• Oct
  • 20
  • 2012

Mere non-production of donor would not attract penalty for concealment if Gift disclosed in Return

IN THE ITAT DELHI BENCH ‘SMC’

Miter Sain (HUF)

versus

Income-tax Officer, Ward-II

IT Appeal Nos. 2856 TO 2858 & 2919 (Delhi) of 2007

& 4416 to 4419 (Delhi) of 2010

[Assessment years 1993-94 & 1994-95]

AUGUST 27, 2012

ORDER

1. These appeals by the respective assessees are filed against the orders of the Ld. Commissioner of Income Tax (A) on quantum as well as penalty issue. Since the matters are connected and the case were heard together, hence, these are being consolidated by this common order for the sake of convenience.

I.T.A. NOS. 2856, 2857, 2858 & 2919/Del/2007

2. The aforesaid appeals are filed by the respective assessees against the additions made by the Assessing Officer in the respective cases. Since the facts in these cases are identical, we are adjudicating the issue by reference I.T.A. No. 2856 and the figures are taken from it.

3. The grounds raised in I.T.A. NO. 2856 read as under:-

“(i)  The order of the Ld. Commissioner of Income Tax (A) is bad in law and on facts.

(ii)  That the service of notice u/s. 148 is not proper and therefore the Ld. Commissioner of Income Tax (A) should have held the reassessment is illegal and liable to be quashed.

(iii)  The Ld. Commissioner of Income Tax (A) has erred in law in upholding the validity of service of notice u/s. 148 of the Act.

(iv)  That the Ld. Commissioner of Income Tax (A) has erred in law in summarily dismissing the objections of the appellant on the validity of the reasons to reopen.

(v)  That the Ld. Commissioner of Income Tax (A) has erred in law and on facts in confirming the addition of the gift of Rs. 3,50,000/- received by the appellant.

(vi)  That the Ld. Commissioner of Income Tax (A) has erred in falling to appreciate the fact that no opportunity to cross examine the deonar was provided before making the addition and the principle of natural justice has not been followed and he ought to have quashed the order deserves the order of the Assessing Officer.

(vii)  That the Ld. Commissioner of Income Tax (A) erred in not giving the due weight to the explanation filed by the appellant before Assessing Officer and he should have held the assessment order deserves to be quashed.

(viii)  That the Ld. Commissioner of Income Tax (A) erred in not considering that the charging of interest is not proper and no interest is chargeable.

(ix)  The appellant craves leave to raise any further ground(s) of appeal at the time of hearing before your honour.”

4. Apropos issue of legality of the service of the notice. Ld. Commissioner of Income Tax (A) considered the issue as under:-

“A perusal of record shows that a notice u/s. 148 of the I.T. Act was issued on 29.5.2001 which appears to have been served on one Shri Dilbag Singh on the same date through Notice Server of the department. On the office copy of this notice there appears a number 1754 dated 31.5.2001. It clearly shows that this notice was issued on 29.5.2001, served through notice server on Shri Dilbang Singh on the same date; after entering it in the dispatch register at Sr. No. 1754 on 31.5.2001 it was dispatched by post also vide postal receipt No. 2653 dated 31.5.2001 which has also been pasted on the dispatch register. I have seen a photocopy of the dispatch register. Therefore, the issues raised by the appellant in para 7(i) and (ii) have no force. It is normal practice in the offices to note the dispatch number and date on the office copy of the notice when it is issued by post, although it has been served earlier by physical delivery on the appellant.

(ii) The appellant has not brought anything on record to prove that the notice sent by the department by post was not received by it and neither has it brought anything to prove that Sh. Dilbag Singh was not its own person. The very fact that the appellant participated in the assessment proceedings shows that it has received the notice issued u/s. 48.

(iii) During appeal proceedings when the submissions of the Assessing Officer were brought into the notice of the A.R. of the appellant. He did not press this ground of appeal.

In view of the above discussion, this ground of appeal is dismissed.”

5. Against the above order the assessee is in appeal before me.

6. I have heard the rival contentions in light of the material produced and precedent relied upon. I find that Ld. Commissioner of Income Tax (A) has given a factual finding that as detailed in his appellate order reproduced above that there was proper service of notice in this case. It is noted that notice u/s. 148 was issued on 29.5.2011 which was served on one Shri Dilbag Singh on the same date through Notice Server of the department. On the office copy of this notice there appears a number 1754 dated 31.5.2001. The notice was dispatched by post also vide postal receipt no. 2653 dated 31.5.2001 which has also been pasted on the dispatch register. In light of the above, Ld. Commissioner of Income Tax (A) observed that the ground on jurisdiction is not sustainable. Ld. Commissioner of Income Tax (A) also noted that assessee has not brought anything on record to prove that the notice sent by the department by post was not received by it and neither has it brought anything to prove that Sh. Dilbag Singh was not its own person. When the assessee was confronted that the above factual finding, the assessee’s counsel did not press this ground before the Ld. Commissioner of Income Tax (A). I find that the finding of the Ld. Commissioner of Income Tax (A) clearly indicate that there was proper service of notice in this case and assessee’s counsel could not controvert the factual findings in the above Ld. Commissioner of Income Tax (A)’s order. Accordingly, this ground is dismissed.

7. Another issue raised by the assessee in this case is that Ld. Commissioner of Income Tax (A) erred in law in summarily dismissing the objections of the appellant on the validity of the reasons to reopen.

8. I have carefully considered the submissions and perused the records. I find that there is no specific ground as mentioned in the ground of appeal before Ld. Commissioner of Income Tax (A), wherein the assessee has agitated on the validity of the reasons to reopen. However, I note that on this issue Ld. Commissioner of Income Tax (A) has observed as under:-

“As regard the initiation of proceedings on the directions of Higher Authorities, the appellant has not made it a ground in its grounds of appeal. However, on merits this contention of the assessee is not acceptable on the ground that at the time of initiating proceedings the Assessing Officer had applied its mind and formed its own belief although the information was supplied by the Investigation Wing/ Survey Wing. The Assessing Officer prima facie had reasons to believe that the assessee had omitted to disclose fully and truly the material facts and that as a consequence income had escaped assessment. Therefore, the notice issued and proceedings subsequent to it are valid. In this regard, reliance is placed on the ratio of decision of Hon’ble Kerala High court in the case of CIT v. Abdul Khader Ahmed 285 ITR 578.”

8.1 I have carefully considered the issue in this regard. I find that assessee has not raised any specific ground in this regard before the Ld. Commissioner of Income Tax (A). Still Ld. Commissioner of Income Tax (A) has adjudicated upon the issue. Hence, it cannot be said that Ld. Commissioner of Income Tax (A) has summarily dismissed the objections of the assessee with regard to the validity of the reasons to reopen. Hence, this ground of appeal is also dismissed.

9. On merits the issue in these appeals pertain to gift received by the respective assessee from the donor as follows:-

I.T.A. No. 2856 - M/s Miter Sain (HUF) - Rs. 3.50 lacs
I.T.A. No. 2857 - Smt. Usha Sindhu - Rs. 1.50 lacs
I.T.A. No. 2919 - Sh. Vrit Pal Sindhu (HUF) - Rs. 3.00 lacs
I.T.A. No. 2858 - Smt. Shashi Sindhu - Rs. 1.50 lacs

10. In these cases assessee has disclosed that they had received respective NRI gift amount as above from the donor. Subsequently, Directorate of Enforcement, New Delhi made certain investigations for the so-called gifts and informed the Directorate of Income Tax that a large number of NRI account has been misused by money laundering for channelizing non accounted money to the books of accounts of beneficiaries and forwarded the statements of certain persons.

11. As regard the validity of the gifts, Assessing Officer noted that assessee was continuously non-cooperating. Hence, he was constrained to pass the order to best of his judgment and on the basis of material on record. Assessing Officer noted that no evidence has been furnished with the original return of income proving the identity, creditworthiness and genuineness of alleged gifts. The alleged donor denied of having made any gift and stated that he is actually a student and he had never visited in India, in his letter to the Directorate of Enforcement. Further, Assessing Officer noted that the relationship with alleged donor and occasion on which the gift was received with him are missing. Therefore, Assessing Officer held that the money actually belonged to the assessee and he assessed the same as income from undisclosed sources.

12. Furthermore the Assessing Officer held that for taking the bogus gifts assessee has also paid a premium of 10% to 15% of the gift. Hence, Assessing Officer made addition on this account also as follows:-

I.T.A. No. 2856 - M/s Miter Sain (HUF) - Rs. 52,500
I.T.A. No. 2857 - Smt. Usha Sindhu - Rs. 22,500
I.T.A. No. 2858 - Smt. Shashi Sindhu - Rs. 45,000
I.T.A. No. 2919 - Sh. Vrit Pal Sindhu (HUF) - Rs. 22,500

13. Upon assessee’s appeal Ld. Commissioner of Income Tax (A) noted that assessee has not submitted any information regarding the relationship of the donor with the assessee and the occasion on which the gift was made. Ld. Commissioner of Income Tax (A) further found that Assessing Officer has noted that the donor has denied of having made any gift. Ld. Commissioner of Income Tax (A) further referred the decisions of the Hon’ble Apex Court in the case of CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) and Sumati Dayal v. CIT [1995] 214 ITR 801. Accordingly, Ld. Commissioner of Income Tax (A) affirmed the action of the Assessing Officer.

14. Against the above order the assessee is in appeal before us.

15. I have heard the rival contentions in light of the material produced and precedent relied upon. I find that in the present case gift was made by unrelated donor to the assessee. There was no relationship between the assessee and the donor and no occasion was also specified for making the gifts. Furthermore, the Assessing Officer has noted that no evidence has been furnished with the original return of income proving the identity, creditworthiness and genuineness of the alleged gift. This aspect remains uncontroverted before me also. Furthermore, the alleged donor has denied having made any gift. Under the circumstances, the inference made by the authorities below that gifts were bogus is quite cogent enough.

15.1 In this regard I place reliance upon the case law of Rajiv Tondon v. Asstt. CIT [2007] 294 ITR 488 wherein the Hon’ble Jurisdictional High Court has held that in a case where two donors had absolutely no connection with the assessee and they made gifts to the assessee only because he needed money to buy a house and they wanted to help him. It was held that this was not only quite unusual but also quite unnatural. It was incredible that a complete stranger would want to gift lakhs of rupees to a person only because that person wanted the amount for purchasing a house. The taxing authorities were entitled to look into the surrounding circumstances, which they did, and come to the conclusion that the gifts could not be said to be genuine. The reason offered by the assessee did not appear to be reasonable, much less acceptable. Therefore, there was no error in the view taken by the Tribunal.

15.2 Similarly, I find that the Hon’ble Apex Court in the case of CIT v. P. Mohan Kala [2007] 291 ITR 278 has held as under:-

“A bare reading of section 68 of the Income Tax Act, 1961, suggests that (i) there has to be credit of amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression “the assessee offers no explanation” means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion.

In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature.

The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature.”

15.3 In the background of the aforesaid discussions and precedents, I find that there is no infirmity in the order of the lower authorities on this issue and accordingly, I sustain the addition.

16. In the result, the I.T.A. Nos. 2856, 2857, 2858 & 2919/Del/2007 filed by the Assessee stand dismissed.

I.T.A. Nos. 4416, 4417, 4418 & 4419/Del/2010

17. The above appeals are directed against the penalty order of the Ld. Commissioner of Income Tax (A) in these cases. The grounds raised in the appeal no. 4416 read as under:-

“(i)  That the order dated 07.6.2010 passed by the Ld. Commissioner of Income Tax (A) Rohtak is erroneous both on facts and in law.

(ii)  That on the facts and in law, the Ld. Commissioner of Income Tax (A) has erred in confirming the penalty order u/s. 271(1)(c) passed by the Assessing Officer without waiting for outcome of quantum appeal pending before the Tribunal.

(iii)  That the appellant requests the Hon’ble Tribunal to condone the delay in filing the appeal that occurred due to reasonable cause shown in the petition separately filed u/s. 253(5) of the Income Tax Act, 1961.

(iv)  The appellant craves leave to add, alter, amend or modify any of the grounds of appeal before or at the time of hearing of the appeal.”

18. At the threshold, I note that there is delay of 46 days in filing these appeals. For the reason of delay it has been submitted that the same occurred due to illness of then counsel who was suffering from multiple ailments. Upon hearing both the parties and perusing the records, I condone the delay in filing of the appeals.

19. In the penalty order Assessing Officer noted that assessee has received alleged gifts and the onus squarely lied upon the assessee for establishing the capacity of the donor and genuineness of the gift. Assessing Officer noted that the assessee had failed to produce the donor Sh. Sanjeev Gupta for examination. Assessing Officer further noted that assessee was unable to submit that there is relationship of the assessee with Shri Sanjeev Gupta. The occasion of gift was not specified. Copy of bank account of Shri Sanjeev Gupta were not produced. Assessing Officer noted that alleged donor Sh. Sanjeev Gupta has stated to the Director of Enforcement that he was actually a part-time student and he did not visit India at the time when alleged accounts were opened, nor was he present at the time when they were closed. He has further submitted that he had not deposited any money into these accounts nor did he send any money to anybody for depositing in these accounts.

20. Therefore, Assessing Officer held that assessee has failed to establish the genuineness of the gifts during the course of assessment proceedings, appellate proceedings and penalty proceedings also. Hence, Assessing Officer held that assessee has wilfully and intentionally tried to evade tax. Accordingly, Assessing Officer proceeded to levy penalty @150%.

21. Upon assessee’s appeal Ld. Commissioner of Income Tax (A) confirmed the Assessing Officer’s action.

22. Against the above order the assessee is in appeal before me.

23. I have heard the rival contentions in light of the material produced. I note that in the quantum appeals considered by me hereinabove, I have already confirmed the additions made in this regard. However, I have also noted that levy of penalty is not automatic on confirmation of the quantum. I further find that assessee has duly disclosed the gifts and there was no concealment in this regard. Only the assessee has failed to produce the alleged donor that the penalty has been imposed. I further find that section 271(1(c) of the Act postulates imposition of penalty for furnishing of inaccurate particulars and concealment of income. On the facts and circumstances of this case, I find that assessee’s conduct was not contumacious so as to warrant levy of penalty u/s. 271(1)(c) of the I.T. Act. Under the circumstances, I hold that the penalty was not leviable in these cases. For this proposition, I place reliance to the Hon’ble Apex Court decision in the case of CIT v. Reliance Petro Products (P.) Ltd. [2010] 189 Taxman 322 (SC). In this case vide order dated 17.3.2010 wherein it has been held that the law laid down in the Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519 as to the meaning of word ‘concealment’ and ‘inaccurate’ continues to be a good law because what was overruled in the Dharmender Textile case was only that part in Dilip Sheroff case where it was held that mens rea was a essential requirement of penalty u/s 271(1)(c). The Hon’ble Apex Court also observed that if the contention of the revenue is accepted then in case of every return where the claim is not accepted by the AO for any reason, the assessee will invite the penalty u/s 271(1)(c). This is clearly not the intendment of legislature.

24. I further place reliance upon decision of the Hon’ble Apex Court rendered by a larger Bench comprising of three of their Lordships in the case of Hindustan Steel v. State of Orissa [1972] 83 ITR 26 wherein it was held that “An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute.”

25. In the background of the aforesaid discussion and precedents relied upon, I delete the levy of penalty u/s. 271(1)(c) in these cases.

26. In the result, assessee’s appeal in I.T.A. Nos. 2856, 2857, 2858, 2919/Del/2007 are dismissed. The assessee’s appeal in I.T.A. Nos. 4416, 4417, 4418, 4419/Del/2010 are allowed.


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