1989-VIL-91-ITAT-MUM
Equivalent Citation: [1989] 33 TTJ 565 (ITAT [Bom])
Income Tax Appellate Tribunal MUMBAI
ITA No. 6400/(Bom)/1983
Date: 30.01.1989
K.G. NARIMAN ALIAS N.K. GAJWANI
Vs
INCOME TAX OFFICER
S. E. Dastur, for the Appellant
A. A. Makhija, for the Respondent
BENCH
U. T. SHAH (V.P.) and R. P. GARG (A.M.)
JUDGMENT
In this appeal, the assessee is challenging the imposition of penalty under s. 271(1)(c) of the Act.
2. The assessee is an individual. The asst. yr. is 1976-77 and the relevant previous year ended on 31st March, 1976.
3. During the relevant previous year, the assessee received a gift to Dollar 30,000 (Rs. 2,64,781) from his sister Smt. Shyama Keshwani from U.S.A. This gift was received through Bank Draft and was deposited on 5th Dec., 1975 in the account of the assessee with Vijaya Bank, Cuffe Parade Branch, Bombay.
4. The aforesaid facts were shown by the assessee in Part III of the Return. Along with the Return, the assessee had also sent Photostat copies of the letter received from Smt. Shyama Keshwani, Bank Draft sent by her, etc. During the course of assessment proceedings the ITO had called for further particulars which too were furnished by the assessee. The assessee was also asked to file Affidavit of Smt. Shyama Keshwani which he could not do, as Smt. Shyama Keshwani had died on 1st Jan., 1978. However, the assessee had filed the Affidavit dt. 9th March, 1979 of the husband of Smt. Shyama Keshwani with the ITO, wherein he had stated on solemn oath that his wife had gifted the amount in question to the assessee.
5. On the appreciation of the material facts, available on record, the ITO was not satisfied with the assessee's explanation regarding the nature and source of Rs. 2,64,781. Invoking the provisions of s. 68 of the Act, he made addition of Rs. 2,64,781, whereby as against loss of Rs. 5,59,068 declared by the assessee in his Return, the ITO had determined the total income of the assessee at Rs. 25,440. The relevant portion of the order of the ITO reads as under :
"10. Having regard to all the facts as aforesaid, I have to conclude that the assessee has not conclusively proved the nature and source of the amount of Rs. 2,64,781 credited to his account with the Vijaya Bank, Cuffe Parade on 5th Dec., 1975. The amount is therefore considered as income under s. 68 of the Act."
6. Being aggrieved by the aforesaid addition, the assessee went up in appeal before the CIT(A) and once again argued that his explanation regarding the nature and source of Rs. 2,64,781 should be accepted. The CIT(A), in his appellate order details. 28th Dec., 1979, after considering the submissions made on behalf of the assessee was well as the material available on record deleted the addition of Rs. 2,64, 781 in the following manner :
"I have considered the basis on which the ITO has made the addition and also submissions made by Shri Dinesh Vyas. The death of Smt. Shyama Keshwani in December, 1978 limits the scope of the effect of the ITO to collect evidence. However, the assessee had been able to produce convincing documentary evidence in support of the claim that the amounts were sent by way of gifts from U.S.A. All that the ITO has relied on is the discrepancy on one occasion between the date of the letter and the date shown on the envelope. It cannot be said that the assessee has not been able to establish the financial condition of the donor so as to be able to make the gift. As mentioned above the assessee has furnish the copy of the letter of 1967 addressed by Smt. Shyama Keshwani in which she has referred to the purchase of a house in New Jersey. She was also carrying on business in U.S.A. for a long time. After giving careful thought I am of the view that the ITO has not been able to establish evidence to challenge or dislodge the claim as regards the gifts received by the assessee from his sister from U.S.A.
Shri Dinesh Vyas in the course of hearing emphasised the principal that before making any addition there must be something more than mere suspicion in support of such addition. In this connection he referred to the Supreme Court decision in the case of Dhakeshari Cotton Ltd. 26 ITR 799and the CIT vs. Daulatram Rawatmull (1970) 87 ITR 349(SC). Viewed form this angle also the ITO has not been able to establish the basis for the conclusion that the gifts were not given or that it represented assessee's funds diverted to his sister for making gifts to him. It this view of the matter I delete the addition of Rs. 2,64,781."
7. Being aggrieved by the order of the CIT(A), the Revenue came up in appeal before the Tribunal urging that the addition of Rs. 2,64,781 should be restored. After considering the rival submissions of the parties, the Tribunal, in its order dt. 27th July, 1982, restored the addition of Rs. 2,64,781 in the following manner :
"9. Thus, on a consideration of the evidence and circumstances, we hold that the assessee have totally failed to establish the capacity of the donor and the genuineness of the alleged gifts and that the Commissioner (A) has erred in accepting the case of the assessee."
8. It may be mentioned that the assessee had made an application under s. 256(1) of the Act before the Tribunal to draw up a Statement of the Case and refer a question to the Hon'ble High Court in respect of the addition of Rs. 2,64,781 sustained by the Tribunal. The Tribunal, however, rejected the said application. Thereafter, the assessee made an application under s. 256(2) of the Act before the Hon'ble High Court and the High Court High Court, vide their order dt. 10th March, 1987 in ITA No. 8 of 1984, directed the Tribunal to draw up a Statement of the case and refer the following question for their opinion:
"Whether on the facts and the circumstances of the case and on a proper interpretation of s. 68 of the IT Act, 1961, the sum of Rs. 2,64,781 was assessable as income of the assessee under that section?"
9. Simultaneously with the framing of the assessment, the ITO had initiated proceedings under s. 274/273(1)(c) of the Act and called upon the assessee to show cause why penalty should not be imposed under s. 271(1)(c) of the Act in respect of the addition of Rs. 2,64,781. Vide his letter dt. 13th Jan., 1983 the assessee had resisted the action of the ITO. The ITO in his order dt. 18th Feb., 1983, made under s. 271(1)(c) of the Act once again narrated the facts of the case and relying heavily on the fact that the Tribunal had restored the addition of Rs. 2,64,781 came to the conclusion that the assessee's case fell within the mischief of cls. (A) and (B) of the Expln. 1 to s. 271(1)(c) of the Act. He, therefore, imposed penalty of Rs. 1,80,440 on the assessee.
10. The assessee went up in appeal before the CIT(A) and strongly urged that on the facts and circumstances obtaining in his case, the ITO was not justified in imposing penalty under s. 271(1)(c) of the Act. In this connection, the assessee had also stressed before the CIT(A) the fact that he had received gift of Rs. 2,64,781 from his sister which was disclosed in Part III of the return, that he had filed photostat copies of certificate regarding encashment of bank draft of $ 30,000 from Vijaya Bank, that a copy of his account with Vijaya Bank showing the entry regarding the deposit of Rs. 2,64,781 and letter dt. 1st Dec., 1975 received by him from his sister Smt. Shyama Keshwani regarding the gift. The CIT(A) however, upheld the action of the ITO in the following manner:
"6. It is not doubt true that the appellant had disclosed all the relevant facts regarding the gift of Rs. 2,64,781 and the material to the computation of his total income in the return of income. However, considering the facts and circumstances of the case, the explanation given by him cannot be bona fide. According to the Shorter Oxford English Dictionary, the word "bona fide" means "in good faith; genuinely." This means that the assessee should given the explanation in good faith, i.e. under a bona fide belief that the explanation given by him is true. In the present case, the Tribunal has held that the appellant totally failed to establish the capacity of the donor and the genuineness of the alleged gift. Beside, the facts mentioned at (a) to (e) in para 2 above clearly show that the explanation given by the appellant is highly improbable. Considering these facts I am of the opinion that the explanation given by the appellant is not bona fide. Accordingly I hold that the appellant's case is not covered by the proviso to Expln. 1 to s. 271(1)(c) and under the provisions of this Explanation the amount of Rs. 2,64,781 represents the income in respect of which particulars have been concealed. The ITO is therefore justified in imposing the penalty of Rs. 1,80,440 under s. 271(1)(c) r/w the Expln. 1. I, therefore, confirm the penalty order passed by him."
11. Being aggrieved by the order of the CIT(A), the assessee has come up in appeal before the Tribunal. The learned Counsel for the assessee reiterated the submissions which were made before the IT authorities and strongly urged that on the facts and circumstances obtaining in the instant case there was no justification on the part of the IT authorities to impose penalty under s. 271(1)(c) of the Act. The learned Counsel for the assessee developed his case mainly on the following line :
(i) Explanation 1(B) to s. 271(1)(c) of the Act does not apply to his case.
(ii) Even assuming for the sake of argument that the aforesaid Explanation applies, the assesses case would still be saved by the proviso to the said Explanation.
(iii) The CIT(A) had deleted Rs. 2,64,781 in the quantum proceedings.
(iv) The Tribunal and restored the addition of Rs. 2,64,781 on inferences drawn on the material available on record; and
(v) the Hon'ble High Court has been pleased to grant reference under s. 256(2) of the Act in respect of the addition made under s. 68 of the Act.
12. Inviting our attention to the Expln. 1(b) of the Act, the learned Counsel for the assessee submitted that since the assessee had disclosed facts, material to the computation of the total income and had given explanation regarding the nature and source of Rs. 2,64,.781 along with Return, it must be held that he had "substantiated" his case regarding the gift received from his sister. Inviting our attention to the order of the Tribunal in the quantum proceedings, the learned Counsel for the assessee tried to impress upon us that the Tribunal had nowhere found that the assessee had concealed particulars of income. According to the learned Counsel for the assessee, the Tribunal had restored the addition of Rs. 2,64,781 on the basis of inferences drawn by it on the material already brought on record. He, therefore, strongly urged that cl. (B) of the Expln to s. 271(1)(c) of the Act was not applicable in the instant case.
The learned counsel for the assessee went on to argue that even assuming for the sake of argument that the provisions of sub-cl. (B) of the Expln. 1 to s. 271(1)(c) of the Act were applicable in the instant case, still no penalty could be imposed under s. 271(1)(c) of the Act by virtue of the Proviso to the said sub-clause. In this connection, he submitted that the Explanation given by the assessee were the nature and source of Rs. 2,64,781 was a "bona fide" Explanation as the assessee had furnished all the affects relating to the same and material to the computation of total income in his return of income. Thereafter, the learned counsel for the assessee invited our attention to certain relevant portions of the Commentary of Kanga & Palkhivala's "The law and Practices of Income-tax" at page 1213 of Vol. I (7th Edition) and Sampath Iyengar's "Law of Income-tax" at page 4760 Vol. V (7th Edition) to urge that there was no material difference between the provisions of the original Explanation and that brought on the statute w.e.f. 1st April, 1976.
Inviting our portion to the order of the CIT(A) in the quantum proceedings (the relevant protein of which is reproduced above), the learned Counsel for the assessee highlighted the fact that the CIT(A), on the appreciation of the material already brought on record, was satisfied that the assessee had successfully explained the nature and source of Rs. 2,64,781 and, therefore, the ITO was not justified in invoking the provisions of s. 68 of the Act in this regard. In other words, the learned Counsel for the assessee wanted to impress upon us that the explanation given by the assessee regarding the nature and source of Rs. 2,64,781 was accepted as "bona fide" by a senior officer of the rank of the CIT(A).
Thereafter, the learned Counsel for the assessee invited our attention to the order of the Tribunal in the quantum matter and pointed out that the Tribunal had restored the addition of Rs. 2,64,781 mainly on the inferences drawn by it on the material available on record without any definite finding that the amount involved was the income of the assessee.
Even though the Tribunal had rejected the R.A. filed by the assessee under s. 256(1) of the Act in respect of the addition of Rs. 2,64,781 made by the ITO by invoking the provisions of s. 68 of the Act, the Hon'ble High Court was pleased to accept the R.A. filed by the assessee under s. 256(2) of the Act and had directed the Tribunal to draw up a statement of the case and refer a question for their opinion (reproduced above.) The learned counsel for the assessee, therefore, strongly urged that since whether the addition of Rs. 2,64,781 was proper or not is wide opion, there is no justification on the part of the IT authorities to impose penalty under s. 271(1)(c) of the Act, in the manner they did,
In support of his various submissions, the learned Counsel for the assessee relied on the decision in the case of Calcutta Credit Corporation Ltd. vs. ITO (1971) 79 ITR 483(Cal), CIT vs. S.P. Bhatt (1974) 97 ITR 440(Guj), and CIT vs. M.B. Engineering Works (P) Ltd. (1986) 158 ITR 509(Cal). The learned Counsel for the assessee had also relied on the orders of the Tribunal in the case of Janta Wine Store vs. ITO (1984) 10 ITD 348(Del), Agarwal Trading Co. vs. ITO (1985) 20 Taxman 26and Thakur Dass Gurbachan Rai vs. ITO (1986) 24 Taxman 101(Chd).
13. The learned representative for the Department, on the other hand, strongly relied on the orders of the IT authorities and vehemently argued that the penalty imposed by them under s. 271(1)(c) of the Act should be upheld. According to him, the assessee was not able to dislodge the addition made by the ITO by invoking the provisions of s. 68 of the Act which was upheld by the Tribunal. Inviting our attention to the Affidavit of the husband of late Smt. Shyama Keshwani, the learned representative for the Department submitted that since in the said Affidavit there is no mention of the source out of which the late Smt. Shyama Keshwani had alleged to have given gifts to the assessee and the other members of the family, there is no evidentiary value of such Affidavit. He further submitted that the fact that the assessee had shown the receipt of the amount in part III of the return would not absolve him from the clutches of the provisions of s. 271(1)(c) of the Act. He further submitted that the assessee's case is not only conferred by cl. (B) of the Expln. 1 to s. 271(1)(c) of the Act, but the assessee cannot be any support from the Proviso to the said clause. If we were to accept the stand taken on behalf of the assessee, then we would be asking the ITO to prove the impossible. According to him, the expression "bona fide" used in the Proviso has to be read as "in good faith". However, in the instant case since the assessee had failed to explain the nature and source of Rs. 2,64,781, as held by the Tribunal, the IT authorities were fully justified in imposing penalty under s. 271(1)(c) of the Act.
In support of his various submissions, the learned representative for the Department relied on the decision of the Punjab & Haryana High Court (Full Bench) Vishwakarma Industries vs. CIT (1982) 29 CTR (P&H) 243 (FB) : (1982) 135 ITR 652(P&H) (FB), Dr. (Mrs) K.D. Arora vs. CIT (1986) 52 CTR (Pat) 95: (1986) 162 ITR 481(Pat), Chuharmal vs. CIT (1988) 70 CTR (SC) 88: (1988) 172 ITR 250(SC) and CIT vs. Mussadilal Ram Bharose (1987) 60 CTR (SC) 34: (1987) 165 ITR 14(SC). He also relied on the orders of the Tribunal in the cases of ITO vs. Bellias and Marconi (1985) 23 TTJ (Cal) 516: (1985) 14 ITD 361(Cal) and ITO vs. Geep Industrial Syndicate Ltd. (1987) 23 ITD 448.
14. The learned Counsel for the assessee, in his reply, took us through each of the aforesaid reported decisions/orders relied on behalf of the Revenue and pointed out that the facts and circumstances obtaining in those cases were clearly distinguishable from the facts and circumstances obtaining in the instant case. He also said that he cannot possibly dispute the observations made by the Hon'ble Supreme Court in the assessment reported in 165 ITR 14(supra). However, he hastened to state that the said observations had no application to the facts and circumstances obtaining in the instant case. Similarly, he sated that in 172 ITR 250(supra) the Hon'ble Supreme Court was concerned with cl. (A) of the Expln. 1 to s. 271(1)(c) of the Act, while in the instant case we are concerned with cl. (B). Finally, he stated that in (1982) 29 CTR (P&H) 243 (FB) : (1982) 135 ITR 652(P&H) (FB) (supra), the Hon'ble High Court was concerned with he old Explanation to s. 27191)(c) of the Act and not the one with which we are concerned in the present appeal.
15. We have carefully considered the rival submissions of the parties and the material already brought on record and we find force in the submissions made on behalf of the assessee. It would appear from the quantum proceedings that the addition of Rs. 2,64,781 was deleted by the CIT(A) but was restored by the Tribunal. Even though the Tribunal had rejected the R.A. filed by the assessee under s. 256(1) of the Act, the Hon'ble High Court was pleased to grant reference under s. 256(2) of the Act in respect of the addition of Rs. 2,64,781 made by involving the provisions of s. 68 of the Act. In other words, it is quite apparent from the record that the question of addition of Rs. 2,64,781 is wide open. Under these circumstances only, we fail to appreciate how the assessee's case could be brought within the mischief of cl. (B) of the Expln. 1 to s. 271(1)(c) of the Act. Here it is pertinent to note that it is a trite law that the penalty proceedings and the assessment proceedings are two separate and distinct proceedings. Therefore, the fact that some addition is made in the assessment would not automatically justify the imposition of penalty under s. 271(1)(c) of the Act.
It is an undisputed fact that in his return as well as alongwith his return the assessee had filed all material in respect of the computation of his total income under the Act. Not only that the assessee had supported with documentary evidence his explanation that he had received Rs. 2,64,781 by way of gift from his sister. We, therefore, entirely agree with the stand taken on behalf of the assessee that the provisions of cl. (B) of the Expln. 1 to s. 271(1)(c) of the Act would not be attracted in the instant case. Even assuming for the sake of argument that the said clause would be attracted in the instant case, it is difficult to hold that the explanation given by the assessee regarding the nature and source of Rs. 2,64,781 was not a bona fide. We have come to this conclusion as the CIT(A) had accepted the assessee's explanation in the quantum proceedings and the Hon'ble High Court was pleased to grant reference under s. 256(2) of the Act in respect of invoking the provisions of s. 68 of the Act. In this view of the matter, even assuming for the sake of argument that the assessee's case falls within cl. (B) of the Expln. 1 of s. 271(1)(c) of the Act, the assessee's case could still be saved by the provisions contained in the Proviso to the said Clause. Further, after carefully going through the relevant portions of the commentaries of Kanga & Ralkhivala and Sampath Iyengar (referred to on behalf of the assessee), we are fully satisfied that this is not a fit case for imposing penalty under s. 271(1)(c) of the Act.
Since we are deciding the appeal on the appreciation of the facts and circumstances obtaining in the instant case as well as our view on the relevant provisions of the Act, we do not deem it fit to discuss any of the reported cases/orders cited by the parties. Suffice it to say that these reported decisions/orders support their respective stand.
In view of our aforesaid discussion, we have no hesitation in cancelling the penalty imposed under s. 271(1)(c) of the Act.
16. In the result, the appeal is allowed.
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