs. 1,40,00,000/- and failed to explain satisfactorily the source of this cash receipts. Accordingly, this purchase of jewellery amounting to Rs. 1,40,00,000/- so credited is deemed to be the income of the assessee for A.Y. 2018-19 under Section 69A of the Act. The assessee has offered the income as income from other sources offering to tax at the maximum marginal rate of 30%. But since the income offered falls as per the provisions of section 68 and 69A, the total Income assessed is taxed u/s 115 BBE of the Act at the rate of 60%.” 5. Before the ld. CIT(A), submissions already made were reiterated. After considering the same, ld. CIT(A) confirmed the action of ld. Assessing Officer and dismissed the appeal. Aggrieved, assessee is in appeal before the Tribunal. 6. Before us, ld. Counsel for the assessee asserted that year of search is Assessment Year 2019-20, since the date of search is 10.04.2018. The year under consideration in the present appeal is Assessment Year 2018-19. At the time of conduct of search, return for the Assessment Year 2018-19 was due by 31.10.2018. In the statement recorded on oath u/s.132(4) in the course of search of the assessee at the premises at Goa, it was explained and declared that assessee had earned income of Rs.1.4 crores by way of brokerage and commission by liaisoning and facilitating real estate transactions, all of which received in cash and shall be offered to tax in the return due by 31.10.2018. The income so 9 ITA No. 3082/Mum/2024 Prakash Kapoorchand Kothari, AY 2018-19 declared was offered both in the original return filed u/s.139(1) as well as filed in response to notice u/s. 153A after paying due taxes along with interest. This fact is undisputed. Assessee also explained that the income so earned has been utilised in purchasing the gold ornaments and jewellery which were found and seized in the course of search conducted on 10.04.2018. Assessee claimed that he made investment in these gold ornaments as his personal assets, source of which was explained to be income earned in Assessment Year 2018-19 duly reported in his returns placed on record. Contention of the ld. Counsel is that ld. Assessing Officer has applied provisions of section 69A, alleging the assessee that he is found to be the owner of jewellery not recorded in his books of accounts and for which nature and source of acquisition is not satisfactorily explained. 6.1. On this, ld. Counsel for the assessee asserted that what is found in the course of search is in the year Assessment Year 2019-20, since the date of search is 10.04.2018. Ld. Assessing Officer has proceeded to make the addition by holding that purchase of jewelry amounting to Rs.1.40 crores is deemed to be income u/s.69A relevant to Assessment Year 2018-19 which is not in accordance with the provisions of law and cannot be sustained. Further, Ld. Counsel submitted that the nature and source of making investment in the jewelry has been adequately explained which has been offered to tax in the return filed for Assessment Year 2018-19 which was due by 31.10.2018. Assessee has adequately complied with the statements made by him during the course of search by reporting the income in both, his regular return as well as return in response to notice u/s.153A. Furthermore, ld. Counsel pointed out to observations made by ld. Assessing Officer, in para 10(E) at page 15 of the impugned order, whereby he has categorically noted 10 ITA No. 3082/Mum/2024 Prakash Kapoorchand Kothari, AY 2018-19 that regular business activity of the assessee is none other than real estate development and the ancillary income earned also, revolves around his own business activity and cannot be culminated out of business or professional income. Ld. Assessing Officer thus, concluded that income from commission and brokerage is not an income to be excluded from the head “business and profession” and so cannot be included in the “income from other sources”. 6.2. According to the ld. Counsel, addition made by applying provisions of section 69A is not sustainable in the year under consideration, i.e. Assessment Year 2018-19, since the impugned gold ornaments were found and seized in the course of search conducted on 10.04.2018 for which the relevant Assessment Year is 2019-20. 6.3. Also, case of ld. Assessing Officer of re-characterizing the income already offered by the assessee in his both, original return filed u/s.139(1) and in the return in response to notice u/s.153A by applying the provisions of section 68 and 69A, to bring it under the provisions of section 115BBE for subjecting it to higher rate of tax at 60% is not tenable. The basis adopted by ld. Assessing Officer is his surmises and conjectures and by applying the judgement of Hon'ble Supreme Court in the case of Sumati Dayal (Supra). Thus, according to him, addition both, on account of applying provisions of section 69A to hold that assessee is found to be the owner of the money/jewelry in Assessment Year 2018-19 as well as re-characterizing the income already offered under the head “income from other sources” and subjecting it to provisions of section 68 and 69A are un-sustainable. Moreover, it is in stark contradiction to the observation of the ld. Assessing Officer made in para – 10(E) at page 15 whereby, the income already offered by the 11 ITA No. 3082/Mum/2024 Prakash Kapoorchand Kothari, AY 2018-19 assessee in his return as committed in his statement recorded during the course of search to fall under the heard “profits and gains of business professions”. 7. We have heard both the parties and perused the material on record. Facts narrated above are not in dispute. Search in the case of assessee was conducted in the year relevant to Assessment Year 2019- 20 when the assessee was found to be the owner of money/jewelry seized during the course of his search. For applying provisions of section 69A for making addition towards jewelry so found and seized, the relevant year ought to be Assessment Year 2019-20. It cannot be the year under consideration, i.e., 2018-19. Assessee would be required to explain the nature and source of the said investment in the gold jewelry so found and seized in the course of assessment proceedings relevant to Assessment Year 2019-20. 7.1. From the perusal of the statement recorded of the assessee u/s.132(4) in the course of the search, assessee did explain the necessary details relating to the gold ornaments found and seized from the premises. It was in the course of search itself that assessee explained he had earned income in the form of brokerage and commission during the year under consideration, i.e., Assessment Year 2018-19, all of which was received in cash and was invested by him in purchasing gold ornaments, forming part of his personal asset. In the same statements, he committed to report the said income in the return which is to be filed in due course of time u/s.139(1) due by 31.10.2018, which he complied with. Assessee reported Rs.1.40 Crores as income from brokerage and commission for liaisoning and facilitating real estate transactions under the head “income from other sources” and 12 ITA No. 3082/Mum/2024 Prakash Kapoorchand Kothari, AY 2018-19 paid applicable taxes along with interest. Against this, the value of gold ornaments found and seized in the course of search was Rs.1,32,79,048.80. This income was also reported in his return filed u/s.153A. 7.2. We find that observations made by ld. Assessing Officer as noted above, treats the activity undertaken by the assessee in the nature of adventure and falls within the purview of section 28. He has also observed that earning of this income is ancillary to the regular business activity of the assessee in real estate development and therefore it cannot be excluded from the head “business and profession” so as to report in the head “income from other sources”. It is merely on the preponderance of human probability and in absence of adequate documentary evidences, by applying the decision of Hon'ble Supreme Court in the case of Sumati Dayal (supra), ld. Assessing Officer has treated the income so offered, as income u/s.69A, applied for purchase of jewelry by holding that assessee failed to explain satisfactorily the source of cash receipts. Ld. Assessing Officer has also observed in para 15, that this income has been unearthed and found only when the search u/s.132 took place at the premise of assesse. Thus, there exists a dichotomy in the approach adopted by the ld. Assessing Officer, while applying provisions of section 69A on the gold ornaments found and seized during the course of search for which the relevant Assessment Year happens to be Assessment Year 2019-20, whereas assessee has already offered and reported the income of Rs.1.40 crores in the year under consideration explaining its nature and source which has ultimately being invested in the form of gold ornaments and jewelry. In the year under consideration, ld. Assessing Officer has held the said income to form part of the income under the head “profits and gains of 13 ITA No. 3082/Mum/2024 Prakash Kapoorchand Kothari, AY 2018-19 business and profession” to which provisions of audit as required u/s.44AB applies. 8. In the given set of facts and circumstances and detailed discussions made above, we are in agreement with the contentions made by the ld. Counsel for the assessee to hold that addition made u/s.69A for purchase of jewelry is not tenable in the year under consideration. We delete the addition, so made. Accordingly, grounds raised by the assessee are allowed. 9. In the result, appeal of the assessee is allowed. Order is pronounced in the open court on 13 March, 2025 Sd/- Sd/- (Amit Shukla) (Girish Agrawal) Judicial Member Accountant Member Dated: 13 March, 2025 MP, Sr.P.S. Copy to : 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 5 Guard File CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai "