Gujarat High Court
Commissioner Of Income Tax vs Kamal Galani on 11 June, 2018
Author: Akil Kureshi
Bench: Akil Kureshi, B.N. Karia
C/TAXAP/1376/2007 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 1376 of 2007
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE B.N. KARIA
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1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law
as to the interpretation of the Constitution of India or any
order made thereunder ?
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COMMISSIONER OF INCOME TAX
Versus
KAMAL GALANI
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Appearance:
MR MANISH BHATT FOR MS MAUNA M BHATT(174) for the PETITIONER
MR BANDISH SOPARKAR FOR MRS SWATI SOPARKAR(870) for the
RESPONDENT
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE B.N. KARIA
Date : 11/06/2018
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. This appeal was admitted for consideration of following substantial question of law:
Page 1 of 16C/TAXAP/1376/2007 JUDGMENT "Whether on facts and in the circumstances of the case, the Appellate Tribunal is justified in law in holding that the order of the Assessing Officer was neither erroneous nor prejudicial to the interest of the revenue, particularly when full and complete enquiry in respect of fresh capital and unsecured loans was not carried out by the Assessing Officer?
2. Briefly stated the facts are as under:
The respondent-assessee, an individual, was subjected to block assessment proceedings for the block period 01.04.1996 to 25.07.2002. During such assessment proceedings, several issues cropped up, two of which have travelled before us. One such issue was introduction of a sum of Rs. 82.16 lacs in the capital account of the assessee and the other issue was of the receipt of Rs. 3.78 crores by an assessee by way of loan from his brother Suresh Galani. The Assessing Officer called upon the assessee to explain both these amounts during the assessment proceedings. The assessee responded by filing multiple replies and producing various documents. The Assessing Officer passed the order of assessment on 30.07.2004. In such order, the Assessing Officer appears to have discussed by speaking order only those areas where he proposed to make additions or disallowances. With respect to the above two controversial issues, the Assessing Officer made no additions. In other words, the Assessing Officer accepted the contentions of the assessee but without detail discussion in the order of assessment.Page 2 of 16
C/TAXAP/1376/2007 JUDGMENT
3. The Commissioner of Income Tax was, however, prima facie of the opinion that to the extent, the Assessing Officer failed to make the additions on these two issues, the order of assessment was erroneous and prejudicial to the interest of the Revenue. He, therefore, issued a notice seeking to take the order of assessment in revision in exercise of powers under section 263 of the Income Tax Act, 1961 ['the Act' for short].
The assessee strongly opposed such proceedings and mainly canvassed that the Assessing Officer had carried out detailed inquiries during which, the assessee had produced reliable and cogent evidence. It was only after such inquiry that the Assessing Officer had accepted the stand of the assessee. The order passed by the Assessing Officer cannot be stated to be either erroneous or prejudicial to the interest of the Revenue.
4. Commissioner of Income Tax, however, ignored such pleas of the assessee. He was of the opinion that the Assessing Officer had not carried out proper inquiries with respect to both the issues. The assessee had not placed before the Assessing Officer or before the Commissioner, the accounts from which such transactions were made. He did not dispute either the identity of the donor or his creditworthiness. He, however, doubted the very genuineness of the transaction. He, therefore, remitted the matter back to the Assessing Officer for carrying out further inquiries by his order dated 24.03.2006.
Page 3 of 16C/TAXAP/1376/2007 JUDGMENT
5. The assessee carried the matter in appeal before the Tribunal. The Tribunal, by the impugned judgement, set aside the order of the Commissioner holding that the case did not warrant exercise of powers under section 263 of the Act and the Commissioner had wrongly invoked such powers. The Tribunal was of the opinion that necessary material was on record. Assessing Officer had considered the material and a particular view was taken. CIT (A) could not have exercised revisional powers for taking a different view.
6. In this background, the present appeal at the hands of the Revenue arises. Learned counsel Mr. Manish Bhatt for the department supported the order of Commissioner of Income Tax and submitted that the Assessing Officer failed to carry out vital inquiries with respect to the very manner of transactions of foreign remittances. The Commissioner merely required the Assessing Officer to do so framing fresh assessment. Commissioner was within his powers to do so when it was found that the Assessing Officer had failed to carry out the necessary inquiries.
7. On the other hand, learned counsel Mr. Soparkar opposed the appeal contending that the Assessing Officer had carried out detail inquiries. The Assessee had produced all necessary materials before the Assessing Officer. Only after examining such material, the Assessing Officer was satisfied about the genuineness of introduction of the capital in accounts of the Page 4 of 16 C/TAXAP/1376/2007 JUDGMENT assesseee and all the unsecured loans received from his brother. He relied on certain decisions of various High Courts to which, reference would be made at a later stage.
8. Having thus noted the broad contours of the controversy, we may examine the materials on record more closely. We may recall, during the course of block assessment, the Assessing Officer noticed introduction of capital of Rs. 82.16 lacs and that the assesee had received unsecured loans to the extent of Rs. 3.28 crores from his brother. In response to the notices issued by the Assessing Officer in this respect, the assessee filed as many as five detailed replies. Relevant portion of such replies may be extracted. In the reply dated 06.05.2004 the assessee conveyed as under:
"The Balance Sheet representing the statement of affairs as on 31st March, 2002 has been filed alongwith the Return of Income, as pointed out by your goodself in point No. 6. Further, the sources of funds have been from three sources viz. overdraft account with Indusind Bank, Loan from Shri Suresh Galani and personal Capital of the Assessee introduced and remitted from abroad from time to time in the earlier years. The total application of the above funds represented by the various assets is appearing in the Balance Sheet.
The capital account for Assessment year 2001-2002 i.e. as on 31st March, 2001 is enclosed. The confirmation from Shri Suresh Galani for the loan taken has already been filed during the post search inquiries. The books of accounts were also produced during the post search inquiries. The Bank Statement of the overdraft account of Indusind Bank will be filed in due course of time."Page 5 of 16
C/TAXAP/1376/2007 JUDGMENT The assessee produced supporting documents along with the said reply.
9. In another reply dated 14.06.2004, the assessee further averred as under:
"b) The other part of the capital comprises of amounts remitted from abroad during the period when the Assessee was NRI. The funds remitted were out of his personal capital generated over the period of years during his residence abroad.
The remittance has been as follows:
Financial Year Amount 1996-1997 Rs. 34,16,200 1997-1998 Rs. 48,00,000
Further, we would also like to mention that these funds have been directly remitted to M/s. West Inn Limited through Demand Draft being send directly from abroad. This is evidenced from the Balance Sheet of the Assessee as on 31.03.1997 and 31.03.1998. The necessary approvals from the Reserve Bank of India for the acquisition of Shares in M/s. West Inn Limited from funds remitted from abroad was duly obtained by the Assessee and the same has been filed earlier.
The entire remittance has been through permitted banking channels and during the year 1996 to 1998. The residential status of the Assessee during these years was that of Non- Resident Indian residing permanently abroad. The source of funds has been the personal capital accumulated over th years of residence abroad (more than 20 years).
In view of the above we submit that the first source of personal capital balance of Rs. 1,32,28,241.78 is fully explained.
Page 6 of 16C/TAXAP/1376/2007 JUDGMENT 2) With respect to the Second Source of funds of Rs.
1,69,13,536.43 pertaining to the Bank overdraft Account (NRO) with Indusind Bank, Bandra, Mumbai, we would like to submit that the amount represents overdrawn balance in the Bank Account. The copy of Bank Statement has been filed earlier evidencing the balance as on 31.03.2002.
3) With respect to the third source of funds being the loans received from Shri Suresh Galani of Rs. 3,78,03,337.00 We would like to submit that Mr. Suresh Galani is the elder brother of the assessee.
The funds have been received from time to time through his personal NRE Account (being a NRI). Further, some payments have also been remitted from abroad directly by Mr. Suresh Galani on behalf of our Assessee through approved banking channels. The loan has been accumulated over the period of years.
Mr. Suresh Galani is a NRI residing in Dubai for past more than 25 years and is carrying Trading Business in Dubai. He is a high net worth individual having capacity to lend such loan to the Assessee. The copy of passport has been already filed as an evidence his identity and residential status.
He also assessed to tax and covered in the Block Assessment with your honour. Further the State of Affairs carried on by Mr. Suresh Galani in India through his various NRE Bank Account are separately dealt in his block assessment proceedings. The confirmation of the loan given to the assessee is enclosed herewith.
In respect of the loan received, as stated above we summarise that:
a) Suresh Galani is the real brother of the assessee.
b) Copy of the Passport has been filed evidencing his identity.Page 7 of 16
C/TAXAP/1376/2007 JUDGMENT
c) He is a NRI residing in Dubai, carrying on Business
there for past more than 25 years.
d) The confirmation for loan given by him is enclosed.
e) The sum advance to the assessee are from funds remitted
from NRE Bank Account or from approved banking channels.
f) He is a high net worth person having accumulated capital abroad to lend the loan to the Assessee.
g) He is assessed to tax and covered in the Block Assessment.
Therefore, we submit that the entire source of the funds as per the statement of affairs filed before your honour are fully explainable and consequently the application thereof in form of the various assets are also explained."
10. In a further reply dated 25.06.2004, the assessee, pointed out that his brother Suresh Galani is also assessed by the same Assessing Officer and further stated as under:
"Sir, as already stated earlier Shri Suresh Galani has been residing in Dubai since 1976 and over the period of years, he has established himself with good reputation in the business and social circles. He is reputed businessman and commands goodwill with the bankers. Copy of letters of bankers is enclosed.
He is also a member of India Club, Dubai since 1990 and one of the trustee of Shri Gurudwara (Sindhi Temple), being a very old and active religious organization in Dubai. He is also the trustee with Indian High School in Dubai. He is an active member in the Managing Committee of Indian Business and Professional Council (IBPC) and active member of Overseas Indians Economic Forum-UAE.
Sir, Shri Suresh Galani started business in the name of M/s. Galani International. The commercial license issued by the Department of Economic Development, Government of Page 8 of 16 C/TAXAP/1376/2007 JUDGMENT Dubai, United Arab Emirates, authorising the business was issued on 28th June 1980. The business has been carried out since over past 24 years. The copy of the license is enclosed herewith.
M/s. Galani International is engaged in the business of wholesale and retail trading in electronic goods, garments and plastic products since inception. The copy of balance sheet and other financial statements are enclosed herewith reflecting the state of affairs and capital investment of Shri Suresh Galani."
11. Alongwith such reply, the assessee enclosed several documents showing the status and standing of his brother Suresh Galani who was engaged in trading business in Dubai.
12. Along with reply dated 15.07.2004, the assessee produced his audited financial statement of M/s. Galani International, Dubai.
13. It was after such inquiries that the Assessing Officer passed the order of assessment in which, as noted above, he made no additions under these two heads. The Commissioner sought to revise this order for which he issued a notice dated 03.02.2006. His prima facie reasons for believing that the order of assessment was erroneous and prejudicial to the interest of the Revenue and therefore required to be revised were as under:
"ii) That the loans of Rs. 1,31,51,028/- in the F.Y. 1998-99 of Rs. 45,53,640/- in F.Y. 1999-2000, of Rs. 46,50,979/- in the Page 9 of 16 C/TAXAP/1376/2007 JUDGMENT F.Y. 2000-01 and of Rs. 1,55,60,690/- in the F.Y. 2001-02 credited in the name of Shri Suresh Galani, your elder brother, were accepted as genuine. From a perusal of the material on record, it emerges that you did not file any collateral documentary evidence in support of the genuineness of these transactions. The onus lay upon you to establish the identity and capacity of the creditor as also the genuineness of the transactions. No doubt, you filed evidence in support of the identity and capacity of the creditor but the third ingredient, i.e. genuineness of the transactions was not established. The mode and manner in which these amounts were received by you from Shri Suresh Galani were not explained. In fact, you in your explanation dated 25.06.2004 clearly expressed your inability to furnish any evidence in this regard stating that since the remittances from Shri Suresh Galani, either to hi NRE Account or otherwise from abroad were at different intervals and therefore, the exact nature/source of the funds from where these remittances were effected could not be identified on one to one basis. As you failed to establish the genuineness of these transactions, the amounts which aggregated to Rs. 3,78,06,337/- credited in the name of Shri Suresh Galani should not have been accepted as genuine. From the records, it is seen that no details of sources from where these amounts were transferred were filed. As Shri Suresh Galani is your read elder brother, there could be no excuse for not furnishing such details by you in the course of block assessment proceedings. You could have asked your brother to clearly disclose the mode and manner in which these amounts were brought to India and which later found place in your books by filing the copies of his bank accounts from where such payments were made to you. From a perusal of records, it clearly emerges that you did show any intention for establishing fund flow from your brother Shri Suresh Galani as merely the details of his other investments/deposits were submitted which does not prove the transactions in question.
The onus lay upon you to prove that the loans in question were genuine funds transferred from your brother Shri Suresh Galani. By merely proving identity and creditworthiness of your brother, you could not have been treated to have discharged the onus cast upon you fully. As you failed to Page 10 of 16 C/TAXAP/1376/2007 JUDGMENT prove the genuineness of the transactions, such loans of Rs. 3,78,06,337/- shown in the name of Shri Suresh Galani should have been treated as unexplained and assessed as your disclosed income of the block period which obviously has not been done. Thus, prima facie, there is under assessment of undisclosed income of the block period to the extent of Rs. 3,78,06,337/- in your hands on this account."
14. In the final order that the Commissioner passed, he held that the Assessing Officer did not make any inquiry to ascertain whether the funds shown to have been remitted from UAE were genuinely remitted from that country or it was a case that foreign currency was purchased by the assessee either from grey market in India or in UAE out of his unaccounted income earned in India and then deposited in NRE account or in the account of his brother. He was also of the opinion that the Assessing Officer did not make any attempt to find out by making proper inquiries whether the funds were remitted by the assessee out of his and his brother's income or it was the case of hawala transactions. He noted that the assessee had not filed either befroe the Assessing Officer or before himself the copies of authenticated bank account of his brother from where the said two funds were transferred or remitted to India which are eventually credited in the assessee's accounts. He therefore directed the Assessing Officer to carry out fresh assessment during which, the AO would insist on the assessee filing the authenticated copy of his own bank account and the bank account of his brother.
Page 11 of 16C/TAXAP/1376/2007 JUDGMENT
15. The scope of the Commissioner's power of revision under section 263 has been a matter of judicial consideration on various ocassions. In case of Commissioner of Income Tax vs. Sunbeam Auto Ltd. reported in 332 ITR 167 Division Bench of Delhi High Court observed as under:
"12. ... ... ... There are judgements galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not be itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry". that such a course of action would be open. In Gabriel India Ltd's case (supra), law on this aspect was discussed in the following manner:... .... ... ]
16. In case of Income Tax Officer vs. DG Housing Projects Ltd. reported in 343 ITR 329, Delhi High Court observed that a finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without such a finding.
17. Full Bench of Gauhati High Court in case of Commissioner of Income Tax vs. Jawahar Bhattacharjee Page 12 of 16 C/TAXAP/1376/2007 JUDGMENT reported in 341 ITR 434 held that not holding such inquiry as is normal and not applying mind to relevant material in making assessment by the Assessing Officer would be an erroneous assessment warranting exercise of revisional jurisdiction. It was held as under:
"23. Accordingly, we hold that Daga Entrade P. Ltd [2010] 327 ITR 467 (Gauhati) lays down correct law and the same is not in conflict with the earlier order of this court in Rajendra Singh [1990] 79 STC 10 (Gauhati). Jurisdiction under section 263 can be exercised whenever it is found that the order of assessment was erroneous and prejudicial to the interest of the Revenue. Cases of assessment order passed on wrong assumption of facts, or incorrect application of law, without due application of mind or without following the principles of natural justice are not beyond the scope of section 263 of the Act. "
18. In case of Commissioner of Income Tax vs. Arvind Jewellers reported in 259 ITR 502 Division Bench of this Court referring to the judgement of Supreme Court in case of Malabar Industrial Co. Ltd vs. CIT reported in [243 ITR 83 observed as under:
"6. From the above observations made by the Supreme Court, it is clear that the provisions of Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted and incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. The Supreme Court has also made it clear that the phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Page 13 of 16 C/TAXAP/1376/2007 JUDGMENT Officer and that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. It was further emphatically stated that when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law."
19. In the context of present case, applying the ratio of the above noted decision, the scope of the Commissioner's power of revision u/s. 263 of the Act would be, when the Assessing Officer conducts no inquiry or proper inquiries or does not apply his mind to the legal issues arising out of the material on record, the revisional powers would be available. On the other hand, if the Assessing Officer has conducted proper inquiries and come to legal conclusions which are plausible, the Commissioner would not be justified in invoking revisional jurisdiction directing further inquiries or taking a different view.
20. In this context, we may recall, the Assessing Officer had examined two issues. With respect to introduction of the capital, the assessee had pointed out that he was an NRI for over two years and he had made foreign remittances over a period of time. With respect to the unsecured loan of Rs. 3.87 crores received from his brother also, the assessee had provided necessary details which were called upon by the Page 14 of 16 C/TAXAP/1376/2007 JUDGMENT Assessing Officer. We have reproduced some of the responses of the assessee only to highlight the nature of inquiries carried out by the Assessing Officer and the detailed answers given by the assessee. With respect to his brother, the assessee pointed out that he was running a successful business of trading, was engaged in various commercial and non-commercial activities. He was man of standing and means. In fact, the Commissioner has gone on record to suggest that he neither disputes the identity nor the creditworthiness of the brother of assessee to loan such amount.
21. The Assessing Officer having carried out such detailed inquiries, it was not open for the Commissioner to thereafter reopen the issues on mere apprehension and surmises. His two fundamental objections were that the Assessing Officer did not verify whether the remittances were from the own income or sources of the assessee and his brother or were merely by way of hawala transactions. In the process, he was also critical of the Asseessing Officer not insisting on collecting the details of the accounts from which the foreign remittances were made to the Indian account of the said two persons. Without any material without any basis, the CIT could not have remanded the proceedings to the Assessing Officer to carry out further inquiries in order to ascertain whether the remittances were genuine or were in the nature of hawala transactions. In the entire order of the Commissioner, we do not find any basis for him to carry such apprehension. His principle thrust was to the Page 15 of 16 C/TAXAP/1376/2007 JUDGMENT effect that assessee did not produce the precise bank details of the foreign remittances even before him. There is nothing on the record to suggest that he called upon the assessee to do so and the assessee failed or refused to do so.
22. All in all, we find no error in the view of the Tribunal reversing view of the Commissioner. The question is thus answered against the Revenue and in favour of the assessee. Tax Appeal is dismissed.
(AKIL KURESHI, J) (B.N. KARIA, J) JYOTI V. JANI Page 16 of 16