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Late Shri Mahavir Gupta Versus Income Tax Officer, Ward-12 (3) (1) , Mumbai

2016 (1) TMI 119 - ITAT MUMBAI

Penalty u/s 271(1)(c) - assessee has not substantiating that the source of money was M/s Mangla Brothers - Held that:- Penalty for concealment or furnishing inaccurate particulars was levied and after deleting the quantum addition, there remains no basis at all for levying the penalty. Ordinarily, penalty cannot stand in itself if the addition made in the assessment itself is set aside or cancelled by the superior authority/Court. The penalty cannot stand by itself because false result may be pr .....

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Since, the basis of levying penalty remains no more in existence, after deletion of quantum addition, therefore, from this angle, the stand of the ld. Commissioner of Income tax (Appeals) is not sustainable. - Decided in favour of assessee - ITA NO.2783/Mum/2014 - Dated:- 15-10-2015 - Shri Joginder Singh, Judicial Member, and Shri Rajesh Kumar, Accountant Member For The Assessee : Shri Narayan Atal For The Revenue : Shri Maurya Pratap-DR ORDER Per Joginder Singh (Judicial Member) The assessee is .....

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diture vide order dated 31st October, 2014 (ITA No. 4239/Mum/2011), therefore, imposition as well as confirmation of penalty is not justified. 2.1. On the other hand, the ld. DR, Shri Maurya Pratap, defended imposition as well as confirmation of penalty by contending that vide letter dated 13/05/1994, the amount of ₹ 75 lakh was paid to custom authorities as penalty/redemption fine. 2.2. We have considered the rival submissions and perused the material available on record. Before coming to .....

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ng almonds contravening the provision of the import policy, on open market licence. Since the penalties were not allowable deduction, the assessment was reopened with the issuance of notice u/s 148 of the Act on 29/03/1995, which was duly served upon the assessee. The assessee did not file return of income in response to the said notice. Subsequently, notices u/s 143(2) and 142(1) were served upon the assessee to which there was no compliance from the assessee side. Another notice u/s 143(2) was .....

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ils. The assessee was using import licence of M/s Rajnikant Brothers, an export house. The assessee paid service charges equivalent to 25% of CIF value (as per clause-d) of the agreement dated 14/10/1985. The assessee was asked to furnish necessary details i.e. terms and conditions for the use of import licence by the assessee which was issued to M/s Rajnikant Brothers along with books of accounts, maintained by the assessee, details of penalties paid by the assessee, etc.. The assessee, vide le .....

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adras on M/s Rajnikant Bros. However, the Hon ble Tribunal had reduced redemption fine to ₹ 75,00,000/- and waived personal penalty in toto. Unfortunately we are not having at this moment a copy of the order in our files. As far as I remember the Tribunal had passed a remarks to the effect that anybody in importer s position would have been mislead by the order passed by the Hon ble Supreme Court (due to which the licence came to be issued) and the clarification given by the Jt. CCINT (Now .....

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os. as the import was made by them. The Assessing Officer vide order sheet entries dated 28/11/1996, 27/01/1997, 21/02/1997 and 04/03/1997 and various letters issued to on 02/03/1996, 24/01/1997 and 24/02/1997 was asked to produce the evidence. The assessee denied the payment of penalty, therefore, summons were issued to M/s Rajnikant Bros., who furnished the following details:- (a) Zerox copy of agreement dated 14/10/1985 entered between M/s Rajnikant Brothers and Shri M. P. Gupta (present asse .....

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t on 20/12/1985 by using the licence and the material was imported in the name of M/s Rajnikant Bros. and the total consideration of import material like duty (Rs.56 lakh), fine/penalty (as per Madras Customs order datd 27/10/1986) (Rs.75 lakh), foreign payment(Rs.55,65,487/-), clearing charges and expenses (Rs.15,72,487/-) and Service charges of M/s Rajnikant Bros. (as per agreement dated 14/10/1985) (Rs.12,50,000/-), etc. (Total ₹ 2,14,87,974/) were paid by Shri M.P. Gupta. In specific r .....

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the expenditure was covered u/s 69C of the Act treating the same as incurred by the assessee from unexplained sources. 2.6. The Assessing Officer vide order dated 14/03/2012 held that penalty is not allowable expenditure, therefore, proceedings were reopened by issuance of notice u/s 148 of the Act. Scrutiny assessment was completed u/s 143(3) r.w.s 147 of the Act determining the total income at ₹ 76,66,650/-, thereby making an addition of ₹ 75 lakh, u/s 69C of the Act on account of .....

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shrined in the agreement. (ii) that Shri M.P. Gupta used the import licence of M/s Rajnikant Bros. on payment of service charges of equivalent to 25% of CIF value of goods as licence charges as per agreement dated 14/10/1985. (iii) That from the beginning itself, the assessee was claiming that all the payments including fine/penalty were paid by M/s Rajnikant Bros. and not by the assessee. (iv) that the accountant of M/s Rajnikant Bros. categorically tendered that the amounts were paid by Shri M .....

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agreement entered between them. However, the Tribunal, vide order dated 31/10/2014 (ITA No.4239/Mum/2011) found that the amount paid by the assessee to the custom authorities was in the nature of redemption fine and not penalty and accordingly it was allowed as business expenditure. The appeal of the assessee was allowed. Following the order of the Tribunal, since, the quantum addition has been deleted, in our view, penalty cannot survive. Our view find supports from the decision of the Tribuna .....

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been deleted by the Tribunal vide order dated 31/07/2015 (ITA No.3513/Mum/2012), in the case of assessee itself, therefore, it was pleaded that penalty does not survive. This factual matrix was not controverted by the ld. DR, Shri Vijay Kumar Soni. 2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion of the aforesaid order dated 31/07/2015, on quantum addition, for ready reference:- IT .....

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artner in various firms engaged in business of builder and developer. During the course of the search operation, total jewellery valued at ₹ 17330641/- was found from the premises of the assessee, out of which jewellery valued at ₹ 36,93,026/- was seized. During the course of the assessment proceedings, the AO asked the assessee to show cause why jewellery to the extent which has not been reflected in the return of income should not be treated as unexplained and added to the income o .....

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aluing ₹ 21,58,524/- had remained unexplained. He accordingly added the said amount into the income of the assessee u/s 69A of the Act. Aggrieved by the addition made by the AO, the assessee preferred appeal before the Ld. CIT(A). 5. The assessee submitted before the Ld. CIT(A) that the jewellery found during the search action belonged to the members of the Doshi family, including the assessee, the names of whom are mentioned as under: i) Mr. Pravin H Doshi (Spouse of Appellant) ii) Mrs. N .....

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ellary valuation Report dt.1.11.1995 of Suresh C Kapoor, Government Approved Value (during search action in 1995) b) Jewellary valuation Report dt.23.4.2004 as on 3 1.3.2004 of Shrenik R Shah (Jewellary Report obtained for Wealth Tax Purpose) b) Jewellary Valuation Report dt.3.4.2000 as on 31.3.2000 in case of Priti Rajesh Doshi (Maiden name Priti Vinod Ambani) c) Bills for purchase of Jewellary & making charges along with bank statement/ pass book reflecting payment made along with few ledg .....

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It was also explained that some of the jewellery was remade out of the old jewellery. The assessee further submitted that the total weight of jewellery found matched with the jewellery accounted by the Doshi family. The assessee further submitted that in case of some jewellery, the description did not match either due to absence of full description of the jewellery made by the Departmental Valuer during search action or due to the remaking of the jewellery from the old jewellery items. It was s .....

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jewellery found during the course of search action, however, the department had to match each and every item found with the items declared in the valuation reports of the Approved Valuers as furnished by the assessee and that the onus was on the assessee to prove the source of acquisition of each and every item of jewellery. He therefore called upon the assessee to prepare an item vise chart showing which of the items could be said to be matching and another chart in respect of items which did .....

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thed with the description given in the valuation report of the approved valuer, except items No.24 & 25 being gold ginni and gold coin respectively, which the assessee claimed to have been received as gift. The Ld. CIT(A), therefore directed the AO to delete the addition in respect of the remaining items mentioned in chart No. I, except the above stated two items amounting to ₹ 82,392/- and ₹ 75,823/- respectively. In relation to chart No.II, the Ld. CIT(A) observed that the item .....

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ieces of diamonds in respect of diamond jewellery were matching in almost all the items; however, there was difference in the estimate of carat weight. He therefore held that the description did not exactly match in respect of diamond jewellery. He, accordingly, confirmed the addition made by the AO in respect of diamond jewellery. Aggrieved by the order of the Ld. CIT(A), the assessee has come in appeal before us. 9. The Ld. A.R. of the assessee has brought our attention to the details and desc .....

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ith Pendant wherein the total number of diamonds is also mentioned as 59. However, the carat weight mentioned by the Departmental Valuer is 0.88, whereas, in the assessee s valuation report, it has been mentioned as 118. However, the gold gross weight mentioned by the Departmental Valuer is 21.850 whereas in the valuation report produced by the assessee it has been mentioned as 20.3. Similarly, in respect of item No.19 i.e. Bangles with Rodium the gold gross weight also matched and the pieces of .....

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tches with that of the description mentioned in the valuation reports submitted by the assessee and even number of pieces of diamonds in the jewellery also matched. However, there was difference in estimation of carat weight. 10. We find that it is not a case where the items mentioned in the valuation reports submitted by the assessee did not match at all with that of the items of jewellery which were found during the search action. Not only the description of the jewellery sets, bangles, pendan .....

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hold that the description of jewellery did not match. The Ld. A.R. of the assessee has further invited our attention to page No1 of the paper book which is the summary of the gold jewellery. He has explained that the total gold jewellery shown by the assessee and his family members in the books was of 9919.790 gms. whereas the jewellery found and valued by the Departmental Valuer was of 9145.380 gms. which was less than the jewellery already declared by the family members of the assessee in the .....

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ibunal in the case of DCIT vs. Arjun Dass Kalwani 101 ITD 337 wherein the Tribunal has held that simply because the assessee could not lead evidence for conversion or remaking of the jewellery, possession of which was otherwise accepted, it could not be said that holding of gold jewellery to that extent was unexplained, especially when evidence was available that the assessee had already been assessed at much more jewellery in earlier assessment year. Further, in the case of Mrs. Vinita S. Jhunj .....

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ircumstances merely because of conversion of such jewellery, cannot be made basis for making addition, when the jewellery disclosed by the assessee either in his own hand or in the hands of their family members prior to the date of search is equal to or more than the jewellery found during the course of search. In the case of Rakesh J. Parikh v. DCIT in IT(SS)A No.136/M/2000 for Block period 01.04.1987 to 25.09.1997 decided vide order dated 26.02.2004, the coordinate bench of the Tribunal has ob .....

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es has observed that normal presumption is that during the course of the search, the entire jewellery found at residence, in Bank lockers, other premises and also on person is duly inventorised. If the weight of the jewellery found at the time of search is more than the weight declared in Wealth Tax returns, the difference has to be taken to be unexplained jewellery unless the assessee is able to establish that fresh jewellery was purchased and sources thereof are explained. it is normal that so .....

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en invited to the decision of the Hon ble Allahabad High Court in the case of Commissioner of Wealth Tax vs. B.M. Kanodia (HUF) wherein the Hon ble High Court in para 5 of the order has observed that where the government valuer adopted the weight of the diamond by estimating without separating the diamond from the metal, the reports of valuers could not be held to be accurate and exact and that the possibility in difference of weight could not be ruled out. 12. In the case in hand also, if the d .....

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case that the jewellery found during the search action was unexplained. The additions thus in this case are not warranted and the same are ordered to be deleted. 2.2. In view of the above, it can be said that the basis on which penalty was levied, remains no more in existence, therefore, the penalty cannot survive. Our view find supports from the decision of the Tribunal dated 30/09/2015 (ITA No.2253/Mum/2014) in the case of Ms. Vilma M. Pereira for ready reference:- The Revenue is aggrieved by .....

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of the order. On the other hand, ld. DR, Shri B. Yadagiri, defended the imposition of penalty. 2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the aforesaid order of the Tribunal (ITA No.8797 and 8798/Mum/2010) order dated 27/02/2015 for ready reference:- These two appeals have been filed by two assessees against the order of CIT(A), for the assessment year 2007-08, in the matter of order passed u/s.14 .....

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of ₹ 3,05,00,000/- vide agreement dated 28.4.2006 to M/s. Aqua Marine Enterprises. The share of the assessee is 23% in the said property and the other assessee Mr. Peter Pereira was having share of 77% in the said house. From the agreement, the A.O. observed that the assessee was to receive three more flats i.e. two flats having a carpet area of 1200 sq.ft. each and one flat having carpet area of 750 sq.ft. and three parking spaces (two stilt and one open) as part of additional considerati .....

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s and other amenities to be received by you from the builder as per the sale agreement dated 28.4.2006. Furnish copies of agreements entered by you in this respect. Please also explain why the market value of the said flats and amenities should not be added to your total consideration for sale of property during the year while computing the LTCG for the year on sale of property. 2. Please furnish purchase proof at" NHA bonds against which deduction uls.54EC has been claimed. Please furnish .....

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er :- "The new flat and car parking is receivable in lieu of old residential place and old car parking place. Hence there is no additional amenities received from seller hence there should not be addition on account of market value of the said flat and amenities added to total consideration for sale of property during the year. Valuation done by Odilio Fernandes on 31.7.2006 as on 1.4.1981 at ₹ 35 lacs. Your honour may refer to departmental valuer for further verification. In case you .....

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structure, then the value of the said old structure should have been reduced from the value of the entire property as on 1.4.1981 while computing the LTCG on such sale. However, the assessee has taken the FMV of the entire property as on 1.4.1981 into consideration while computing the LTCG on the sale of such property. 5. The A.R. of the assessee vide his submission dated 12.11.2009 stated that if market value of the new flat is added to income of the assessee, then the investment in new reside .....

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'additional consideration' agreed upon in the agreement dated 28.4.2006 was over and above her share in the monetary consideration. These flats (alongwith car parking spaces) form part of consideration received by the assessee towards transfer of the property. This flat is neither purchased by the assessee nor constructed by her. The A.O. held that since the assessee has not fulfilled the conditions laid down in section 54, she is not eligible for exemption u/s.54 of the LT. Act. The A. .....

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ed for residence is only available towards investment [by way of purchase or construction in a new house property within the time limit prescribed under the Act. In the case under consideration, the assessee is treating the flats and parking lots received by her as additional consideration as investment made u/s.54. These flats (alongwith car parking spaces) received by the assessee as part of 'consideration' cannot simultaneously be treated as investment. In order to avail the exemption .....

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ther appeals before us. 8. We have considered rival contentions, carefully gone through the orders of the authorities below and found from the record that during the course of appellate proceedings the assessee has submitted as under :- "1. During the year the assessee with her co owner i.e. her brother Mr.Peter Savio Pereira sold the ancestral residential property for consideration of ₹ 3,05,00,00/- and 3 flats admeesurinq 3150 sq. ft. with one open and two stilt parking in kind. 2. .....

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) The house property is a residential house whose income is taxable under the head 'Income from house property' as transferred by an individual or an HUF. (b) The house property (may be self occupied or let out) is a long term capital asset. (c) The assessee has purchased a residential house within a period of one year before the transfer or within two years after the date of transfer or has constructed a residential house property within a period of three years after the date of transfe .....

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ntial property. This fact is clear and unambiguous. Therefore to say that the appellant has also complied the last condition of section 54 for acquisition of new residential property. The A.O. has considered sale consideration received in cash and kindbut failed to allow the exemption u/s.54 for reinvestment of the said consideration received in kind for acquiring of new residential house properly. 5. The A.O. has misinterpreted the definition of 'purchase' held by the Apex Court in the .....

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er subject to the conditions of section 54(1), you are exempt. The purpose is plain the symmetry is simple, the language is plain. " Thus the Hon. Supreme Court has defined the term 'purchase' as buying for a price / equivalent of price by payment in kind or adjustment towards an old debt or for other monetary consideration. The word 'purchase' in section 54 has to be given its common and wider meaning. It should include buying or adjustment towards old debt or for other mon .....

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partly in the form of new flats to be constructed on the plot of old house sold by assessee. The new flats agreed to be given to assessee amounts to investment by assessee in residential house. Therefore, the AO was not justified in adding back the additional consideration given in the form of allotment of three flats by declining claim of deduction u/s.54 of the I.T.Act. 10. In the present case before us, the assessee has purchased/constructed the new residential property and paid the consider .....

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escription Mr. Peter S. Pereira 77% 2400 Flat No.301 & 302 adjacent flats @ 1200 Sq.Ft. each on 3 rd floor and two Stilt car parking space Ms Vilma M. Pereira 23% 750 Flat No.402 on 4th floor and one car parking space The aforesaid ratio of allocation between co-owners is already on record of the AO as well as in the valuation report. Furthermore, the co-owner will get the area according to their ratio in the new residential property. Since flat no.301 & 302 are situated in the same floo .....

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dential house". The expression used is not "a residential unit". This is a new concept introduced by the AO into the section. Sec. 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the section .....

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ents. Most of the houses are constructed according to the needs and requirements and even compulsions. For instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post-retirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manne .....

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cting a residential house. The physical structuring of the new residential house, whether it is lateral or vertical, should not come in the way of considering the building as a residential house. The fact that the 'residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction under s.54/54F. It isneither expressly nor by necessary implication prohibited. Tribunal was therefore justified in allowing exemption under s.54 i .....

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e issue with respect to declining the claim of deduction u/s 54 of the Act and by following the decision of the Special Bench in the case of ITO vs Ms. Sushila M. Jhaveri (2007) 292 ITR (AT) 1 (Mum.) and also the decision from Hon ble Delhi High Court in Geeta Duggal 257 CTR 208 (Del.) decided the claimed deduction in favour of the assessee. We further note that the ld. Assessing Officer imposed penalty with respect to claimed deduction u/s 54 of the Act, therefore, when the basis no longer surv .....

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of the view where the penalty for concealment or furnishing inaccurate particulars was levied and after deleting the quantum addition, there remains no basis at all for levying the penalty. Ordinarily, penalty cannot stand in itself if the addition made in the assessment itself is set aside or cancelled by the superior authority/Court. The penalty cannot stand by itself because false result may be produced by the falsity of one or more of the constituent items in the return. The word inaccurate .....

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n, therefore, from this angle, the stand of the ld. Commissioner of Income tax (Appeals) is justified. Finally, the appeal of the Revenue is having no merit, therefore, dismissed. 2.3. There is no dispute that quantum addition has been deleted by the Tribunal, therefore, in our humble opinion, the ld. Commissioner of Income tax (Appeals) is not justified in confirming the penalty. Admittedly, the impugned order is dated 07/10/2013, whereas, the order of quantum addition of the Tribunal is dated .....

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in itself if the addition made in the assessment itself is set aside or cancelled by the superior authority/Court. The penalty cannot stand by itself because false result may be produced by the falsity of one or more of the constituent items in the return. The word inaccurate particulars would cover falsity in the final figure and also the constituent elements or items. They simply would mean inaccurate in some specific or definite respect whether in the constituent or subordinate items of incom .....

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