COMMISSIONER OF INCOME TAX V. RAMESH KHOSLA

ITC/37/1999

AI Insights

The case revolves around a dispute concerning unexplained investments in Indira Vikas Patras (IVPs) and bank drafts, which were seized during a search operation at the premises of Ramesh Khosla. The Assessing Officer made additions to the income of Ramesh Khosla, which were later challenged and partially deleted by the Commissioner of Income Tax (Appeals). The revenue's appeal to the ITAT was dismissed, leading to the present case where the High Court examined whether the ITAT erred in law by upholding the deletions made by the Commissioner of Income Tax (Appeals). The core legal issue was whether the additional evidence entertained by the Commissioner of Income Tax (Appeals) contravened Rule 46A of the Income Tax Rules, 1962.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 733734 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 27-10-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: AALOK MITTAL
• Assessee Lawyers: VIVEK SETHI
• Keywords: Commissioner of Income Tax (Appeals); Income tax appellate tribunal; Search and seizure; Unexplained investments
• Section: 46A; 132(1); 256(1)

Judgement Text

"Income-tax Case No.37 of 1999 : 1 : IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. Income-tax Case No.37 of 1999 Date of Decision: October 27, 2014 The Commissioner of Income-tax, Jalandhar …Appellant Versus Ramesh Khosla …Respondent CORAM: HON’BLE MR. JUSTICE RAJIVE BHALLA HON’BLE MR. JUSTICE AMIT RAWAL 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? Present:- Mr.Vivek Sethi, Advocate, for the appellant. Mr.Aalok Mittal, Advocate, for the respondent. AMIT RAWAL, J. The revenue had filed a reference application under Section 256(1) of the Income Tax Act, 1961 (hereinafter called “the Act”) before the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar for drawing up a statement of the case and for referring the following question of law to this Court:- “Whether, on the facts and in the circumstances of the case, the Ld.ITAT was right in law in dismissing the appeal of the Revenue whereby upholding the order of the Ld. CIT(A) RAMESH KUMAR 2014.12.05 17:39 I attest to the accuracy and authenticity of this document High Court Chandigarh Income-tax Case No.37 of 1999 : 2 : directing deletion of additions of Rs.2,00,000/- and Rs.1,68,000/- made on a/c of unexplained investments in purchase of IVPS and bank drafts respectively, found and seized during search operation entertaining additional evidence in contravention of the provisions of rule 46A of the Income- tax Rules, 1962?” The Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (for short “ITAT”) vide order dated 30.9.1998 rejected the application filed by the revenue under Section 256(1) of the Act and as such the present Income Tax Case has been filed, which, as per the revenue arises out of the order dated 22.12.1997 passed in ITA No.1074(ASR)/1994. It would, therefore, be appropriate to give a brief factual background of the case. On 19.1.1987, a search and seizure operation under Section 132 (1) of the Act was conducted at the residential and business premises of the assessee Shri Ramesh Khosla C/o M/s Hindustan Fans Mft.Co., Kapurthala. During the course of the search, certain papers were found, which, as per the revenue indicated that the assessee and his son Raghu Khosla were engaged in the film making industry and the family was enjoying a very high standard of living. The revenue also seized documents, which were Indira Vikas Patras (for short “IVPs”) worth `2,00,000/- lacs having a maturity value of `4,00,000/-. The assessee submitted a preliminary statement, that the afore-mentioned IVPs belonged to his son Robin Khosla, who after withdrawing a sum of `2,00,000/- from his Saving Bank Account No.6981 with Indian Bank, Kapurthala, purchased the afore-mentioned IVPs. The Assessing Officer noticed that a sum of `2,00,000/- was withdrawn by RAMESH KUMAR 2014.12.05 17:39 I attest to the accuracy and authenticity of this document High Court Chandigarh Income-tax Case No.37 of 1999 : 3 : Robin Khosla on different dates, the details of which are given herein below:- “ Date Withdrawal 19.11.1986 Rs.1,00,000/- 24.11.1986 Rs. 75,000/- 26.11.1986 Rs. 25,000/-” As per the Assessing Officer, the afore-mentioned IVPs were purchased on 17.1.1987. The explanation given by the assessee did not prevail upon the Assessing Officer as according to it, the assessee did not produce Robin Khosla before him, though the affidavit of Robin Khosla was filed. The Assessing Officer, while making an addition of `2,00,000/- in his order dated 30.3.1990, held that Robin Khosla was minor as his date of birth is 30.12.1966 and no material had been produced to show that Robin Khosla operated the account. The Assessing Officer also made an addition of `1,68,000/- on account of the unexplained investment in the purchase of bank draft and of `50,000/- on account of expenses of personal nature, i.e., travelling by Air and stay in a 5 star hotel. The explanation by the assessee with respect to above drafts was not accepted by the Assessing Officer on the ground that the assessee could not produce the source of investment in the purchase of bank drafts of `1,00,000/- and `68,000/-. The order of the Assessing Officer was challenged in an appeal before the Commissioner of Income Tax (Appeals), Jalandhar. The assessee in the grounds of appeal raised a plea that the source of money in the account of Robin Khosla was not appreciated by the Assessing Officer, RAMESH KUMAR 2014.12.05 17:39 I attest to the accuracy and authenticity of this document High Court Chandigarh Income-tax Case No.37 of 1999 : 4 : though an explanation to that effect had been given, by stating that his father had purchased a plot in New Delhi in 1961 and the said plot was bequeathed by way of a sale in the name of his wife Vanita Khosla, two sons Raghu Khosla and Robin Khosla and daughter Meera Khosla. The afore-mentioned plot was sold and the advance received in the year 1981-82 was distributed among the beneficiaries and a sum of `2,00,000/- was deposited in the account of Robin Khosla. It was that amount which Robin Khosla had withdrawn from his account and purchased the IVPs in January, 1987. The Commissioner of Income Tax (Appeals), while considering the factum of purchase of IVPs, accepted the explanation of the assessee and accordingly deleted addition of `2,00,000/- which was made in the hands of the assessee and similarly while accepting the explanation given by the assessee also deleted the addition of `1,68,000/- which was attributed to be unexplained investment by the Assessing Officer. In essence, the Commissioner of Income Tax (Appeals) partly allowed the appeal of the assessee while deleting the additions of `3,68,000/-. The revenue assailed the order of the Commissioner before the ITAT, which was numbered as 1074(ASR).1994. The ITAT vide order dated 22.12.1997 dismissed the appeal of the revenue. Thereafter the revenue filed an application under Section 256 (1) of the Act for referring the matter to this Court by proposing a question of law. The ITAT vide order dated 30.9.1998 declined to refer the matter to this Court. It is in these circumstances, the present Income Tax Case has RAMESH KUMAR 2014.12.05 17:39 I attest to the accuracy and authenticity of this document High Court Chandigarh Income-tax Case No.37 of 1999 : 5 : been filed in this Court. The sole ground on which the present Income Tax Case has been filed is on a question of law reproduced above. Counsel for the revenue submitted that the order of the Commissioner of Income Tax (Appeals) whereby the appeal was partly allowed, is not sustainable, erroneous and is, thus, perverse, as the assessee was not able to furnish a plausible explanation with regard to the purchase of the IVPs, as his son Robin Khosla was a minor at that point of time. He further submitted that as regards to the preparation of the bank drafts, the Assessing Officer rightly attributed the said drafts to unexplained investments. Counsel for the revenue also contended that the Commissioner of Income Tax (Appeals) could not have entertained the additional evidence as it contravened the provisions of Rule 46-A of the Income Tax Rules, 1962 (for short “1962 Rules”) and in support of such contention, he has referred to the findings of the Commissioner of Income Tax (Appeals) referred to at page 88 of the paper book. On the other hand, counsel for the assessee submitted that the date of birth of Robin Khosla is 30.12.1966 and the IVPs were purchased on 17.1.1987 and, therefore, Robin Khosla cannot be considered to be a minor. He further submitted that the assessee had given a plausible explanation before the Assessing Officer with regard to the preparation of draft of `68,000/- as the said money was deposited in the account of Meera Khosla on account of receipt of sale proceeds of a Maruti Van and in this regard the affidavit of the purchaser of the Maruti Van was also filed and his accountant also appeared in appellate proceedings. The said accountant had RAMESH KUMAR 2014.12.05 17:39 I attest to the accuracy and authenticity of this document High Court Chandigarh Income-tax Case No.37 of 1999 : 6 : brought the books of accounts which reflected the entry of `68,000/- stated to have been paid to Meera Khosla. The counsel further submitted that even the preparation of draft of `1,00,000/- issued by the Indian Bank out of the saving bank account of Meera Khosla was also proved. We have heard the learned counsel for the parties and have appraised orders of the authorities below and in our considered opinion, there is no substance in the Income Tax Reference case. Admittedly, the date of birth of Robin Khosla is 30.12.1966 and the IVPs were purchased on 19.1.1987 and, therefore, it cannot even remotely be said that Robin Khosla was a minor at that stage. The amount of `2,00,000/- could not be taken as the income of the assessee and, thus, the Assessing Officer committed a perversity in making an addition. There is no denial to the fact that the income tax authorities have not assessed the income of Robin Khosla at any point of time. The Commissioner of Income Tax (Appeals), after having taken on record, by way of additional evidence an affidavit of the assessee, Smt.Vanita Khosla, (wife) and Robin Khosla, in a very comprehensive and detailed order recorded a finding that the assessee explained the deposit of the amount in the account of Meera Khosla, out of which drafts of `1,68,000/- were prepared and amount utilized for preparation of drafts could not have been added in the income of the assessee under the head of “unexplained investment”. We have gone through the finding/order of the Commissioner of Income Tax (Appeals), who elaborately had taken into consideration the additional evidence by exercising the powers conferred under sub-rule 4 of RAMESH KUMAR 2014.12.05 17:39 I attest to the accuracy and authenticity of this document High Court Chandigarh Income-tax Case No.37 of 1999 : 7 : Rule 46-A of the 1962 Rules. As per sub-rule 4 of Rule 46-A of the 1962 Rules, the Commissioner of Appeals is enjoined with a power to ask for the production of documents or examine any witness in order to enable him to dispose of the appeal or for any such substantial cause either on its own motion or on the request of the Assessing Officer, therefore, the question of law raised in this regard can not come to the aid of the revenue, because, additional evidence taken on record is for the substantial cause, i.e., adjudicating the genuine grievance raised by the assessee. We do not find any substance in the argument raised by the counsel for the revenue in regard to exercise of the jurisdiction by the Commissioner of Income Tax (Appeals) in taking the additional evidence while deciding the appeal. On appraisal of paper book, it is borne out that before the Tribunal, the revenue did not take up this point. The revenue challenged the order of the Tribunal only on two grounds. For the sake of brevity, the same are reproduced herein below:- “1. That on the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs.2,00,000/- made on account of unexplained investment in Indira Vikas Patras. 2. That on the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs.1,68,000/- made on account of unexplained investment in the bank drafts.” The discretion exercised by the Tribunal is based on a relevant consideration and as well as on a fact that the money for the purchase of the drafts came from the bank account of Miss Meera Khosla, who was an RAMESH KUMAR 2014.12.05 17:39 I attest to the accuracy and authenticity of this document High Court Chandigarh Income-tax Case No.37 of 1999 : 8 : income tax assessee. The Tribunal also noticed a fact that the Commissioner of Income Tax (Appeals), on examination of witnesses led in support of additional evidence, concluded that Miss Meera Khosla received an amount of `68,000/- through sale of the Van and a sum of `1,00,000/- was also found to be proved through the testimony of Harbans Singh Sarpanch and Shri Rabinder Singh in whose presence Shri Raghu Khosla had sold the malba to Shri Mohinder Singh Jabal for a sum of `1,05,000/-. Similarly, the Commissioner of Income Tax (Appeals) gave a finding of fact that the date of birth of Robin Khosla is 30.12.1966 and IVPs were purchased on 17.1.1987 and, therefore, Robin Khosla cannot be considered to be a minor. The Tribunal, therefore, rightly dismissed the appeal of the revenue vide order dated 22.12.1997. Dissatisfied by the order of the Tribunal, a reference application under Section 256(1) of the Act along with the statement of fact was filed by the revenue for referring the matter to this Court on a question of law (supra). The ITAT vide order dated 30.9.1998 rejected the application, ibid, for framing a question of law to this Court on the premise that the Commissioner of Income Tax (Appeals), on the basis of the evidence brought on record by the assessee which was not rebutted by the revenue, had appreciated only the facts and circumstances. The Tribunal also found that there was no question of law involved in confirming the order of the Commissioner of Income Tax (Appeals) while deleting the additions as revenue failed to prove on record that the Tribunal, while adjudicating appeal, had ignored any relevant evidence or had taken into consideration any irrelevant evidence to conclude its findings. RAMESH KUMAR 2014.12.05 17:39 I attest to the accuracy and authenticity of this document High Court Chandigarh Income-tax Case No.37 of 1999 : 9 : We find no reason to differ with the observations rendered above, particularly the fact that the Tribunal in its order dated 22.12.1997 gave a categoric finding to the effect that the IVPs and as well as the preparation of the drafts could not be considered to be the income of the assessee and accordingly decline to refer the proposed question of law to the ITAT. ( RAJIVE BHALLA ) ( AMIT RAWAL ) JUDGE JUDGE October 27, 2014 ramesh RAMESH KUMAR 2014.12.05 17:39 I attest to the accuracy and authenticity of this document High Court Chandigarh "