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2016 (9) TMI 501 - ITAT MUMBAI

2016 (9) TMI 501 - ITAT MUMBAI - TMI - Penalty u/s. 271(1)(c) - addition on unexplained cash credits assessed u/s. 68 - Held that:- Entire transaction is, as apparent, calculated to introduce liquid capital in the firm for payment to the outgoing partner, whose share thus gets acquired by the outgoing partner, introducing his family members as partners in his stead. The stated depositors, with no financial means of their own, are only ostensible sources of finance, introducing cash together on a .....

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rga Prasad More [1971 (8) TMI 17 - SUPREME Court] it is the truth of the recitals in the documents (or the truth of their contents) that is relevant and is to be established, or else it would leave the door wide open for tax evasion by merely executing self-serving documents, and that the Revenue authorities were fully entitled to look at the surrounding circumstances to find out the reality of the transaction and not put blinkers while looking at documents produced before them. In the present c .....

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acts and circumstances, no case for application of the decision in Reliance Petroproducts (P) Ltd. (2010 (3) TMI 80 - SUPREME COURT), which stands wrongly applied by the ld.CIT(A). What the said decision states is that where a claim is found as not correct or valid in law, the same cannot by itself lead to the levy of penalty. It is trite law that penalty proceedings are separate and distinct proceedings, and is to be levied on itsí own merits - Decided in favour of revenue - I.T.A. No. 7671/Mum .....

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order dated 24.12.2009. 2. The issue arising in this appeal is the validity or otherwise in law of the penalty levied (at the minimum rate of 100% of the tax sought to be evaded) u/s. 271(1)(c) of the Act on cash credits aggregating to ₹ 50 lacs, considered unexplained and, accordingly, assessed u/s. 68 of the Act, having been since deleted by the first appellate authority. 3. The background facts are that the assessee-firm was assessed to tax at an income ₹ 51.95 lacs by bringing th .....

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ection 68 in the absence of any satisfactory explanation furnished by the firm as regards the nature and source of the credit/s, which stood confirmed by the first appellate authority for the same reason. Though the assessee did not prefer any further appeal, its case is that the confirmation in quantum would not automatically result in penalty for concealment of, or furnishing inaccurate, particulars of income. Each of the depositors were summoned u/s. 131 of the Act, and had, on personal atten .....

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considering that they later became partners in the firm. Further, relying on CIT vs. Reliance Petroproducts (P) Ltd. [2010] 322 ITR 158 (SC), it is argued that making an incorrect claim does not tantamount to furnishing inaccurate particulars of income. Aggrieved, the Revenue is in appeal before us. 4. We have heard the parties, and perused the material on record, and given our careful consideration to the matter. The primary facts of the case are simple and undisputed. The addition stands made .....

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y the creditors, would prove only the identity of the creditor/s. The other two aspects of the transaction are completely unproved. To begin with, they admittedly do not have any capacity, admitting to having no source of income and, further, of having sourced the funds from the relatives from their native place. Why, two, Shri Pankaj P. Mahajan (nephew of Shri G. B. Mahajan) (being the son of his brother, Shri Panditrao Mahajan) and Shri Prashant G. Mahajan (son of G. B. Mahajan) were students .....

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r. The fifth creditor, Shri Panditrao V. Mahajan, is also not an income-tax assessee, drawing salary at a mere ₹ 10,000/- p.m., up from ₹ 7,000/- p.m., at which he was employed by the assessee-firm only in the year 2003. The said income would surely be, if at all, barely sufficient to eke out a living. No doubt no savings are reflected in his saving bank account (with South Indian Bank), as is inferable from the fact of it having not been produced and, further, the impugned loan/s be .....

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its quantity or evidence qua sale thereof. There is also no iota of evidence toward proving financial capacity to any extent, with four of the five creditors being themselves dependents and the fifth, Shri Panditrao Mahajan, having nominal income, barely sufficient to meet the requirements of himself and his family. No wonder, no return of income is admittedly filed except for A.Y. 2007-08, the extent of which is also not mentioned. This clearly appears to be by design, with no returns followin .....

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ment capacity? Rather, considering that the amounts lent to the firm are toward enabling it to maintain its capital in view of the imminent capital withdrawal by the outgoing partner (and which perhaps also forms the reason for admitting the creditors as partners) and, therefore, no or little scope for its return, the advancing of loans from the so-called relatives - who remain unspecified, itself becomes highly suspect and quizzical. Why, the raising of loans by persons with no established mean .....

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e explanation (at pg. 285). In fact, the entire transaction is, as apparent, calculated to introduce liquid capital in the firm for payment to the outgoing partner, whose share thus gets acquired by the outgoing partner, introducing his family members as partners in his stead. The stated depositors, with no financial means of their own, are only ostensible sources of finance, introducing cash together on an appointed day, as if they were waiting with cash in their hands to be deposited with the .....

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the explanation, if we may call it so, bizarre, with no basis in reality. Could the same, one may ask, by any stretch of imagination, be said to be a explanation? Why, the law, which saves a plausible explanation from penalty, clearly requires one which is either not found as false or incorrect or, alternatively, is substantiated. Can a bald statement, howsoever baseless and fanciful, be regarded as an explanation, as emphasized in P. Mohankala (supra), much less true, the opposite of false. The .....

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ion by merely executing self-serving documents, and that the Revenue authorities were fully entitled to look at the surrounding circumstances to find out the reality of the transaction and not put blinkers while looking at documents produced before them. In the present case, we have statements instead of documents , so that the said decision is in ratio fully applicable in the facts and circumstances of the case. The Apex Court therein also emphasized the primacy of the test of human probabiliti .....

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