Income Tax Appellate Tribunal - Bangalore
Ramesh K. Shah And Ors. vs Deputy Commissioner Of Income Tax on 27 December, 2004
Equivalent citations: (2005)93TTJ(BANG)556
ORDER
G.E. Veerabhadrappa, A.M.
1. These are appeals by various assessees of the same group arising out of the identical orders dt. 9th Feb., 2004 of the CIT(A), for the asst. yr. 1996-97 and in the case of Shri Dinesh K. Shah, for the asst. yr. 1995-96. Since the facts of all these cases are identical, we have heard them together and find it convenient to dispose of the same by this consolidated order.
2. The assessees in these cases have received gifts from donors residing outside India. The receipt of gifts is the subject-matter of discussion in the impugned orders. To complete the facts, it may be stated that there was a search action in the group cases on 15th Nov., 1999 and there was no material found against the assessees regarding the gifts. Since there was no search material, the Department sought to make enquiries subsequent to search and based on the evidences gathered, assessments in four of the above cases which were earlier completed under Section 143(l)(a) and in the remaining cases where assessments were completed under Section 143(3), were sought to be reopened under Section 148 of the Act. The assessees have questioned the reopening of the assessment on jurisdiction as well as disputed the additions on merits of the case.
3. The main argument of the learned counsel for the assessee is that the AO has accepted the nature and sources of the gift. According to him, the AO having decided not to subject the impugned gifts to addition under the Act, based on the material produced before him, the present proceedings is a result of mere change of opinion and there is no substantial material or evidence to support the reassessment proceedings under Section 148 of the Act. The reopening of an assessment after six years is based on certain presumptions and fishy enquiries conducted behind the back of the assessee. The AO has failed to give the alleged enquiry report which was the very basis for forming the belief under Section 148 of the IT Act. The issue of notice under Section 148 of the Act is prima facie illegal and is not warranted in the facts and circumstances of the case. According to the learned counsel, the reassessment proceedings are a result of mere change of opinion. He drew our attention to the notice dt. 12th Dec., 2002 which is placed at p. 37 of the paper book, addressed to Ramesh K. Shah, wherein the AO has stated that the enquiries as regards the foreign gifts revealed that the donor was not borne on the tax records or on the electoral rolls of the UK or does not own any property in the place where he is alleged to be residing. According to him, these revelations to the Department did not bring in any material to show that the acceptance of foreign gifts by the earlier assessing authority has in any way resulted in concealment of income within the meaning of Section 148 of the Act. The learned counsel stressed before us that merely because the donor was not borne on the tax records or not borne on the electoral rolls of United Kingdom or was not owning property where he was alleged to be residing, does not throw any light on the genuineness of the gift received by the assessee. The assessee has furnished the confirmation letter from the non-resident donor, which contains his address. It is quite possible that the donor could have moved out of place, but certainly the revelation that the donor was not borne on the tax records/electoral rolls of UK or the donor did not possess any property at the place where he was alleged to be residing cannot be drawn adverse to the assessee. It is not the case of the Department that the donors had no capacity to make the gift. In fact, the photocopied letter clearly does not confirm that the donor was not residing at the address furnished by the assessee nor did he have the source to make the gift. The Department has accepted both these facts. The AO proposed to treat the gift as not genuine and to hold the same as the assessee's income. The satisfaction required of the AO under the provisions of Section 148 is a subjective satisfaction and not an objective satisfaction. He drew our attention to the reasons recorded and pointed out that the AO has not even discussed the basic material or information which led to the formation of the belief that the gift is not genuine. This, according to the learned counsel has to be viewed from the angle of letter of enquiry issued by the AO. As already stated, in each of the cases the letter does not reveal that the donor lacks the resources to make the gift, The learned counsel pointed out that the enquiry revealed that the assessees in each of these cases have received foreign gifts from friends and relatives through regular banking channels and they have given confirmation letter, which is placed at p. 16 of the paper book. The certificate issued by the State Bank of Hyderabad confirmed the inward remittance, which is placed at pp. 29 to 31 of the paper book and capital account showing gifts received from abroad etc., which were all filed at the time of assessment, which revealed all the details of the impugned gifts, clearly show that the AO has accepted these gifts as genuine. There was no failure on the part of the assessee to disclose the material facts necessary for formation of the belief that the gifts were genuine. The Department has absolutely no material to show that those genuine gifts are bogus in nature or the assessees have introduced their own unaccounted incomes as foreign gift receipts. There are evidences to show that the gifts were genuine ones received from friends and relatives abroad and they have all confirmed the transactions and there was absolutely no material to show that these were hawala transactions and also to disbelieve the foreign gifts.
4. The learned counsel further produced the copy of the letter dt. 26th Nov., 2001 from the Enforcement Directorate, which conducted a detailed enquiry into all these gifts and found that the impugned foreign gifts are only genuine gifts and the required procedure under the Foreign Exchange Regulations Act, 1973 were all complied with and there were no illegality involved in these remittances. In the backdrop of these evidences and material, the reassessments framed are questionable for want of jurisdiction on the part of the AO under Section 148 and are also bad in law even on merits. The learned counsel pointed out that there was no iota of evidence to prove that the gifts were not genuine merely because the assessee can do nothing to enforce that the donors get themselves enrolled in the electoral rolls of the foreign country or should get themselves borne on the tax records of the foreign countries.
5. The learned counsel for the assessee, in all other cases, has filed similar paper books, which more or less run on the same lines. He pleaded that the addition made in all these cases be deleted both for want of jurisdiction as well as on merits. He relied upon the decision of the Full Bench in of the Delhi High Court in CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del).
6. The learned Departmental Representative on the other hand, strongly supported the impugned orders. According to him, although the assessees have filed confirmation letters, but that is not the end of the matter for accepting the foreign gifts. The assessee has not proved the creditworthiness of the donor. Several cases of cash credits have been cited by the learned Departmental Representative to support the impugned orders. He pointed out that the only way to assess these foreign gifts was under Section 148 and not under the block assessment scheme of the Act, because the search itself did not yield any material to suggest the bogus nature of the gifts. The AO has recorded proper reasons for reopening of the assessments. Adequacy of the reasoning cannot be gone into by the Tribunal for formation of the opinion that the impugned gifts are assessable as income of the assessee. The AO has given sufficient reasons and according to him, the assessments are validly reopened and even on merits, the learned Departmental Representative pointed out that as long as the creditworthiness of the donor is wanting, the gifts cannot be accepted as genuine transactions and they are liable to be added as part of the income. Reference was made to the decision in the case of Sajan Dass & Sons v. CIT (2003) 264 ITR 435 (Del), in this regard.
7. We have carefully gone through the records, considered the rival submissions and also gone through the discussions in the impugned order. We shall now discuss thoroughly the facts in the case of Shri Ramesh K. Shah, which are almost identical in all the other cases.
8. Now, coming to the aspect of jurisdiction, the reasons recorded by the AO in this case, which are found at p. 18 of the assessee's paper book, are as under :
During the previous year relevant to asst. yr. 1996-97, the assessee claims to have received a gift of Rs. 10,44,000 (foreign currency of 30,000 US $1) from Prakash N. Shah. Consequent to Section 132(2) in the assessee's group of cases, enquiries were conducted and the Foreign Taxation Division of the Department according to which the donor is not available in the address furnished by the assessee nor he has the ability to make such gift. As the genuineness of the gift is not establishable, the same has to be treated as assessee's income as such by the omission and failure on the part of the assessee to declare the income properly, income chargeable to tax has escaped assessment for the asst. yr. 1996-97. Hence, I am satisfied that income chargeable to tax has escaped assessment within the meaning of scope of Section 147.
9. As regards the legality of the reopening, we may mention that, first of all, consequent to search under Section 132(2) in the assessee's group of cases, there was no material found during the search. It is clear from the fact that the additions were not made in the block assessment. It was not the case of the Department that some material was found during the course of search and hence, reference to Section 132(2) is, therefore, simply out of context. The Department claims to have conducted certain post-search enquiries through the Foreign Taxation Division of the Department. The enquiries conducted and the actual revelations therein have not been produced before us to prove that there exists any material as regards the genuineness of the gift or as regards the capacity of the donors to make the impugned gifts.
10. In these circumstances, we have to examine whether the AO, while accepting the gifts as genuine, has applied his mind and whether the assessee has disclosed all particulars in respect of the gift. The assessee before us has filed a detailed compilation, wherein the donors have filed the gift confirmation letters in all these cases. The certificate issued by the State Bank of Hyderabad regarding the foreign remittances received including its intimation is found in pp. 29 to 31 of the paper book. The assessee further filed a capital account and the balance sheet wherein, the impugned gifts are the subject-matter of detailed discussion. The AO while framing the regular assessments did not find fault with this and in fact, he has applied his mind to the nature of these gifts as well as the quantum of the gifts. In the appeals in ITA 635 & 637/Bang/2004 in the case of Mukta N. Shah and Hirji K. Shah respectively, the assessments are framed under Section 143(3) of the Act. Herein the AO had an opportunity to examine the bank account extracts and the details of the gifts. In fact, it is not the case of the Department that all other relevant details were not furnished to the Department while framing assessments under Section 143(l)(a) or 143(3) of the Act. The records amply demonstrate that the assessees in all these cases have filed elaborate and sufficient details to prove the genuineness of the gifts as well as the capacity of the donors. These gifts have originated from the respective bank accounts of the donors.
11. In fact, the matter relating to gifts was examined by the Enforcement Directorate of Government of India, a copy of the report is filed before us. We find nothing in the report to indicate that the gifts were in any way irregular in nature nor they were not genuine. In fact, a reading of the said report shows that all the procedures/regulations and other formalities for receipt of the gifts have been complied with and there is nothing illegal in these gifts. The only aspect it does not indicate is about the capacity of the donor. The AO just for the purpose of making enquiries as to all these things cannot reopen a concluded assessment. For the completeness of the records, the contents of the notice issued to Shri Ramesh K. Shah, one of the assessees herein, is produced hereunder :
"F. No. Enq. DC-8(1) 2002-03 Office of the Dy. CIT,
Circle-8(l), Bangalore,
dt. 12th Dec., 2002
To
Ramesh K. Shah
Basareswaranagar
Bangalore
Sir,
Sub : Your IT assessment for asst. yrs. 1995-96, 1996-97--Request for clarification--reg.
As seen from the statements filed by you for the above assessment year, it is seen that you have received a gift of US $ or UK Pounds of Rs. 10 lakhs from Prakash N. Shah 131, High Street, Harrow Weald slain, U.K. In this connection, on enquiries, it is learnt that Sri Prakash N. Shah is
1. Not borne on the tax records of the UK Authorities.
2. Not borne on the Electoral Rolls of UK.
3. Not found to be residing in the address furnished by you.
4. Does not own the property where he is alleged to be residing.
5. Does not have the resources to make the gift.
Hence you are requested to offer your objections if any to treat the gifts as not genuine and hold the same as your income.
You are also requested to give the details of the relationship of the donor to you.
Yours faithfully (K.N. Shyam Sundar) Dy. CIT, Circle-8(1), Bangalore"
12. A reading of the above notice clearly shows that the grievance of the AO was that the donor was not borne on the tax records or on the electoral records of the United Kingdom and does not own any property where he was allegedly residing. All these are not the relevant considerations for coming to the conclusion whether the gift in question is genuine or not. In fact, when the notice was served on the assessee, point No. 3 has not been ticked nor the point No. 5 which deal with 'not found to be residing in the address furnished by you' and 'does not have the resources to make the gift' have not been ticked, which means that the Department has no material to doubt the capacity of the donor or the address of his stay. When the Department impliedly accepts these two things, there is no reason why these gifts have to be disbelieved. In other words, even for the formation of a belief that certain income has escaped assessment, there is no material or evidence on the records. The formation of the belief that the income has escaped assessment is a result of change of opinion on the part of the AO and not based on valid material brought on record before us. The AO, without any reason, cannot doubt the genuineness of the gift, especially when the assessee has filed confirmation letter and received the gifts through regular banking channels. The AO should have made some more enquiries and for making those enquiries, the assessment cannot be reopened. In other words, the Department cannot seem to be improving its case. The assessee has given all particulars to the AO including the address, details of the remittances and reasonable material to show the capacity of the donors to make the alleged gift.
13. In the background of these things, the Department should have some material to show that the gifts themselves were not genuine or there was lack of capacity on the part of the donor, which, as already discussed, could not be the subject-matter of dispute when the AO issued the notice as extracted above in the earlier paragraph.
14. In the facts and circumstances of the case, we are of the opinion that reopening of assessment is bad in law and is a result of change of opinion. We, therefore, vacate the impugned orders.
15. Coming to the merits of the case, in each of the cases, the assessee has filed confirmation letter and has received the gifts in the normal banking channels. Enquiries were conducted by the Enforcement Directorate under the Foreign Exchange Regulations Act, which has given a report that there is nothing illegal about the gifts and there is no violation of the legislation in having received the gifts through a regular banking channel. The Department has not provided any material to show that the gifts were not genuine nor the capacity of the donor is wanting. It is not the case of the Department that the assessee's monies got re-routed in the form of bogus foreign gifts. There is no material to show that either the gifts were themselves bogus or that they were the result of hawala transactions.
16. We, therefore, are of the opinion that when the assessee has fulfilled all the required conditions and sufficient evidence have been produced to prove the genuineness of the gifts, the /AO should have rightly accepted the foreign gifts as bona fide and genuine as done in the original assessments. In any case, the orders of reassessments are vacated and the original assessments get restored.
17. Before parting with the matter, we shall deal with the appeal in the case of Shri Dinesh K. Shah, wherein the Revenue has made assessment for two years in respect of the following gifts:
(i) Manju Arun Shah Rs. 6,24,814 (ii) Mukesh V. Savla Rs. 10,41,699
The AO assessed Rs. 6,24,814 in the asst. yr. 1995-96, whereas the State Bank of India bank account extract copy, filed, shows the date of receipt of Rs. 6,24,814 and Rs. 10,41,699 on 26th April, 1995 and 13th Dec., 1995 respectively, If at all, there is a gift, there is a gift only in the year 1996-97 and not in the year 1995-96. In any event, since we are not upholding the reopening of the assessment or the addition on merits, the question has now become purely academic.
18. In the result, the appeals are allowed.