Income Tax Appellate Tribunal - Mumbai
Virendra K. Mehta, Mumbai vs Assessee on 23 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH "F",
MUMBAI
BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A.M)
ITA 1946/MUM/2010(A.Y.2004-05)
Shri Virendra K. Mehta, The DCIT, Cir. 13(2),
M/s. V.K. Industrial Corporation, Mumbai.
303-304, Loha Bhavan, Vs.
Carnac Bunder, Mumbai - 400 009.
PAN: AAAPM 7667B
(Appellant) (Respondent)
Appellant by : Shri Prakash Jhunjhunwala
Respondent by : Shri V.V.Shastri
Date of hearing : 23/01/2012
Date of pronouncement : 27/01/2012
ORDER
PER N.V.VASUDEVAN, J.M:
This is an appeal by the assessee against order dated 29/1/2010 of CIT(A) 24, Mumbai relating to A.Y 04-05. In this appeal the assessee has challenged the order of the CIT(A) whereby the CIT(A) has confirmed the order of the AO imposing penalty under section 271(1) (c) of the Income Tax Act, 1961(the Act).
2. The facts and circumstances under which penalty was imposed on the assessee by the AO are as follows:
2.1 The Assessee is an individual. In the course of assessment proceedings for the AY 04-05, the AO noticed that in the Balance Sheet as on 31.3.2004, the Assessee had declared cost of flat being Flat No.401 and 402 having a total carpet area of 1785 Sq.ft. in the 4th floor at Vile Parle in the 2 ITA 1946/MUM/2010(A.Y.2004-05) building know as Ganesh Ashish at Rs. 70,960. The Assessee had acquired this flat during the previous year. According to the Assessee he was a tenant of the property over which the building Ganesh Ashish was constructed and in consideration for surrender of tenancy rights to enable demolition and construction of flats, the Assessee was given the aforesaid two flats. The assessee with the return of income for assessment year 2004-05 had enclosed a copy of the registered agreement dated 21.10.2003 entered into with Smt. Manjula S. Goradia whereby the Assessee surrendered his tenancy rights in consideration of getting two flats. The Agreement dt. 21.10.2003 mentioned that prior to the demolition of the said building the assessee was a monthly tenant at Rs75 per month and occupied an area measuring 1,785 sq.ft below the staircase of the building in an unauthorized shed. The agreement also mentioned that Mrs. Manjula S.Goradia had proposed to demolish the building to construct a new building approval for the same had been received from the Municipal Corporation vide letter No. CE/7688/WS/AK dated 30.11.2002 and the assessee had been offered two flats being 401 and 402 measuring 1785 sq.ft (carpet area) in the proposed building. In support of the claim that the assessee was a tenant, the assessee produced annual rent receipts for Rs.900/- per year for the period 1.10.2000 to 30.9.2002 and copy of electricity bill for the month of October 2002 issued by BSES Ltd. in the name of Shri Virendra K. Mehta vide consumer No.A08150025 for Rs.20/-. The AO made enquiry from M/s.
Reliance Energy Ltd. who replied that consumer No.A08150025 was registered in December 1973 and discontinued in December, 2002 and as per their record Shri Kuldipsingh Sachdeva was the registered consumer at the said address. The assessee could not produce the original bill. AO based on the above report from BSES (later taken over by M/S.Reliance Energy Ltd.) concluded that the electricity bill produced in the name of the assessee 3 ITA 1946/MUM/2010(A.Y.2004-05) was forged one to prove the tenancy. The AO also verified the assessment records of Smt. Manjula S. Goradia and found that in the assessment year 2002-03 and 2003-04 Smt. Manjula .S.Goradia had declared only income from salary, interest and dividend but the rental income of Rs.900/- claimed to have been received from the tenant had not been declared in the assessment years 2003-04 and 2004-05.
2.1 The A0 thereafter issued summons to Smt. Manjula S. Goradia in response to which her daughter Miss Bhavisha appeared duly authorized and she stated that prior to demolition of the building there were five tenants including Mr. Sachdeva. She also stated that Shri Sachdeva had transferred the tenancy to Shri Virendra K. Mehta without her knowledge. The assessee was not aware because flat was always kept locked and she came to know only when the negotiations with the tenants were being made through their solicitors towards the end of 2000. Thereafter rent receipts were issued in the name of Shri Mehta to avoid litigation. She also stated that rental income from Shri Mehta had been omitted to be included in the return of income of Smt. Manjula S. Garadia. She however could not produce any documentary evidence to prove that Shri Sachdeva had relinquished the tenancy in favour of Shri. Mehta. The A0 did not believe that the land lord would remain unaware about the transfer of tenancy and considering the fact that transfer was not supported by any evidence nor the rental income from Shri Mehta had been declared in the return of income, concluded that the assessee had made bogus claim of tenancy and filed forged electricity bills to support the claim. The AO also noted from the details of expenses filed that a registered letter dated 27.9.2002 had been sent to Shri K.S. Sachdeva for which cash expenditure of Rs 42 had been incurred. The AO also noted that out of the five tenants four of them had opted to receive compensation 4 ITA 1946/MUM/2010(A.Y.2004-05) in lieu of the tenancy for a total amount of Rs.81 lacs. But Shri Sachdeva had a clandestine arrangement with the assessee to transfer the tenancy right so that Shri Mehta could be entitled to flat measuring 1785 sq.ft. Shri Sachdeva was substituted by Shri Virendra K Mehta as tenant by creating bogus rental receipts and electricity bill. The assessee had therefore made undisclosed investments to acquire flats measuring 1785 sq. ft.
2.2. The AO accordingly asked the assessee to explain as to why the investment in flat No.401 and 402 at Church Road should not be treated as unexplained investment under section 69. The assessee however reiterated it stand that he had acquired the flats in lieu of surrender of tenancy and that he had not paid any amount to any one for acquiring the tenancy rights or the ownership of flats. The flat had been allotted in terms of the agreement entered with the land lady. The land lady had issued the rent receipts. It was also explained that the electricity bill had been given by the agent and the assessee had not verified the genuineness of the bill. The assessee. however in the letter dated 27.12.06 further stated that to buy mental peace and to avoid protracted litigation, the assessee was ready to offer the value of investments as income subject to the condition that no penal action would be taken against the assessee and no penalty for concealment would be levied. The AO however observed that there was adequate evidence to show that forged evidence had been produced to create tenancy rights ad unaccounted consideration has been passed by the assessee to acquire the ownership of flats. He also referred to the decision of Hyderabad Bench of the Tribunal in case of Hertz and Waves Engineering Pvt. Ltd. (42 ITD 558) in which it was held that that finding about the factual position has to be given after proper appreciation of material on record after considering the pre-ponderance of probabilities. Considering the facts and circumstances of 5 ITA 1946/MUM/2010(A.Y.2004-05) the case , the AO concluded that the assessee had paid unexplained amounts for acquisition of flats from undisclosed sources. It was noted by him that the land lady had sold 6200 sq.ft. of built. up area for RS.2,14,00,000/- which meant price of Rs.3452 per sq.ft. The built up area of the flat owned by the assessee came to 2053 sq.ft after maknig addition of 15% to the carpet area . AO thus calculated the value of flat at the time of investments of Rs. 70,86,956/- which was added as unexplained investment under section 69 of the Act.
3. It is not in dispute that the above addition made by the AO has been confirmed by the ITAT. In respect of the addition made in the assessment proceedings the AO imposed penalty on the assessee holding that the assessee furnished inaccurate particulars of income.
4. On appeal by the assessee the CIT(A) confirmed the order of the AO giving rise to this appeal by the assessee before the Tribunal.
5. Before us, the learned counsel for the Assessee submitted that the surrender made at the time of assessment proceedings was only to buy peace and that the evidence on record clearly established his case that the flats were acquired by the Assessee in consideration for surrender of tenancy rights and not by paying consideration of Rs.70,86,956/-. In this regard the learned counsel brought to our notice the registered agreement for surrender of tenancy rights, the statement of the daughter of the landlady, the rent receipts and other documents filed before the AO in the course of assessment proceedings. Reference was made to several judicial pronouncements for the proposition that penalty proceedings being independent proceedings, the onus was on the department to establish concealment and in this regard reference was made to the decision of the 6 ITA 1946/MUM/2010(A.Y.2004-05) Chennai Bench of ITAT in the case of Gem Granites (Karnataka) Vs. DCIT 120 TTJ (Chennai) 992. On the question of proper disclosure and penalty being not automatic, reliance was placed on the following decisions. ACIT Vs. VIP Industries Ltd. 21 DTR 153 (Mum) CIT Vs. Reliance Petroproducts (P) Ltd. 322 ITR 158 (SC) CIT Vs. Siddharth Enterprises 322 ITR 80 (P & H) CIT Vs. Harshvardhan Chemicals & Minerals Ltd. 133 Taxman 320 (Raj) Devsons (P) Ltd. Vs. CIT & others 196 Taxman 21 (Del) CIT Vs. Subhash Kumar Jain 335 ITR 364 (P.& H)
6. It was alternatively submitted that the market value of the tenancy rights for the purpose of registration of the release of tenancy rights was reckoned at Rs.13,02,000 and in any event only the said sum ought to be considered for imposition of penalty.
7. We have considered the submissions of the learned counsel for the Assessee. At the outset, we have to clarify that whether there was concealment of particulars of income or furnishing of inaccurate particulars of income is a question of fact and it will depend on facts and circumstances of a given case as to whether there was concealment of income or not. In the present case, the plea of acquiring two flats in consideration of surrender of tenancy rights was held to be not true by the AO based on the following circumstances:
1. The transfer of tenancy from the erstwhile tenant Mr.Sachdeva in favour of the Assessee could not be proved with any contemporaneous evidence. Mr.Sachdeva could not be summoned as he was not available at the address given by the Assessee.
7 ITA 1946/MUM/2010(A.Y.2004-05)
2. The most importance circumstance was that the electricity bill produced by the Assessee with his name entered as tenant therein was proved to be forged document by the AO after verification from the electricity supply company. The Assessee's explanation for the same was that the electrical contractor had altered the electricity bill and that the Assessee has no knowledge about the same. This explanation of the Assessee is not convincing. The Assessee had relied on this document to prove that he was a tenant. The document was filed by the Assessee before the AO. The Assessee cannot turn around and say that he was not aware of his name having been fraudulently entered in the electricity bill.
3. The landlady was colluding with the Assessee and therefore her stand and the agreement for surrender of tenancy rights could not be believed. The landlady's stand that she was not aware of the date on which there was transfer of tenancy by Mr.Sachdeva the erstwhile tenant in favour of the Assessee shows that her statement cannot be believed. In the year 2002 the landlady had sent a registered letter to Mr.Sachdeva, whereas according to her version she recognized the Assessee as her tenant from the year 2000. This circumstance also shows that the stand of the landlady cannot be believed. There was no indication of any consideration paid by the Assessee to Mr.Sachdeva for transfer of tenancy rights. This circumstance also is unusual in as much as nobody will surrender such a valuable right for no consideration.
4. Yet another circumstance is the fact that the permission of the Municipal authorities was first granted on 22.4.2003 upto 3 floors. It was only by an endorsement dt.3.9.03 that the Assessee got extension to construct upto 5 floors. The Assessee was allotted a flat in the 4th floor which means that the negotiations would have taken place only after 3.9.03 and not on 22.4.2003 when the first permission to build up to 3 floors was obtained. It was unbelievable that the tenant would not have been given an earmarked area for surrendering tenancy at or before construction of the building begins after first approval. This circumstance also shows that the surrender of tenancy was an afterthought and had been brought about to enable the Assessee to explain the source of acquisition of the flats and that the Assessee had in fact paid consideration from unexplained sources calling for an addition u/s.69 of the Act.
8 ITA 1946/MUM/2010(A.Y.2004-05)
8. In our view the above circumstances were enough to conclude that the Assessee had furnished inaccurate particulars of income by concealing particulars of income. At the time of hearing, we asked the learned counsel for the Assessee as to whether the Assessee made any attempts to trace Mr.Sachdeva and obtain any contemporaneous evidence regarding transfer of tenancy in favour of the Assessee. The learned counsel expressed his inability to produce any such evidence.
9. With regard to the submission of the learned counsel for the Assessee that the market value of the tenancy rights for the purpose of registration of the release of tenancy rights was reckoned at Rs.13,02,000 and in any event only the said sum ought to be considered for imposition of penalty, we are of the view that the said submission cannot be accepted. When the entire tenancy of the Assessee and its surrender has been found to be not true and even when in the penalty proceedings the Assessee is not able to give a satisfactory explanation that the claim made by him in the return of income was bonafide and that he had declared all facts material for computation of income, we are of the view that this argument is without any force. The basis of adoption of the investment at Rs.70,86,956/- by the AO in the order of assessment cannot be found fault with and this should be taken as the unexplained investment. The Assessee accepted the quantum of addition in the course of assessment proceedings. In such circumstance, the penalty that has to be imposed has to be on the tax sought to be evaded which in turn would depend on the addition made in the quantum proceedings. As already stated, the Assessee has not, even in the penalty proceedings, given any satisfactory explanation regarding the quantum of unexplained investments in purchase of the flats. In such circumstances, we are of the view that the plea of the Assessee cannot be accepted.
9 ITA 1946/MUM/2010(A.Y.2004-05)
10. As far as the case laws relied upon by the learned counsel for the Assessee are concerned, we are of the view that as to whether there was concealment of particulars of income or furnishing inaccurate particulars of income, is essentially a question of fact. On the facts of the present case, the circumstances brought out clearly show that the Assessee furnished inaccurate particulars of income and thereby concealed particulars of income. The decision in the case of Gem Granites (supra) was rendered on the peculiar facts of that case. In that case while making addition in the quantum proceedings only a part of the seized document was considered and the other part was ignored. This was taken note of in the penalty proceedings and the benefit of doubt was given to the Assessee. No such circumstances exist in the present case. The decision in the case of VIP Industries (supra) Reliance Petroproducts (P) Ltd. (supra) and Sidhartha Enterprises(supra) are on the issue that once additions are made in assessment penalty is not automatic. We are of the view that in the present case even in the penalty proceedings no explanation has been provided to show that the claim made by the Assessee was bonafide or that the Assessee furnished all particulars of income. The decision in the case of Harshvardhan Chemicals (supra) is on levy of penalty where the issues are debatable and rendered in the context of debatable issues in the matter of claiming deduction u/s.80-HHC and 80-I of the Act. The present case is not a case where addition made in the quantum proceedings were on debatable issues. The decision in the case of Subhash Kumar Jain (supra) is a case in which the revenue did not have any documentary evidence against the Assessee except report of an inspector and the addition was made only on the basis of surrender by the Assessee in the assessment proceedings. In the present case the circumstances as brought out by the AO in the 10 ITA 1946/MUM/2010(A.Y.2004-05) assessment order clearly show that there was enough evidence to show that the claim of surrender of tenancy made by the Assessee was false. The surrender made by the Assessee offering income to tax is of no consequence.
11. We are of the view that on the facts and circumstances of the present case penalty imposed on the Assessee was justified and there are no circumstances warranting interference in the orders of the revenue authorities. For the reasons stated above, we confirm the order of the CIT(A) and dismiss the appeal of the Assessee.
12. In the result, the appeal by the Assessee is dismissed.
Order pronounced in the open court on the 27th day of Jan. 2012.
Sd/- Sd/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated. 27th Jan.2012
Copy to: 1. The Appellant 2. The Respondent 3. The CIT City -concerned
4. The CIT(A)- concerned 5. The D.R"F" Bench.
(True copy) By Order
Asst. Registrar, ITAT, Mumbai Benches
MUMBAI.
Vm.