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ACIT, Cent. Cir. 47, Mumbai Versus Bharat Ruia, HUF, Mumbai and Vice-Versa

2017 (2) TMI 690 - ITAT MUMBAI

Penalty uls 271(1)(c) - unexplained cash deposits - Held that:- It has been examined in detail by the Ld. CIT(A) that from the statements recorded of Shri Rajesh Sharma as well as the assessee it was clear that assessee was operating several business concerns in the name of other persons including assessees employees and close associates and was maintaining various bogus bank accounts, through which unaccounted income was generated regularly. We find that findings have been recorded by the Ld. .....

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will not be applicable to the appellant as the assessment year 2005.06 is not the specified previous year. The said provisions are applicable only for the specified previous year. The search in this case was conducted on 20.2.2008. Since the XY.2005-(163 is not the specified previous year, the provisions of sect' (2) & 3) of the Act will not be applicable in the case of the Appellant. - Reducing the quantum of penalty from 200% to 100% by CIT(A) - Held that:- No justification was given befor .....

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DER Per Bench These appeals pertain to same assessee involving identical issues, therefore, these were heard together and are disposed of by this common order. 2. It is noted that these appeals were earlier fixed for hearing on 18-02- 2016 and the case was adjourned at the request of the assessee s counsel, vide letter dated 15-02-2016. The next date of hearing was fixed for 24- 08-2016. On this date also, hearing was adjourned at the request of the assessee s counsel vide letter dated 24-08-201 .....

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ll first take up appeal for A.Y. 2005-06 in ITA No.750/Mum/2014 filed by the assessee on the following grounds:- Ground No 1:- On the facts and in the circumstances of the case and in law, the learned Deputy Commissioner of Income-tax, Central Circle, Mumbai erred in initiating penalty proceedings and erred in levying penalty uls 271(1)(c) amount ing to ₹ 45,37,808/-. The appellant prays that the penalty levied may kindly be cancelled. Ground No 2:- The learned Deputy Commissioner of Incom .....

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No 4:- Without prejudice to the above it is submitted that the provisions of the section 271 AAA (2) & (3) would apply as the search was caused after the 1st day of June, 2007 and statement has been made under section 132(4). Hence no penalty is eligible under section 271 (1) (c). Ground No 5:- The learned Deputy Commissioner of Income-tax has ignored the facts of the case, which clearly demonstrate that the assessee had voluntarily agreed in the course of statement under section 132(4) to b .....

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f the group was engaged in the business of manufacturing and distribution of cotton textiles and also in the business of real estate development. Phoenix Mills Ltd. group was controlled and managed by Ruia family. Hence, the business concerns and the residences of the Ruia was also covered u/s 132/133A of the Act. An order u/s 153A rws 143(3) of the Act dated 29.12.2010 was passed in the case of the assessee. During the course of assessment proceedings, additions were made on the following issue .....

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HUF are as under:- Sr.No Name of the person Bank Entity Name Bank A/c No. Cash Deposit 1. Rajesh Sharma Dena Bank Akash Securities 125661 44,99,500 2 Vinod Kode Corporation Bank Vinod Enterprises 073 2,25,72,542 3 Gee Vergesh Dena Bank Mayank Goel 125662 67,90,000 4 Rajesh Sharma Corporation Bank Phulchand Sons Investment Ca053 99,28,000 The amounts were deposited in the accounts over different periods as discussed in the penalty order. The entries at sr no.1 to 3 were discovered during the ass .....

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d by the AO on the ground that the assessee failed to disclose the said amount in the return of income. Subsequently, penalty order u/s 271(1)c) of the Act was passed in the appellant s case for AY 2005-06 on 30.6.2011 levying penalty of ₹ 90,75,616/-. In the penalty order, the AO discussed the basis of the disclosure and the basis of addition on the above issues in the search assessment completed. In respect of the disclosure of ₹ 99,28,000/- made by the assessee, it was stated by t .....

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a was engaged in dealing in shares in the name of his employees. To investigate the issue a statement on oath of Mr. Rajesh Sharma, an employee of Mr Bharat Ruia, was recorded on 19.3.2008 at the time of operation of prohibitory order at corporate office of M/s. Phoenix Mills Ltd. at 162, Senapati Bapat Marg, Lower Parel, Mumbai. Mr. Rajesh Sharma also stated in his statement that two bank accounts, one current bank account No 073 in Corporation Bank, Lower Parel Branch, Mumbai and second curren .....

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nfronted with above mentioned statement of Mr. Rajesh Sharma on 16.4.2008. When questioned specifically, Shri Bharat R. Rula accepted in his statement u/s 132(4) of the Act recorded on 16.4.2008 that M/s. Rajesh Investment and M/s Phulchand Sons Investment were two concerns, which were operated by him only through his employee, Shri Rajesh Sharma. The assessee made certain disclosure during the search proceedings. The details of which were reproduced in the penalty order are as under: Sr.No. A.Y .....

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counts suggested that the cash was deposited into the accounts. The three persons namely Mr. Gee Vergesh, M. Vinod Kode & Mr. Rajesh Sharma were required to present themselves before the AO, but no person attended. The AR of the assessee informed that the persons had left the company. During the assessment proceedings, a show cause was issued to appellant requiring to explain the cash deposits which are as follows: Sr No. Name of the Person Bank Entity Name Bank A/c Cash Deposit 1 Rajesh Sha .....

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of M/s. Rajesh Investments and M/s. Phulchand Sons Investment at the time of search as these were accepted to be operated by the assessee. However, the assessee offered the following amounts in respect of the above transactions without prejudice to the contention that they did not relate to the assessee and in order to avoid prolonged litigation and to buy mental peace with an understanding that no penalty will be initiated / levied: Assessment Year Mayank Goel Akash Securities Vinod Enterprise .....

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of the Act, which was also confronted with Mr. Bharat Ruia, Karta of HUF during the search proceedings wherein Mr. Rajesh Sharma referred to all the bank accounts in which cash was deposited. As a result of the same, Shri Bharat Ruia made certain disclosures in the respective assessment years. (ii) The bank account statements of the three accounts were not available at the time of search which were obtained u/s 133(6) of the Act during the assessment proceedings. (iii) The request to call for cr .....

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unts as undisclosed business income In view of the above, the AO added the cash deposits in respective assessment years as undisclosed income of the assessee. For the year under consideration, the addition on this count was ₹ 36,42,000/-. During the penalty proceedings, the assessee was asked to explain as to why penalty u/s 271(1)(c) of the Act should not be levied. In reply, the assessee submitted in respect of undisclosed income of ₹ 99,28,000/- that the same was offered by the as .....

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he assessee was not controlling these accounts. However, the assessee accepted these deposits under protest and to buy peace of mind and avoid further litigation under an understanding that penalty provisions would not be invoked as the income was being accepted under protest and without prejudice to the fact that the cash deposits did not belong to the assessee. The assessee also submitted that the provisions of section 271(1)(c) of the Act will have to be read with section 271AAA of the Act an .....

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osure u/s. 132(4) of the Act, therefore, has no character of voluntary disclosure. (ii) The cash deposits in the bank account of the employee Shri Rajesh Sharma were substantiated by Shri Rajesh Sharma himself under oath u/s 132(4) of the Act that the same were deposited in the bank account which was opened and operated by Bharat Ruia (HUF). (iii) Shri Rajesh Sharma, in his statement u/s 132(4) of the Act revealed that there were other bank accounts of Vinod Kode and Gee Varghese in his statemen .....

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Vinod Kode or Gee Varghese although they were employed with him. (vi) The assessee deposited his unaccounted cash amounting to ₹ 99,28,000/- in the account of M/s. Phulchand Sons investment, in order to avoid its own tax liability, (vii) The additions to the total income in the assessment were made on the basis of the statement u/s 132(4) and on the specific findings and quantification of the concealed income The quantification was purely based on the crystal clear facts that the bank stat .....

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arrangement, This proves that the assessee deliberately and willfully resorted to tax evasion, (ix) The bank accounts opened in the name of the employee were Introduced by another employee for e.g. the account of Vinod Enterprises at Corporation Bank was introduced by M/s Phulchand Sons Investment The assessee could not prove how the cash did not belong to him which was deposited in these accounts. (x) The cash was deposited into these accounts over a period of AYrs.2005-03 to 200-09, Thus there .....

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ons were made to challenge the levy of penalty amounting to ₹ 90,75,616 levied @200% of the tax sought to be evaded by the assessee. It was submitted that levy of penalty @200% is not justified at all as no concealment was done by the assessee. Therefore, without prejudice to other submissions, it should be reduced to 100%. Thereafter it was also submitted at length that levy of penalty is not justified at all and it should be deleted. The assessee made detailed submissions to argue on the .....

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by the appellant to make additions in the assessment order passed uls.143(3) r.w.s. 153A of the Act, The department has no corroborative I clinching evidence by way of seized material to prove that such incomes were concealed by the assessee and the AO is simply of the view that the same was unearthed only to due to search proceedings and hence penalty must be levied. The assessee relied upon the decision of Hon'ble Supreme Court in the case of CIT vs. Khoday Eswarsa and Sons 83 ITR 69. Wit .....

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taxed, as it is only the earlier debit balance which is now getting squared-up. The assessee therefore submitted that with no evidence was available to suggest any concealment of income, the levy of penalty was not justified. 7. Ld.CIT(A) considered all the submissions of the assessee and also considered the orders passed by the AO, i.e. assessment order as well as penalty order and thereafter it was concluded by him that levy of penalty by the AO was justified. But he reduced the penalty from 2 .....

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me filed in response to notice uls.153A of the Act. The admission of undisclosed income by the appellant is the Outcome of action u/s. 132 of the Act. The statement recorded from Mr,Rajesh Sharma, the employee of Mr.Bhrat Ruia evidences that the appellant (Karia of HUF) was dealing in shares in the names of his employees. During the course of search many bank accounts and huge deposits in these bank accounts were discovered. It was also detected that Mr. Bharat R. Ruia has been operating certain .....

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Investment (Account No.C8CA 229) and M/s.Phulchand Sons Investments (Account NO. CA 053) in Corporation Bank, Phoenix Mills Compound, Lower Parel, Mumbai. There are significant cash deposits in those honk accounts, whereas you have stated that your main source of income is from salary and saving bank account interest. Please explain for what purpose these accounts have been opened and what kind of transactions were carried out through these accounts. Ans. I am not aware of the nature of the tra .....

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re being operated as per the instructions of Shri Bharat Ruia only. I do not have the means and resources for large transaction appearing in these bank accounts. These bank accounts are benami accounts of Shri Bharat Ruia. Q.7: Please provide details of any other bank account, which is being operated by you at the instruction of Shri Bharat Ruia or other persons? Ans. The details of such bank accounts in the name my proprietary business concerns are as under, (,) Ws. A.kash Securities, current a .....

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not belonging to me out belonging to Shri Bharat Ruia. The above mentioned concerns are being operated by Shri Bharat Ruia using my name. I am only employee of M/s. B.R. International and working as Accountant in this office. Q.8 Please provide details of all your demat accounts and explain the sources of acquisition of the shares in such accounts. Ans. The demat accounts operated by me at the instruction of Shri Bharat Ruia are as under:- (i) M/s Rajesh Investment, Kotak Securities Ltd, Nariman .....

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ch share transactions with M/s. B.R. International. The amounts are shown, as outstanding. These share transactions with M/s. B.R. international through my demat accounts have been carried out as per direction and instruction of Shri B.R. Ruia Q.9.- Please explain the modus operandi of operating the current bank count and demat account opened in name of your proprietary concern? Ans All above the current bank accounts and demat accounts have been opened in my name but I have never done any trans .....

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led by Shri B. R. Ruia on his own. I have nothing to do with these cheque books as all money deposited in these bank account belongs to Shri B. R. Ruia from demat account, you Can see that (here is profit in my concerns on share transaction in the hands of M/s. B.R. International. The above mentioned demat accounts are, therefore, used for the purpose of booking the losses in the books of M/s,B.R. International in the return of income. As slated earlier, / have not received any payment in cash I .....

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ned by Sh. BR. Ruia in the name of other person / concerns and which are being managed I arranged by him? Ans. The bank accounts opened by Sh. B.R. Ruia in The name of other person which are being managed/handled by him are as under. (I) Shni Vinod Kode, Proprietor of MIs Vinod Enterprises, current bank account No. 073 in Corporation Bank, Lower Parel Branch, Mumbei. (II) (ii)S/ui Gee Vergesh. Proprietor of M/s. Mayank Goel, current bank a/c. No. 125662, Dena Bank, Lower Pare! Branch, Mumbai, He .....

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i bank accounts of Shri B.R. Ruia. These bank accounts have been opened by Shri Bharat R. Rua in the name of M/s.Vinod Enterprises and Mr.Mayank Goel, Thus, it is evident that Shri B.R. Ruia is having number of bank accounts which are effectively controlled and managed by Shri Bharat R Ruia only. Therefore, the transactions reflected in such bank accounts and demat accounts pertain to him. 9.3 Mr. Bharat R. Ruia was confronted with the above statement recorded from Mr Rajesh Sharma. In the state .....

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atement shows that you have been operating several business concerns In the name of other persons including your employees and close relatives. The effective control of such concerns lie with you. The funds have been deployed by you directly or indirectly in these concerns. Two of such concerns are M/s. Rajesh investment and MIS. Phulchand Sons Investment in the name of one of your employees, Shri Rajesh Shama. In his statement on oath recorded on 19.03.2008, Shri Rajesh Sharma has stated that S .....

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ntum of transactions along with details of income not offered for ax due to such arrangements? Ans. M/s. Rajesh Investment and Ws. Phulchand Sons Investment are two concerns which have been operated by my employee Rajesh Sharma as per my instructions. The transactions undertaken in M/s. Rajesh Investment have resulted into generation of non-genuine loss in books of M/s.B.R. International to the tune of ₹ 654. 79 lacs during A. Y.2007-08. This toss had been booked by way of non genuine off .....

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engaged in the business of share trading, During A. Y2005-06 an amount of ₹ 99.28 lacs was deposited in cash in the bank accot.nl M/s.Phulchand Sons Investment by M/s B.R. International, This cash deposited represent the unaccounted income in the hands of MIs B.R. International as sources, of such cash deposit cannot be explained. Therefore, l, in the capacity of Karta of BR. Ruia (HUF), proprietor of BR. International hereby declare the said cash deposits of ₹ 99.28 lacs as undislo .....

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come in the hands of M/s.B.R. International. Therefore, I, in the capacity of Karta of B.R. Ruia HUF, Proprietor of B.R. International, hereby declare the amount of ₹ 30.28 lacs as undisclosed income of M/s BR. International for the A. V 2007-08 over and above the regular income. I would pay the taxes due on such additional income disclosed by me......" Thus, disclosure made by Ws. Bharat Ruia u/s. 132(4) in hands of M/s.B.R. international under venous heads is as under: S. N. Issue i .....

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of income u/s.153A of the Act declaring total income of ₹ 25,10424/-. In this case, the appellant filed the original return of income and the same was assessed uls.143(3) of the Act on 28 12.2007. In the original return of income the appellant did not disclose the additional income of ₹ 9.28 lacs now disclosed in response to notice issued uls.153A of the Act. The disclosure made by the appellant is due to the evidences discovered during the course of search. If there was no search a .....

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as held by the apex court in the case of Brijmohan-vClT 120 ITR I 5C In this case, the original return of income was filed without disclosing the income detected during the course of search u!s.132 of the Act and this Income was later disclosed in the return of income filed in response to the notice issued u1s.153A of the Act, consequent to search action uls.132 of the Act, thereby establishing the concealment. 9.5 During the course of assessment proceedings on the basis of the information provi .....

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44,99,500 2 Vinod Kode Coprporation Bank Vinod Enterprises 073 2,25,71,542 3 Gee Vergesh Dena Bank Mayank Goel 125662 67,90,000 Total 3,38,61,042 9.3 The appellant was requested to explain the sources of the credits. Though the appellant feigned ignorance about these accounts, however he admitted the following income:- Assessment Year/Party s name Mayank Goel Akash Securities Vinod Enterprises 2005-06 5,000 5,000 36,32,000 2006-07 67,85,000 44,94,500 1,37,75,555 2007-08 - 2008-09 - 51,63,987 Tot .....

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ver during the appellate proceedings, the appellant argued that the penalty should not be imposed as the said accounts do not belong to him. The appellant also submitted that no opportunity of cross examination was given to him. The appellant's contentions are not acceptable. The admission of undisclosed income of ₹ 785.03 lacs in the statement recorded from Mr.Bharat R. Ruia on 16.4.2008 is similar to the facts and circumstances emanating out of cash deposits of ₹ 3,38,61,042/- .....

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the details of the bank accounts in Dena Bank and the corporation Bank (refer to Q Nos, 7 & 10) at the time of statement recorded from him u/s 132(4) of the Act on 19.3.2008. The appellant cannot feign ignorance about these accounts more so during the course of assessment proceedings the appellant also admitted the deposits as undisclosed income. The appellant also did not contest the said additions in appeal and the assessments have become final. These facts reveal the culpability of the ap .....

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maintaining various bogus bank accounts, through which unaccounted income was generated regularly. We find that findings have been recorded by the Ld. CIT(A) on the basis of facts and material held on record. Nothing has been brought before us to controvert or negate these factual findings. Under these circumstances, we find it appropriate to uphold the order of the Ld. CIT(A). Grounds 1 to 3 & 5 are dismissed. 9. Ground 4: In this ground, the assessee has contended that no penalty was exigi .....

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will not be applicable to the appellant as the assessment year 2005.06 is not the specified previous year. The said provisions are applicable only for the specified previous year. The explanation (b) to section 27IAAA defines the term specified previous year. The relevant provision is as under: (b) specified previous year" means the previous year- (I) which has ended before the date of search, but the date of filing the return of income under subsection (1) of section 139 for such year has .....

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aw or on facts in the aforesaid findings of Ld. CIT(A). Under these circumstances, the order of Ld. CIT(A) is upheld. Ground 4 is rejected. 11. As a result, appeal of the assessee is hereby dismissed. 12. Now we shall take up assessee s appeals for A.Ys. 2006-07 and 2007-08 in ITA No.751 and 752/Mum/2014 and appeal for A.Y. 2008-09 in ITA No.753/Mum/2014. It is noted that grounds raised and issues involved in these appeals are identical to appeal for A.Y. 2005-06. Therefore, our order for A.Y. 2 .....

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hat penalty has been levied by the AO @200% of tax sought to be evaded. However, while levying the penalty at 200%, no justification has been given by AO in the penalty order as to why it was a fit case for levy of penalty at 200% and not at minimum rate of 100%. Under these circumstances, Ld. CIT(A) reduced the same to 100% by observing as under:- 9.11 The appellant also argued that the penalty proceedings u/s 271(1)(c) of the Act are quasi criminal in nature and distinct from the assessment pr .....

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