Case Law Details
Kiran Bala Gupta Vs DCIT (ITAT Hyderabad)
During the course of scrutiny assessment proceedings, it was observed by the learned AO that the assessee has declared long term capital gains of Rs.31,29,215/- towards sale of jewellery and claimed deduction u/s 54F of the Act against investment made in construction of house. Assessee was asked to show proof for the purchase of jewellery, whereas she had replied that the said jewellery was received from her mother on her 10th wedding anniversary in 1998. She also furnished invoices from M/s. Manoj Jewellery, Secunderabad for purchase of jewellery. Consequently, summon was issued to M/s. Manoj Jewellers and the partner of the firm appeared. However, he could not confirm the sale transaction and also denied knowledge about the signatures in the invoices. Further the assessee had not filed her wealth tax return to substantiate possession of gold jewellery. It was further observed from the bank account of the assessee that there was a credit entry of Rs.31,21,215/- on 02.02.2012 and on the very same day, the money was advanced to the company owned by her husband. Therefore, the learned AO argued that the sale of jewellery is a colourable devise to convert the unexplained money into accounted money. Accordingly, he treated the amount of Rs.31,29,215/- as ‘unexplained money’ in the hands of the assessee invoking the provisions of section 69A of the Act.
Before us, the learned AR could not produce any materials to prove the genuineness of the transaction other than reiterating the submissions made before the Ld. Revenue Authorities. It is apparent from the admission of the seller of jewellery that there was no sale transaction with the assessee. The assessee had also not declared the jewellery before the Revenue earlier by filing wealth tax return. Therefore, we do not find it necessary to interfere with the order of Revenue authorities on this issue. Hence, the ground No.1 raised by the assessee is devoid of merits.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by the assessee against the order of learned Commissioner of Income Tax (Appeals) – 6, Hyderabad dt.20.10.2016 in Appeal No.0110/2015-16/CIT(A)-6/16-17 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as “the Act”).
2. The assessee has raised nine grounds in her appeal, however, the crux of the issue are as follows:
1. The learned CIT(A) has erred in sustaining the order of the learned AO who had treated the long-term capital gains derived from sale of jewellery as the unexplained income of the assessee for Rs.31,29,215/- u/s 69A of the Act.
2. The learned CIT(A) erred in sustaining the order of the learned AO who had treated the amount of Rs.1,86,32,023/- as the income of the assessee under the head ‘income from other sources’ though it was exempt u/s 10(38) of the Act being long-term capital gains derived from sale of securities.
3. The learned CIT(A) has erred in sustaining the addition made by the learned AO for Rs.61 lakhs by treating it as unexplained loans.
3. The brief facts of the case are that the assessee is an individual earning income from salary, rent and interest income. The assessee filed her return of income on 23.11.2012 declaring total income of Rs.44,83,200/-. The case of the assessee was taken up for scrutiny and assessment was framed u/s 143(3) of the Act on 26.03.2015 wherein the learned AO made the above-mentioned additions.
4. Ground No.1 – Unexplained money of Rs.31,29,215/-.
During the course of scrutiny assessment proceedings, it was observed by the learned AO that the assessee has declared long term capital gains of Rs.31,29,215/- towards sale of jewellery and claimed deduction u/s 54F of the Act against investment made in construction of house. Assessee was asked to show proof for the purchase of jewellery, whereas she had replied that the said jewellery was received from her mother on her 10th wedding anniversary in 1998. She also furnished invoices from M/s. Manoj Jewellery, Secunderabad for purchase of jewellery. Consequently, summon was issued to M/s. Manoj Jewellers and the partner of the firm appeared. However, he could not confirm the sale transaction and also denied knowledge about the signatures in the invoices. Further the assessee had not filed her wealth tax return to substantiate possession of gold jewellery. It was further observed from the bank account of the assessee that there was a credit entry of Rs.31,21,215/- on 02.02.2012 and on the very same day, the money was advanced to the company owned by her husband. Therefore, the learned AO argued that the sale of jewellery is a colourable devise to convert the unexplained money into accounted money. Accordingly, he treated the amount of Rs.31,29,215/- as ‘unexplained money’ in the hands of the assessee invoking the provisions of section 69A of the Act.
5. On appeal, learned CIT(A) confirmed the order of the AO by observing as under :
“08.0 According to the assessee, she purchased the jewellery in 1998 and sold it during the previous year under consideration and therefore the capital gain shown by her was correct. According to the Assessing Officer, the source of acquisition of jewellery was unproved as it was a self-serving statement given by the mother of the assessee, who claimed to have gifted it to the assessee. Also, the claim of sale of jewellery remained unproved because the jeweler did not furnish satisfactory explanation for documents relating to the alleged sale to him. Even if the sale of jewellery were substantiated without explaining the nature and source of investment in the jewellery, the value of the jewellery would represent the assessee’s unexplained investment u/s 69 of the I.T. Act for previous year under consideration. If on the other hand, the sale of jewellery was not substantiated, the sum of money deposited by her in her husband’s business accounts would represent her unexplained investment u/s 69 of the I.T. Act. In either case, the addition would be made. The assessee has not been able to satisfactorily explained either the acquisition of jewellery or disposal therefore. In view of this, it is held that the Assessing Officer was correct in treating the sum of Rs.31,29,215/- as her unexplained investment and deeming the same as her income u/s 69A of the I.T. Act.
6. Before us, the learned AR could not produce any materials to prove the genuineness of the transaction other than reiterating the submissions made before the Ld. Revenue Authorities. It is apparent from the admission of the seller of jewellery that there was no sale transaction with the assessee. The assessee had also not declared the jewellery before the Revenue earlier by filing wealth tax return. Therefore, we do not find it necessary to interfere with the order of Revenue authorities on this issue. Hence, the ground No.1 raised by the assessee is devoid of merits.
7. Ground No.2 – Addition of Rs.1,86,32,023/- by disallowance u/s 10(38) of the Act.
During the scrutiny assessment proceedings, it was observed by the Ld.AO that the assessee had sold 57,200 equity shares of Oasis Cine Communications Ltd., aggregating to Rs. 1,86,32,023/-on 12.03.2012 & 13.03.2012. On query, it was submitted that the assessee had acquired the shares by virtue of the amalgamation scheme of M/s. Gravity Barter Pvt. Ltd. and M/s. Oasis Cine Communication Ltd sanctioned by the order of the Hon’ble Karnataka High Court dated 25.08.2011. It was further submitted that the assessee had acquired 1300 equity shares of M/s. Gravity Barter Pvt. Ltd originally on 03.12.2010, face value of those shares was Rs. 10 per share. The assessee had purchased those shares at a premium of Rs.490/- per share and the aggregate purchase consideration of 1300 equity shares was Rs.6.55 lakh. Subsequently the assessee had claimed exemption u/s 10(38) of the Act towards the long term capital gains of Rs.1,79,82,023/- (Rs.1,86,32,023/- – Rs.6,50,000/-). Assessee had furnished all the documentary evidence to justify the bonafide of the transaction. Thereafter summons was issued to the assessee and her husband, and their statements were recorded. From the various enquiries made by learned AO, it was revealed that M/s. Gravity Barter Pvt Ltd was involved in 2G spectrum money laundering cases. It was, further observed that the entire transactions made by the assessee have been concluded within a span of 10 months in a well-organized manner. It was further observed from the statements recorded u/s 131 of the Act that the assessee and her husband had confirmed the transactions were arranged by Shri Ramana Rao and Shri Nageshwara Rao and had voluntarily offered to pay tax on the long-term capital gains without claiming deduction u/s 10(38) of the Act. Hence it was obvious that all the documentary evidence produced by the assessee were manipulated which proved the transaction to be sham. Therefore, the learned AO relying on the theory of preponderances of human probabilities as enlightened by the hon’ble Apex Court in the case CIT Vs. Durga Prasad More (1971) 82 ITR 540 and Sumati Dayal Vs. CITCIT (5) 214 ITR 801 treated the entire amount of Rs.1,86,32,023/- as the income of the assessee. For the above addition, the learned AO has made elaborate discussion in the assessment order.
8. On appeal, the learned CIT confirmed the order of learned AO by observing as under :
“13.0 The Assessing Officer has disallowed the claim of the exemption u/s 10(38) for the detailed reasoning given as under :
(i) The companies whose shares were traded were mere paper companies engaged in the activity of providing accommodation entries.
(ii) The Directors of those companies were dummy Directors who admitted that fact.
(iii) Sri Anil K Khemka was the person who controlled the companies and as per his confession, was involved in providing accommodation entries -to companies involved ill 2G scam.
(iv) The purchase I sale of the shares did not conform to normal practice followed in share transactions, viz.
(a) The payment for purchase was made after a gap of 10 months.
(b) Shares were debited from DMAT A/c of the assessee after a gap of 11 months Of purchase.
(c) Total consideration of Rs.1.80 Gores was not received by the assessee on sale of shares.
(d) Shares were debited from DMAT A/c of the assessee prior to the date of sale.
(v) The transaction was with a completely unknown company having no business activity, and whose shares were purchased at a premium of Rs.490 per share (face value was Rs.10/-).
(vi) The shares were sold to companies which were paper entries with little 0′- no business activity used for providing accommodation entries having same or similar kind of dummy Directors and controlled by Sri Anil Kumar Khemka.
13.1 This casts a big shadow of doubt on genuineness of transaction. The Assessing Officer confronted the assessee with all the evidence. The assessee admitted that she could not prove the genuineness of the transaction and offered to pay tax on the alleged capital gain. There is nothing on record to show that she did so under duress. She has discussed the matter with her husband, who also confirmed the same. Thus, the admission of failure to substantiate the genuineness of transaction and offer of payment of tax was a considered decision. It was only after good 5 days of the original statement that she came up with the plea she-was unable to honour the commitment of paying the lax. Thus, she did not retract the admission of failure to explain the genuineness of the transaction nor did she actually explain the same. The inability to pay the tax on admitted income does not mean that the income is not admitted and that the same should not be charged to tax. In view of the suspect nature of the transaction, the onus was really heavy on the assessee to explain the genuineness of the same and in view of her failure to do so, it is held the Assessing Officer’s action of treating the sum of Rs.1,86,32,023/- as income from ‘Other Sources’ is correct and the addition is upheld.
9. Before us, the learned AR vehemently argued stating that all the documentary evidence were furnished by the assessee and therefore the transactions made by the assessee cannot be treated as bogus. He also relied on the decision of hon’ble jurisdictional High Court in the case PVS Raju Vs. ACIT (2012) 340 ITR 75 to drive his point.
10. The learned DR on the other hand relied on the orders of Revenue authorities.
11. We have heard the rival submissions and carefully perused the material on record. As observed by the learned Revenue authorities, it is apparent that the companies whose shares were traded were mere paper companies, the directors of the companies were also dummy, and the entire scheme of operation was concluded in a period of 10 months creating documentary evidence. Thus, the assessee had non-taxable long-term capital gain amounting to Rs.1,79,82,023/- in a short span of time viz., 10 months. The transaction made by the assessee was with completely unknown entity, who did not have any credentials. Further from the enquiry made, it was revealed that the entire transaction was manipulated. The alleged shares were dematerialized in the Demat account of the assessee after eleven months of the purchase which appears to be abnormal. The sale consideration received from sale of share was also after a substantial delay which also raises doubt about the bonafide of the transaction, because as per norms of the Stock Exchange the stockbroker it is required to deliver the security and make payment within 48 hours of settlement of trade by the stock exchange. It was informed by RoC, Mumbai vide letter dated 13/1/2015 that no such transaction had taken place. The purchaser of share from the assessee did not have good credentials and appears to be bogus. The assessee has not furnished any convincing evidence to dispute these findings of the Ld. Revenue Authorities. Further, the learned AR also could not present any cogent materials before us other than the manipulated documents to establish the transaction to be genuine or to counter the theory of preponderances of human probability as enlightened by the Hon’ble Supreme Court in the case relied upon by the learned AO (supra). Further it is apparent from the orders of the Ld. Revenue Authorities that the assessee is in the habit of introducing unexplained funds. In this situation, we do not find it necessary to interfere with the order of learned Revenue authorities on this issue.
12. Ground No.3 – Unexplained loan of Rs.61 lakh.
It was observed that the assessee has received loan of Rs.1,37,45,000/- during the relevant assessment year and on further verification, it appeared that the loan received from the following 11 loan creditors were not genuine aggregating to Rs. 61,00,000/- viz. Kiran Kedia, Vandana Agarwal, K. Bhagyamma, K. Brijesh Chowdary, K. Suresh Chandra, Kanak Baid, Lata Baid, Anil Kedia, N. Siddarth, S. Swarajya and Priyanka Narsingam. Since the assessee could not establish the creditworthiness of these loan creditors as elaborated in the assessment order, the learned AO opined the transactions to be bogus. All the loan creditors were found to be small time persons with no regular source of income. The entire loan amount received by the assessee was transferred to the company owned by her husband as soon as the loan amount was received. For the above stated reasons, the learned AO treated the amount of Rs.61 lakh as unexplained money of the assessee u/s 69A of the Act by relying on various decisions of higher judiciary cited in the assessment order.
13. On appeal, the learned CIT confirmed the order of the learned AO by observing as under :
“17.0 The facts of the case and the submissions of the appellant have been carefully considered. The assessee has shown to have taken money from 11 persons ostensibly through-bank account and therefore according to her as the identity was proved, money was received from the bank accounts of the persons, and that she had repaid the amounts, her onus stood discharged, But as pointed out by the Assessing Officer all the creditors are persons of meagre income, having annual income of Rs.1.78 lakhs to Rs.3.15 lakhs and the money given to the assessee was deposited in their bank accounts in cash, mostly on the same day when it was given to her, For the rest of year, their bank accounts showed only nominal balances. Bank entries by itself does not make a transaction genuine. For the genuineness to be established, the source and creditworthiness of the creditors have to be undisputedly establish by the assessee, especially when the money was deposited in cash in the respective bank accounts of the creditors. Thus the assessee has failed to discharge her primary onus of proving the capacity of the creditors and the genuineness of the transaction. If the nature and source of cash credit remains unexplained, it is immaterial whether subsequently it is claimed that it was repaid or not. In the view of the aforesaid, I see no reason to interfere with the decision of the Assessing Officer in treating the amount of Rs.61 lakhs as unexplained income. The addition is confirmed.”
14. Before us, the learned AR though vehemently argued by stating that the assessee has submitted the names and addresses of the creditors, however he could not establish the creditworthiness of the entities who have extended loan to the assessee. The finding of the learned Revenue authorities also could not be controverted by the learned AR with any cogent evidence. From the facts of the case, it also appears that all the loan creditors were persons of meagre income. It is also apparent that the loan creditors had deposited cash in their accounts and mostly on the very same day they had transferred the same to the assessee’s bank account. Thereafter, there were no significant bank transactions in the bank accounts of the loan creditors. Needless to mention that banking transaction alone will not make the transactions to be genuine. From the above it is crystal clear that the creditworthiness of the loan creditors is not established. Further, the proximity between the loan creditors and the assessee is also not established for extending loan to the assessee. On perusing the orders cited by the Ld. AR in page no. 1 to 98 of the paper book, we do not find the facts to be identical to the facts in the case of the assessee and on the other hand the decision cited by the Ld. Revenue Authorities support the case of the Revenue. Therefore, we do not find it necessary to interfere with the orders of the learned Revenue authorities.
15. In the result, the appeal of the assessee is dismissed.
Order pronounced in the Open Court on the 10th December,2021.
