HIGH COURT OF BOMBAY
Smt. Rajrani Gupta
Versus
Deputy Commissioner of Income-tax
IT APPEAL NO. 38 OF 1999
SEPTEMBER 18, 2012
JUDGMENT
M.S. Sanklecha, J.
This appeal under Section 260A of the Income Tax Act, 1961 (‘the Act’) by the appellant-assessee challenging an order dated 25.02.1999 of the Income Tax Appellate Tribunal (‘the Tribunal’) relating to the assessment for the block period 01.04.1985 to 26.03.1996 was admitted on 06.12.1999. Along with this appeal, we also heard appeals by the other members of the appellants group i.e. Appeal No. 86 of 1999 by her husband Dr. Sohanlal Gupta, Appeal No. 91 of 1999 by her son Dr. Arunkumar Gupta, Appeal No. 36 of 1999 by her daughter-in-law Dr. Renu Gupta and Appeal by Sohanlal Gupta (HUF) bearing Appeal No. 37 of 1999.
2. This appeal was admitted on the following substantial questions of law for the consideration of this Court:
(i) Whether the Appellate Tribunal was right in law in coming to the conclusion that the gifts received by the appellant from non Resident Indians (NRI) from their Non-Resident External accounts (NRE accounts) during the Assessment years 1993-94, 1994-95 and 1995-96 are the ‘undisclosed income’ of the appellant within the meaning of clause (b) of Section 158B of the Act even though the said gifts were recorded in the regular books of account of the appellant and disclosed in the returns of income of the appellant filed prior to the date of the search and no incriminating material was found in the course of search?
(ii) Whether on the facts and in the circumstances of the case a person well informed in law could have come to the conclusion that the gifts received by the appellant were actually purchased by the appellant when there is no evidence to that effect on record and the appellant has been able to prove the identify of the donors by producing passports, the genuineness of the transactions by producing bank pass books of the donors and capacity of the donors as the gifts were received from Non-Resident External Accounts of the donors?
(iii) Whether the Appellate Tribunal was right in law in not considering that the appellant had discharged the burden of proof that lies on her by producing copies of passports of the donors, bank pass books of the donors, confirmatory letters of the donors and the fact that the gifts were given by the donors from their respective Non-Resident External accounts and thereafter the burden of proof had shifted to the Assessing Officer who has failed to discharge the same as the Assessing Officer neither summoned the donors nor issued any commission nor adduced any evidence to establish that the appellant had not received the gifts from the donors?
(iv) Whether the Appellate Tribunal was right in law in coming to the conclusion that the gifts received by the appellant are non genuine even though there is no evidence brought on record to derive a legal inference to the effect that the gifts were actually purchased by the appellant and therefore, they are non-genuine?
(v) Whether the Appellate Tribunal was right in law in coming to the conclusion that the case of the appellant is of a money-laundering device because the copies of passports, personal letters, gift deeds, copies of pass book etc. were all obtained simultaneously with the cheques for gifts?
(vi) Whether the Appellate Tribunal was right in law in coming to the conclusion that the gifts received by the appellant are non genuine because the confirmatory letters obtained by the appellant from different donors are identically worded and typed on the same typewriter even though it was explained by the appellant that the confirmatory letters were drafted and prepared by the appellant herself and sent to the donors for their signatures for the limited purpose of tax records?
(vii) Whether the Appellate Tribunal was right in law in not considering the alternate argument of the appellant to the effect that the alleged commission receipts of Rs. 2,42,870/- cannot be separately added in view of the addition on account of cash seized amounting to Rs. 40,98,735/- which was sufficient enough to cover the undisclosed income from clinics estimated at Rs. 32,88.105/- and also commission receipts of Rs. 2,42,870/- otherwise it would amount to taxing the same income twice?
3. Brief facts relevant to this appeal are as under:
(a) The appellant is running health clinics in the name of M/s. Kayakalp International along with her family. The appellant’s family consists of her husband one Dr. Sohanlal Gupta (Dental Surgeon), her son one Dr. Arunkumar Gupta (a Medical Doctor) and her daughter-in-law one Dr. Renu Gupta (also a Medical Doctor).
(b) The entire family of the appellant was residing in Bhattinda, Punjab up to July 1991. However, due to terrorist activities in Punjab, the appellant and her family moved to Mumbai and commenced their health clinic viz. Kayakalp International at Borivali, Mumbai. This business expanded and soon it had established two more clinics in Mumbai as under:
(i) Charni Road, Mumbai- May 1995 and
(ii) Dadar, Mumbai- November 1995
(c) On 26.03.1996, a search was conducted under Section 132 of the Act at the three clinics and residential premises of the appellant and her family. Consequent thereto, assessment for block period i.e. from 01.04.1985 to 26.03.1996 were commenced under Chapter XIV-B of the Act against the appellant and her said family members.
(d) During the course of the search, it was noticed that the appellant and the said others received substantial gifts from certain Non-Resident Indians out of their Non-Resident External Accounts during the assessment years 1994-95, 1995-96 and 1996-97. Besides, during the course of search, the appellant had offered an amount of Rs. 40.98 lacs for taxation during the block period. In the return of Income, the appellant had disclosed an amount of Rs. 39.74lacs as unexplained cash & offered the same for taxation. The Assessing Officer completed the assessment for the block period 01.04.1985 to 26.03.1996 by an order dated 27.03.1997 under Section 158BA of the Act, determining her total undisclosed income at Rs. 2.11crores. This was computed on the basis of unexplained cash credits, commission received on advertising, unexplained loans, undisclosed investments in properties, gifts from Resident Indians and Non-Resident Indians etc.
(e) Being aggrieved, the appellant preferred an appeal against the order dated 27.03.1997 to the Tribunal. The Tribunal by its order dated 25.02.1999 deleted all additions made to the income by the Assessing Officer save and except the following two additions:
(a) Gifts received from Non-Resident Indians from their NRE accounts and cash premium paid thereon aggregating to Rs. 4.06 lacs for the assessment year 1994-1995 and 1995-1996; and
(b) Commission received from M/s. Chintamani Advertiser aggregating to Rs. 2.42 lacs for the assessment year 1993-94 up to 1996-1997.
4. The appellant is in appeal, on the aforesaid two additions, which has been sustained by the order dated 25.02.1999 of the Tribunal.
5. Mr. B. V. Jhaveri, learned Counsel appearing for the appellant submitted that seven questions of law, as framed by the appellant, at the time of admission of the appeal could be suitably classified into two questions of law namely question no. (i) and question no.(vii). According to him, questions nos. (ii) to (vi) are mere facets of the issue arising in question no. (i). Therefore, he is not pressing question nos. (ii) to (vi) and seeks to raise and press only question nos. (i) & (vii) at the time of final hearing.
6. With regard to the first question namely gifts received from Non-Resident Indians through their NRE accounts being brought to tax as undisclosed income under Chapter XIV-B of the said Act is concerned, Mr. Jhaveri made the following submissions:
(a) Gifts received by the appellant cannot be subjected to tax in a block assessment under Chapter XIV-B of the Act, as the same would not fall within the meaning of undisclosed income as given under Section 158B(b) of the Act. This was for the reason that the gifts which were received by the appellant had been declared to the Income Tax Authorities in the form of capital gain account filed along with her return of income. In support, he invited our attention to the return of income filed by the appellant during the assessment years 1994-95 and 1995-96. So far as, assessment year 1993-94 is concerned, he invited our attention to an order dated 28.09.1995 of the Assessing Officer under Section 143(3) of the Act, wherein the gifts received from NRI’s was subject matter of inquiry and duly considered while passing the assessment order.
(b) A block assessment can only be carried out on the basis of documents found during the search and not on the basis of other documents/evidence obtained otherwise than during the course of a search. According to him, the entire basis of the block assessment was with regard to the gifts, were statements made by the appellant’s husband and son to the FERA (Foreign Exchange Regulation Act) Authorities on 06.11.1996 and 07.11.1996 respectively; and
(c) On merits, the documents found during the search were in the form of copies of the passport of the donors, copies of their NRE accounts and also confirmatory letters from the donors regarding the fact that the gifts have been made to the appellant. According to him none of the aforesaid documents either singly or together could lead to the conclusion that the gifts are fake. This conclusion by the authorities is based merely on suspicion. Suspicion howsoever strong, cannot take a place of proof. In view of the above, Mr. Jhaveri submits that the additions of amounts received as gifts to the appellant’s income as unexplained credits and/or fake gifts is not sustainable.
7. As against the above, Mr. Suresh Kumar, the learned Counsel for the Revenue-respondent submits as under:
(a) The disclosure made by the appellant while filing its return of income was not a subject matter of inquiry in the assessment year 1994-95 and 1995-96 as the same was not declared as her income. So far as, assessment year 1993-1994 is concerned, the Non-Resident Indians gifts received from NRE account had not been brought to tax as undisclosed income in view of the fact that the same was the subject of inquiry in an order passed under Section 143(3) of the Act on 28.09.1995. Therefore, the reliance upon the aforesaid order by the appellant to establish that the gifts have been disclosed as income is not relevant for the present proceedings;
(b) It was only on search that the documents found established that what had been disclosed as gifts were in fact not gifts but merely purchase of entries at a premium, so as to convert her undisclosed income into regular income. Therefore the amounts shown as gifts were in fact undisclosed income and therefore within the scope of Chapter XIV-B of the Act;
(c) The amount taxed as undisclosed income under Chapter XIV-B of the Act were on the basis of material found during the search. The material found during the search indicated that the gifts were not genuine; and
(d) In matter such as these, one can never have conclusive evidence and one would have to take into account the surrounding circumstances particularly the fact that gifts aggregating to Rs. 35.47 lacs were received by the appellant and her family. This fact and the surrounding circumstances would be tested on the probability of human behaviour to arrive at conclusion whether the gifts are genuine or not. In considering such probabilities, it cannot be said that the conclusion was reached on the basis of conjectures, surmise, inferences and/or suspicions.
8. The second issue is that the commission of Rs. 2.42 lacs received from M/s. Chintamani Advertiser should not be separately subjected to tax in view of the fact that out of Rs. 40.98 lacs cash seized the respondents had estimated an amount of Rs. 32.88 lacs as undisclosed income leaving a sufficient balance to cover the commission receipts of Rs. 2.42 lacs was not raised before the Assessing Officer or the Tribunal. In the circumstances, the question no.(vii) would not arise for consideration by us. Our court in the matter of CIT v. Tata Chemicals Ltd. [2002] 256 ITR page 395 has held that an appeal to the High Court under Section 260A of the Act can only be on a question raised before the Tribunal. In this case, admittedly, the question as formulated for our consideration was not raised before the Tribunal. Therefore there is no occasion for us to consider and answer the same.
9. Therefore in this appeal we are concerned only with the alleged gifts received by the appellant from Non-Resident Indians out of their NRE accounts. Before, dealing with the respective submission for the purposes of considering the issue raised in this appeal, we may usefully reproduce the relevant provisions of Chapter XIV-B of the said Act as under:
158B. In this Chapter, unless the context otherwise requires.
(a) …..
(b) “undisclosed income” includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable articles, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act [or any expense, deduction or allowance claimed under this Act which is found to be false].
Assessment of undisclosed income as a result of search
158BA(1)….
Computation of undisclosed income of the block period
158BB(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, [in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence],
