Sunday, July 7, 2013

[aaykarbhavan] Judgments and ooter Information. C A Club India







Temporary transfer of copyright - Section 65(105)(zzzzt) of FA, 1994 - taxability on film distribution - Imposition of Service Tax upheld: Madras High Court 

By TIOL News Service
CHENNAI, JULY 05, 2013: IN a landmark judgement the Madras High Court upheld the Service Tax on temporary transfer of copyright.
Introduction - Service Tax on Copyrights : Tracing the history of Service Tax on copyrights, the High Court observed,
When service tax was levied on 'Intellectual Property Services' namely trademarks, designs, patents or any other similar intangible property, with effect from 10.9.2004, copyright was specifically excluded from the definition of Intellectual Property Rights (IPRs). Copyright is nothing but intellectual property right which explicitly remained outside the scope of service tax just to encourage authors, artists, etc. The Finance Act, 2010 has levied service tax on transferring temporarily or permitting the use or enjoyment of any copyright except the rights covered under section 13(1)(a) of the Copyright Act, 1957.
Services of copyright are taxable with effect from 1.7.2010. With effect from 1.7.2010, sub-clause (zzzzt) of clause (105) of Section 65 defines the "Taxable Service" as:
"Taxable service" means any service provided or to be provided to any person, by any other person, for -
(a) transferring temporarily; or 
(b) permitting the use or enjoyment of,
any copyright defined in the Copyright Act, 1957, except the rights covered under sub-clause (a) of clause (l) of Section 13 of the said Act."
At the time of introduction of Finance Bill, 2012, in his Speech, Finance Minister stated that the Year 2012 is the Centenary Year of Indian Cinema and proposed to exempt the Industry from service tax on Copyrights relating to recording of Cinematograph films. The Finance Act, 2012 introduced Section 66B as the new Charging Section with effect from 1.7.2012 for the levy of service tax on all services other than those services specified in the Negative list. Notification No.25 of 2012 provided for number of exemptions effective from 1.7.2012 and Entry No.15 of the said exemption is:
"Temporary transfer or permitting the use or enjoyment of a copyright covered under clause (a) or (b) of sub-section (1) of Section 13 of the Indian Copyright Act relating to original literary, dramatic, musical, artistic works."
Notification No .25 of 2012 was amended by Notification No.3 of 2013 w.e.f . 1.4.2013 and Entry No.9 in the notification No.25/2012 is substituted as under :-
"Services provided by way of temporary transfer or permitting the use or enjoyment of copyright
(a) covered under clause (a) of sub-section (1) of Section 13 of the Copyright Act, 1957, relating to original literary, dramatic, musical or artistic works; or
(b) of cinematograph films for exhibition in a cinema hall or cinema theatre."
Thus the issue relates to the temporary transfer or permitting the use or enjoyment of copyright, except the rights covered under sub-clause (a) of sub-section (1) of Section 13 of the Indian Copyright Act for the period from 1.7.2010 to 31.06.2012 and the period from 01.4.2013 onwards since the levy of service tax on Copyright Services (Section 65(105)(zzzzt) is revived from 1.4.2013 with the exception of Section 13(1)(a) or Cinematograph films for exhibition in a cinema hall or a cinema theatre.
Writ Petitions and the averments :-
Contending that the levy of service tax on transfer of copyright, which is goods, is transfer of right to use the goods amounting to sale and no service element is involved and that temporary transfer of copyright is not exigible to service tax, writ petitions are filed challenging the vires of Section 65(105)(zzzzt) and to declare that the provisions of Section 65(105)(zzzzt) is beyond the legislative competence of the Union of India.
The following points arise for consideration in these Writ Petitions :-
1. Whether the taxable event provided under Section 65(105)(zzzzt) of the Finance Act, 1994 is covered by Article 366 (29A)(d), which is a "deemed sale of goods"?
2. Whether the Petitioners are right in contending that the levy of service tax on "temporary transfer or permitting the use or enjoyment of copyright" provided under Section 65(105)(zzzzt) of the Finance Act, 1994 is covered under Entry 54 of List II and whether it amounts to transgression by Parliament into the exclusive domain of the State Legislature?
3. Whether the Petitioners are right in contending that the copyright is goods and transfer of copyright of Cinematograph films is only delivery of goods for consideration and is absolute transfer and no service element is involved?
4. Even assuming that there is an element of service involved in the nature of transaction done by the Petitioners, should the dominant intention of the transaction being transfer of goods has to be only taken into consideration?
5. Whether the Petitioners are right in contending that Parliament has no authority to dissect a composite transaction as in the case of the Petitioners and levy service tax?
6. Whether Section 65(105)(zzzzt) levying service tax on the temporary transfer or permitting the use or enjoyment of copyright is ultra vires the Constitution?
The High Court heard elaborate arguments and considered a plethora of Supreme Court judgements and upheld the levy. Some of the contentions and rulings:
Held: On a careful analysis of the decisions of the Hon'ble Supreme Court, it is seen that the Hon'ble Supreme Court on four occasions, upheld the levy of service tax with reference to Entry 97 of List I and in all the four cases, the Hon'ble Supreme Court held that the levy of service tax falls within Entry 97 of List I. Therefore, any challenge on this aspect by the petitioners must necessarily fail .
Contention: Levy of service tax amounts to Double Taxation :-
Held : Film produced by the producer does not fetch any value unless it passes through various commercial activities including the distribution agreements and gets exhibited. As held by the Supreme Court, 'service tax' is a "value added tax', which in turn, is a 'general tax', which applies to all commercial activities involving production of goods 'cinematograph films and provision of services' from the stage of production - negative of the films are made till it gets exhibited in theatre or exploited through other media. Lot of economic/commercial activities are involved. Those commercial activities amounting to temporary transfer of copyright or permitting use or enjoyment of copyright, Parliament is well within its competence to levy 'service tax'. 'Transfer of right to use the goods' or 'permission to use the copyright' or 'enjoyment of copyright' operate in different fields. There may be overlapping. The impugned legislation cannot be held to be vitiated merely because there is overlapping and that both sales tax and service tax becomes leviable .
Contention - No element of service is involved :- Contention of Petitioners is that tax is leviable only on services provided i.e. on the value addition and there is no service or element of service in the act of temporary transfer or permitting use or enjoyment of a copyright to another for his business.
Held : The legislative competence of the Parliament does not depend upon whether any services are made available within the definition of 'taxable services' contained in Finance Act, and in a given case, 'taxable services' are rendered or not is a matter of interpretation of the statute and for adjudication under the provisions of the Statute and the same cannot affect the vires of the legislation and/ or the legislative competence of the Parliament. Therefore, the Supreme Court held that the levy of service tax on a particular kind of service could not be struck down on the ground that it does not conform to common understanding of the word 'service' so long as it does not transgress any specific restriction contained in the Constitution.
Contention - Computation is not possible :- Petitioners submitted that even assuming that there is service element, Legislature has not identified the nature of services and there is no mechanism in the legislation to identify and quantify the taxes.
Held : legislative competence is to be determined with reference to the object of the levy and not with reference to its incidence or machinery. The substance of the impugned provision must be looked at to determine whether it is in pith and substance within a particular entry, whatever its ancillary effect may be. Basis of computation and ultimate economic results cannot be a ground to challenge the vires of the impugned provision.
Conclusion :- The High Court held that:
1. The variant modes of business transactions between the producer and distributor, distributor and sub-distributor or area distributor or exhibitor (theatre owner) are not 'sale of goods' to fall under Entry 54 List II or Entry 92A List I.
2. By resorting to Entry 97 of List I Residuary Entry to levy service tax, the Parliament is within its legislative competence and Section 65(105)(zzzzt) is not ultra vires the Constitution.
3. From the production of the cinematograph film till it is exhibited, there are host of commercial activities. Service tax is the value added tax, which applies to the business transactions for consideration involving commercial activities. Over all, there is a huge rise in business of film industry and huge money is involved. The temporary transactions of copyrights or the permission to use or enjoyment of the copyright cannot be brought either under Entry 54 of List II or Entry 92A of List I.
4. Applying the ratio of the decisions of the Supreme Court, the Parliament is well within its legislative competence in levying service tax resorting to Entry 97 of List I.



2013-TIOL-580-ITAT-MUM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'G' MUMBAI
ITA No.7737/Mum./2011
Assessment Year: 2008-09
INCOME TAX OFFICER
(CENTRAL) PAWAR INDUSTRIAL ESTATE
2nd FLOOR, EDULJI ROAD, CHARAI, THANE (W)
Vs
MR GOPE M ROCHLANI
SHOP NO 2, C-13, NETAJI CHOWK
ULHASNAGAR, THANE
PAN NO:ADBPR4704J
Rajendra Singh, AM and Amit Shukla, JM
Dated: May 24, 2013
Appellant Rep by: Mr D K Sinha
Respondent Rep by: Dr P Daniel
Income Tax - Sections 54F, 72, 74A, 139(1), 271(1)(c) - Whether the provisions of section 139(4) is actually the extension of the due date of section 139(1) and, therefore, the due date for filing of the return of income can also be reckoned with the date mentioned in section 139(4) - Whether the fact that the legislature has not specified the "due date" as provided in section 139(1) in Explanation 5A to section 271(1)(c), then by implication, it has to be taken as the date extended u/s 139(4) - Whether penalty u/s 271(1)(c) can be levied on estimated income.

The assessee is a 50% partner in the FIRM m/S. Madhav Constructions, which is carrying out the business of housing development and builders in Kalyan. A search and seizure action u/s 132(1) and simultaneously survey action u/s 133A was carried out at the residential premises of main person / partners and business premises of Madhav Group on 16th October 2008. During the course of search, statement on oath u/s 132(4) was recorded on 17th October 2008 of Mr. Gopi M. Rochlani, one of the partners wherein he declared an additional income of Rs. 1,25,00,000. This amount was also offered in the return of income filed for the AY 2008-09 on 31st October 2008. This surrender was applicable to the assessee also wherein similar amount of Rs. 1,25,00,000 was offered for the AY 2008-09 and the return of income was filed on 31st October 2008, wherein the income of Rs. 1,31,19,140 was shown which included the additional income offered during the course of search / survey action. 

In the assessment order passed u/s 143(3) r/w section 153A, the assessment order was completed on the same income of Rs. 1,31,19,140 vide order dated 31st December 2010 on which return of income was filed. Thereafter, the AO initiated the penalty proceedings u/s 271(1)(c) and observed that, firstly, the income has been offered only as a consequence of search and seizure u/s 132(1) and secondly, it was offered under the head "Income From Other Sources" for the AY 2008-09 in the return of income filed on 31st October 2009, whereas the original due date of the return of income was 30th September 2008, which has expired before the date of search. Thus, he held that the assessee's case is covered by Explanation 5A to section 271(1)(c). The assessee, before the AO, submitted that this additional income was offered voluntarily which was on estimate basis and the same has been accepted in the assessment order as such, therefore, provisions of section 271(1)(c) is not applicable. The entire explanation of the assessee was rejected and finally, penalty was levied on the entire amount of Rs. 125 crores at Rs. 42,40,750. 

The Commissioner (Appeals), though did not accept the assessee's explanation on Explanation 5A to section 271(1)(c), but deleted the penalty on the ground that the income which was offered was only on estimate basis, therefore, additional income offered by the assessee can neither be held to be concealed income or furnishing of inaccurate particulars of income. 

On appeal by the Revenue, the ITAT held that,

++ the issue is whether the return of income filed u/s 139(4) can be held to be the "due date" for filing the return of income for such previous year as mentioned in clause (b) of Explanation 5A to section 271(1)(c) and, if so, whether the penalty can be levied on the facts of the present case under the Explanation 5A;

++ on a plain reading of the Explanation 5A, it is apparent that following conditions are essential for levy of penalty u/s 271(1)(c):
(i) this Explanation is applicable to an assessee in whose case search has been initiated u/s 132 on/or after 1st June 2007; further,

(ii) during the course of search, the assessee should be found to be the owner of - (a) any money, bullion, jewellery, for other valuable article or thing to which and the assessee claims to have acquired such assets by utilizing his income for any previous year; or (b) any income which is based on any entry in any books of account or other documents or transactions and claims that these represents income for any previous year which is ended before the date of search; and further,

(iii) if such asset or income which represents the income of any previous year, firstly, has not been shown in the return of income which has been furnished before the date of search i.e., such income has not been declared therein and secondly, the due date for filing the return of income had expired i.e., the assessee has not shown this income in the return of income filed on or before the due date;

(iv) then on such income declared by him in the return of income furnished on or after the date of search, he is liable for penalty u/s 271(1)(c) and he is deemed to have concealed the particulars of his income or furnish inaccurate particulars of income.
++ there are two saving clause in the Explanation 5A wherein penalty cannot be held to be leviable u/s 271(1)(c), firstly, the assessee had shown such asset as mentioned in clause (i) or income as mentioned in clause (ii) in the return of income furnished before the date of search and, secondly, such asset and the income has been shown in the return of income filed on the due date. Thus, if any assessee falls under these saving clauses, Explanation 5A cannot be invoked;

++ for the purpose of the instant case, one has to see whether or not the assessee has shown the income in the return of income filed on the "due date". Provisions of section 139(1) provides for various types of assesses to file return of income before the due date and such due date has been provided in the Explanation 2, which varies from year-to-year. Whereas, provisions of section 139(4) provides for extension of period of "due date" in the circumstances mentioned therein and it enlarges the time limit provided in section 139(1). The operating line of sub-section 4 of section 139 provides that "any person who has not furnished the return within the time allowed", here the time allowed means u/s 139(1), then in such a case, the time limit has been extended. Wherever the legislature has specified the "due date" or has specified the date for any compliance, the same has been categorically specified in the Act. For e.g., u/s 44AB where the assessee is required to get his accounts audited before the specified date and furnish by that date, the specified date has been specifically mentioned as the date provided in section 139(1). Similarly, in section 43B also, the "due date" has been specifically provided as the date mentioned in sub-section (1) of section 139. In the aforesaid Explanation 5A, the legislature has not specified the due date as provided in section 139(1) but has merely envisaged the words "due date". This "due date" can be very well inferred as due date of the filing of return of income filed u/s 139, which includes section 139(4). Where the legislature has provided the consequences of filing of the return of income u/s 139(4), then the same has also been specifically provided. For e.g., section 139(3), provides that for the purpose of carry forward losses u/ss 72 to 74A, the return of income should be filed within the time limit provided u/s 139(1), otherwise losses cannot be set-off. In absence of such a restriction, the limitation of time of "due date" cannot be strictly reckoned with section 139(1). Thus, the meaning of the words "due date", sans any limitation or restriction as given in clause (b) of Explanation 5A, cannot be read as "due date" as provided in section 139(1). The words "due date" therefore, can also mean date of filing of the return of income u/s 139(4);

++ this proposition has been explained by the various High Courts also wherein in the context of sections 54F and 54(2), it has been interpreted that the due date of section 139 can be inferred as due date u/s 139(4) also;

++ from the propositions laid down by the juridical decisions, it is absolutely clear that provisions of section 139(4) is actually the extension of the due date of section 139(1) and, therefore, the due date for filing of the return of income can also be reckoned with the date mentioned in section 139(4);

++ once the Legislature has not specified the "due date" as provided in section 139(1) in Explanation 5A, then by implication, it has to be taken as the date extended u/s 139(4). In view of the above, the assessee gets the benefit / immunity under clause (b) of Explanation to section 271(1)(c) because the assessee has filed its return of income within the "due date" and, therefore, the penalty levied by the AO cannot be sustained on this ground. Even though we are not affirming the findings and the conclusions of the Commissioner (Appeals), however, as per the discussion made above, penalty is deleted in view of the interpretation of Explanation 5A to section 271(1)(c). Consequently, the ground raised by the Revenue is treated as dismissed.
Revenue's appeal dismissed
ORDER
Per: Amit Shukla:
The present appeal is preferred by the Revenue challenging the impugned order dated 30th August 2011, passed by the learned Commissioner (Appeals)-I, Mumbai, in relation to the penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act"), for the assessment year 2008-09. Following grounds have been raised by the Revenue:-
1. In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in cancelling the penalty levied by the AO.
2. In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in deleting the penalty on the ground that the additional income declared during statement u/s.132(4), is on the basis of the assessee's own working of the WIP.
3. In the facts and circumstances of the case and in law, the Ld CIT(A)-I, Thane erred in deleting the penalty on the ground that the assessee's admission of additional income declared is on the basis of entries in the books of accounts, documents and transactions.
4. In the facts and circumstances of the case and in law, the Ld CIT(A)-I, Thane erred in deleting the penalty on the ground that as per explanation 5A (ii)(b) to section 271(1)(c), the assessee has deemed to have concealed the particulars of his income for the purposes of imposition of penalty u/s. 271(1)(c).
5. In the facts and circumstances of the case and in law, the Ld CIT(A)-I, Thane erred in deleting the penalty on the ground that the assessee did not file the return of income till the date of search which took place on 16-10-2008, as the time for filing of return u/s.139(1) was 30-09-2008. Due to which the additional income was detected otherwise the assessee would have concealed the additional income declared.
6. The Appellant prays that order of the CIT(A)-I, Thane on the grounds be set aside and that of the Assessing Officer be restored."
2. Facts in brief:- The assessee is a 50% partner in the FIRM m/S. Madhav Constructions, which is carrying out the business of housing development and builders in Kalyan. A search and seizure action under section 132(1) and simultaneously survey action under section 133A was carried out at the residential premises of main person / partners and business premises of Madhav Group on 16th October 2008. During the course of search, statement on oath under section 132(4) was recorded on 17th October 2008 of Mr. Gopi M. Rochlani, one of the partners wherein he declared an additional income of Rs. 1,25,00,000. This amount was also offered in the return of income filed for the assessment year 2008-09 on 31st October 2008. This surrender was applicable to the assessee also wherein similar amount of Rs. 1,25,00,000 was offered for the assessment year 2008-09 and the return of income was filed on 31st October 2008, wherein the income of Rs. 1,31,19,140 was shown which included the additional income offered during the course of search / survey action. The relevant statement on oath which has been reproduced in the assessment order as well as in the penalty order, for the sake of ready reference, is reproduced herein below:-
"During the course of survey proceedings in our office premises, we were asked to provide tentative trading account and WIP as on the date of survey, but due to laborious and time consuming work this is not possible. On going through the physical break up of work-in-progress with the books I would like to add that the balance sheet of Madhav sankalp for financial year 2007-09(A. Y.2008-09) reveal as under:
SALE
88.54 crores
Less:- Estimated Profit 40%
35.42 crores
Estimated overall expenditure
53.12 crores
Work-in-progress @ 62%
32.94 crores
FY 2007-08-Expenditure .. 14 cr
 
FY 2008-09-Expenditure .. 14cr
28.00 crores
Estimated difference in expenditure
4.94 crores
 
Say 5.00 crores
I would like to further add here that out of the estimated expenditure of Rs.5.0 crores, Rs.2,5 crores is for FY 2007-08 and Rs.2.5 crores is for FY 2008-09. this money has been in vested by both the F. Yrs, on which myself and my son Raja are ready to pay due taxes. We declare this additional income u/s. 132(4), over and above our regular income for F.Yrs. 2007-08 and 2008-09, @ Rs.1.25 crores each F.Yr under the head investment in Madhav construction (profit in land dealing).
3. In the assessment order passed under section 143(3) r/w section 153A, the assessment order was completed on the same income of Rs. 1,31,19,140 vide order dated 31st December 2010 on which return of income was filed. Thereafter, the Assessing Officer initiated the penalty proceedings under section 271(1)(c) and observed that, firstly, the income has been offered only as a consequence of search and seizure under section 132(1) and secondly, it was offered under the head "Income From Other Sources" for the assessment year 2008-09 in the return of income filed on 31st October 2009, whereas the original due date of the return of income was 30th September 2008, which has expired before the date of search. Thus, he held that the assessee's case is covered by Explanation 5A to section 271(1)(c).
4. The assessee, before the Assessing Officer, submitted that this additional income was offered voluntarily which was on estimate basis and and the same has been accepted in the assessment order as such, therefore, provisions of section 271(1)(c) is not applicable. The entire explanation of the assessee was rejected and finally, penalty was levied on the entire amount of Rs. 125 crores at Rs. 42,40,750.
5. Before the learned Commissioner (Appeals), the assessee made very detail submissions with regard to Explanation 5A to section 271(1)(c) and submitted that in view of clause (b) of Explanation 5A, penalty cannot be levied as the assessee filed return of income on the due date which can also be inferred as return of income filed under section 139(4). Further submissions were also made on merits as well as on the ground that no penalty can be levied on estimated income.
6. The Learned Commissioner (Appeals), though did not accept the assessee's explanation on Explanation 5A to section 271(1)(c), but deleted the penalty on the ground that the income which was offered was only on estimate basis, therefore, additional income offered by the assessee can neither be held to be concealed income or furnishing of inaccurate particulars of income. The relevant conclusion drawn by the learned Commissioner (Appeals) after detail discussion is reproduced herein below:-
"64. After considering the submissions of the A.R. and ratio laid down by various judicial authorities in the cases referred to above and particularly taking into consideration the findings of Hon'ble ITAT Rajkot Bench in the case of Shabbir Alluddin Latiwala V/s. Deputy Commissioner of Income Tax and Shri Gopichand Rupchand Rajani (Supra) I am inclined to agree with the assessee that inspite assessee's case not being covered by the immunity provided under explanation 5A to sec. 271(1)(c) I hold that even if the assessee is not in a position to establish conclusively that additional income was offered by him voluntarily but at the same time I find that A.O. has also not been able to identify the very foundation on the basis of which assessee had offered additional income. The A.O. neither in the course of assessment proceedings nor in the penalty proceedings has been able to link declaration of additional income with any material found even In the course of search. Even the sale figure of Rs.88.54 Cr has been adopted purely on the basis. Profit is estimated at 40% to arrive at estimated expenditure. WIP up to date of survey Is estimated at 62%. I further find that the income has been offered only on estimate which Is clearly proved from the statement u/s. 132(4) where every figure has been mentioned on estimate to the extent of even rounding up of the figures and therefore in my considered view it can not be held that the additional income offered by the assessee was concealed income in respect of which Inaccurate particulars had been furnished. I accordingly hold that A.O. Is not justified in levying penalty u/s. 271(1)(c) of the IT Act 1961 in the assessee's case. The penalty levied is accordingly cancelled."
7. Before us, the learned Departmental Representative submitted that this is not a case of estimate made by the Assessing Officer in the regular assessment proceedings but it is a case of search and seizure, wherein the assessee has himself declared additional income in the statement recorded under section 132(4). Even if such surrender was based on estimate, then also it represents the undisclosed income which has been owned by the assessee. Thus, the penalty cannot be deleted on the pleading that penalty has been levied on estimate basis. In this case, Explanation 5A is clearly applicable. Under Explanation 5A to section 271(1)(c), in case of a search which has been conducted after 1st June 2007, if any undisclosed income has been found which has not been shown in the return of income either prior to the date of search or on the due date of filing of return of income, penalty has to be levied. This is evident from the plain language of Explanation 5A. Thus, the findings of the learned Commissioner (Appeals) for deleting the penalty purely on the ground that this was a case of estimate is wholly erroneous once he has come to a conclusion that the assessee is not getting the benefit of Explanation 5A.
8. Per contra, the learned Counsel submitted that the assessee offered the income for the assessment year 2008-09, for which the due date of filing the return of income under section 139(1) was 30th September 2009 and the due date of filing the return of income under section 139(4) was 31st March 2010. In the present case, the assessee has filed his return of income on 31st October 2009, which can be said to be filed under section 139(4). Clause (b) of Explanation 5A mentions the phrase "due date for filing the return of income". This "due date" can also be treated as due date of return of income filed under section 139(4) also. In support of this contention, he relied upon the judgment of Hon'ble Punjab & Haryana High Court in CIT v/s Jagtar Singh Chawla, passed in Income Tax Appeal no.71 of 2012 = (2013-TIOL-254-HC-P&H-IT), vide judgment dated 20th March 2013 and the judgment of Gauahati High Court in CIT v/s Rajesh Kumar Jalan, [2006] 286 ITR 276 (Gau.). Relying on these case laws, he submitted that in these cases, the High Court, in the context of section 54(2) and 54F, wherein similar phrase has been used and in particular in section 54(2), the words mentioned is "time limit under section 139", has been interpreted by the Hon'ble High Court to mean that the words "due date" means the return of income filed under section 139(1) or 139(4) because section 139(4) is the extended period only. If the requirements of the due date has been fulfilled within the time limit of section 139(4) then it meats the requirement of the law. He, thus, submitted that the assessee's income disclosed at the time of search has already been shown on the due date for filing of the return of income and, therefore, penalty cannot be levied by invoking the provisions of Explanation 5A of section 271(1)(c). He further reiterated his submissions as made before the learned Commissioner (Appeals) with regard to the levy of penalty on estimated income.
9. We have carefully considered the rival contentions and perused the relevant findings of the Assessing Officer and the learned Commissioner (Appeals). In this case, a search and seizure action was taken place after 1st June 2007 i.e., on 16th October 2008. The assessee, during the course of statement recorded under section 132(4), has offered income of Rs. 1.25 crores as additional income for the previous year ending before the date of search i.e., year ending 31st March 2008 relevant to the assessment year 2008-09. The due date for filing of the return of income under section 139(1) for assessment year 2008-09 was 30th September 2009, whereas the assessee has filed the return of income on 31st October 2009 i.e., after one month from the date of filing of the return of income as provided in section 139(1). The due date for filing of the return of income under section 139(4) for the assessment year 2008-09 was 31st March 2010. Thus, the return of income filed by the assessee in this case was at best under section 139(4). The issue before us is whether the return of income filed under section 139(4) can be held to be the "due date" for filing the return of income for such previous year as mentioned in clause (b) of Explanation 5A to section 271(1)(c) and, if so, whether the penalty can be levied on the facts of the present case under the Explanation 5A. For better appreciation of the provisions of Explanation 5A, the same is reproduced herein below:-
[Explanation 5A.- Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of-
(i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or
(ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year,
which has ended before the date of search and,-
(a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or
(b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return,
then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income."
10. On a plain reading of the aforesaid Explanation, it is apparent that following conditions are essential for levy of penalty under section 271(1)(c):-
(i) this Explanation is applicable to an assessee in whose case search has been initiated under section 132 on/or after 1st June 2007; further,
(ii) during the course of search, the assessee should be found to be the owner of -
(a) any money, bullion, jewellery, for other valuable article or thing to which and the assessee claims to have acquired such assets by utilizing his income for any previous year; or
(b) any income which is based on any entry in any books of account or other documents or transactions and claims that these represents income for any previous year which is ended before the date of search; and further,
(iii) if such asset or income which represents the income of any previous year, firstly, has not been shown in the return of income which has been furnished before the date of search i.e., such income has not been declared therein and secondly, the due date for filing the return of income had expired i.e., the assessee has not shown this income in the return of income filed on or before the due date;
(iv) then on such income declared by him in the return of income furnished on or after the date of search, he is liable for penalty under section 271(1)(c) and he is deemed to have concealed the particulars of his income or furnish inaccurate particulars of income.
11. There are two saving clause in the aforesaid Explanation wherein penalty cannot be held to be leviable under section 271(1)(c), firstly, the assessee had shown such asset as mentioned in clause (i) or income as mentioned in clause (ii) in the return of income furnished before the date of search and, secondly, such asset and the income has been shown in the return of income filed on the due date. Thus, if any assessee falls under these saving clauses, Explanation 5A cannot be invoked.
12. For the purpose of the instant case, we have to see whether or not the assessee has shown the income in the return of income filed on the "due date". Provisions of section 139(1) provides for various types of assesses to file return of income before the due date and such due date has been provided in the Explanation 2, which varies from year-to-year. Whereas, provisions of section 139(4) provides for extension of period of "due date" in the circumstances mentioned therein and it enlarges the time limit provided in section 139(1). The operating line of sub-section 4 of section 139 provides that "any person who has not furnished the return within the time allowed", here the time allowed means under section 139(1), then in such a case, the time limit has been extended. Wherever the legislature has specified the "due date" or has specified the date for any compliance, the same has been categorically specified in the Act. For e.g., under section 44AB where the assessee is required to get his accounts audited before the specified date and furnish by that date, the specified date has been specifically mentioned as the date provided in section 139(1). Similarly, in section 43B also, the "due date" has been specifically provided as the date mentioned in sub-section (1) of section 139. In the aforesaid Explanation 5A, the legislature has not specified the due date as provided in section 139(1) but has merely envisaged the words "due date". This "due date" can be very well inferred as due date of the filing of return of income filed under section 139, which includes section 139(4). Where the legislature has provided the consequences of filing of the return of income under section 139(4), then the same has also been specifically provided. For e.g., section 139(3), provides that for the purpose of carry forward losses under sections 72 to 74A, the return of income should be filed within the time limit provided under section 139(1), otherwise losses cannot be set-off. In absence of such a restriction, the limitation of time of "due date" cannot be strictly reckoned with section 139(1). Thus, the meaning of the words "due date", sans any limitation or restriction as given in clause (b) of Explanation 5A, cannot be read as "due date" as provided in section 139(1). The words "due date" therefore, can also mean date of filing of the return of income under section 139(4).
13. This proposition has been explained by the various High Courts also wherein in the context of sections 54F and 54(2), it has been interpreted that the due date of section 139 can be inferred as due date under section 139(4) also. This proposition has been elaborated in the following decisions:-
i) CIT v/s Rajesh Kumar Jalan, [2006] 286 ITR 276 (Gau.). wherein it has been observed and held as under:-
"From a plain reading of sub-s. (2) of s. 54, it is clear that only s. 139 is mentioned in s. 54(2) in the context that the unutilised portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the income-tax under s. 139. Sec. 139 cannot be meant only as s. 139(1) but it means all sub-sections of s. 139. Under sub-s. (4) of s. 139, any person who has not furnished a return within the time allowed to him under sub-s. (1) of s. 142 may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. Such being the situation, it is the case of the assessee that the assessee could fulfill he requirement under s. 54 for exemption of the capital gain from being charged to income-tax on the sale of property used for residence upto 30th March, 1998, inasmuch as the return of income-tax for the asst. yr. 1996-97 could be furnished before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier under sub-s. (4) of s. 139. In the facts and circumstances of the case, the assessee was entitled to claim benefit under s. 54 on the entire amount received by him on account of sale of his house property.
ii) CIT v/s M/s. Jagriti Aggarwal, [2011] 339 ITR 610 (P&H) = (2011-TIOL-672-HC-P&H-IT), wherein it has been observed and held as under:-
"6. Sec. 54 of the Act contemplates that the capital gain arises from the transfer of a long-term capital asset, but if the assessee within a period of one year before or two years after the date on which the transfer took place purchases residential house, then instead of the capital gain, the income would be charged in terms of provisions of sub-s. (1) of s. 54. As per sub-s. (2), if the amount of capital gains is not appropriated by the assessee towards the purchase of new asset within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under s. 139, the amount shall be deposited by him before furnishing such return not later than due date applicable in the case of assessee for furnishing the return of income under sub-s. (1) of s. 139 in an account in any such bank or institution as may be specified. Relevant sub-s. (2) of S. 54 of the Act reads as under:-
xxx xxx xxx
7. The question which arises is; whether the return filed by the assessee before the expiry of the year ending with the assessment year is valid under s. 139(4) of the Act?
8. Learned counsel for the Revenue has argued that the assessee was required to file return under sub-s. (1) of s. 139 of the Act in terms of sub-s. (2) of s. 54 of the Act. It is contended that sub-s. (4) is not applicable in respect of the assessee so as to avoid payment of long-term capital gain.
9. On the other hand, learned counsel for the respondent relies upon a Division Bench judgment of Karnataka High Court in Fathima Bal vs. ITO (2009) 32 DTR (Kar) 243 where in somewhat similar circumstances, it has been held that timelimit for deposit under scheme or utilisation can be made before the due date for filing of return under s. 139(4) of the Act. Learned counsel for the respondent also relies upon a Division Bench judgment of Gauhati High Court in CIT vs. Rajesh Kumar Jalan (2006) 206. CTR (Gau) 361 (2006) 286 ITR 274 (Gau).
10. Having heard learned counsel for the parties, we are of the opinion that sub-s. (4) of s. 139 of the Act is, in fact, a proviso to sub-s. (1) of s. 139 of the Act. Sec. 139 of the Act fixes the different dates for filing the returns for different assessee. In the case of assessee as the respondent, it is 31st day of July of the assessment year in terms of cl. (c) of the Expln. 2 to sub-s. (1) of s. 139 of the Act, whereas sub-s. (4) of s. 139 provides for extension in period of due date in certain circumstances. It reads as under:-
11. A reading of the aforesaid sub-section would show that if a person has not furnished the return of the previous year within the time allowed under sub-s (1) i.e., before 31st day of July of the assessment year, the assessee can file return before the expiry of one year from the end of the relevant assessment year."
iii) CIT v/s Jagtar Singh Chawla, passed in Income Tax Appeal no.71 of 2012 =(2013-TIOL-254-HC-P&H-IT), vide judgment dated 20th March 2013 wherein it has been observed and held as under:-
"The provisions of Section 54F(4) of the Act are pari-materia with Section 54(2) of the Act. Section 54 deals with the profit on sale of a residential house, whereas Section 54F deals with the transfer of any long term capital assets not being a residential house.
A Division Bench of the Gauhati High Court in a case reported as Commissioner of Income Tax v. Rajesh Kumar Jalan (2006) 286 ITR 274, held that only Section 139 of the Act is mentioned in Section 54(2) of the Act in the context that the unutilized portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the Income Tax under Section 139 of the Act and that it would include extended period to file return in terms of Sub Section 4 of Section 139 of the Act. It was held as under:-
"From a plain reading of sub-section (2) of Section 54 of the Income-tax Act, 1961, it is clear that only section 139 of the Income-tax Act, 1961, is mentioned in section 54(2) in the context that the unutilized portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the Income-tax under section 139 of the Income-tax Act. Section 139 of the Incometax Act, 1961, cannot be meant only section 139(1), but it means all sub-sections of section 139 of the Income-tax Act, 1961. Under subsection (4) of section 139 of the Income-tax Act any person who has not furnished a return within the time allowed to him under sub-section (1) of Section 142 may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment year whichever is earlier."
The said judgment was relied upon by a Division Bench of the Karnataka High Court in Fathima Bai v. ITO, ITA No.435 of 2004 Decided on 17th October 2008, wherein it was held to the following effect:-
"11. The extended due date under section 139(4) would be 31.3.1990. The assessee did not file the return within the extended due date, but filed the return on 27.2.2000. However, the assessee had utilized the entire capital gains by purchase of a house property within the stipulated period of section 54(2) i.e., before the extended due date for return under section 139. The assessee technically may have defaulted in not filing the return under section 139(4). But, however, utilized the capital gains for purchase of property before the extended due date under section 139(4). The contention of the revenue that the deposit in the scheme should have been made before the initial due date and not the extended due date is an untenable contention."
A Division Bench of this Court in which one of us (Hemant Gupta, J.) was a member, had an occasion to consider the provisions of Section 54(2) of the Act, wherein it has been held that subsection (4) of Section 139 of the Act is in fact a proviso to Section 139(1) of the Act. Therefore, since the assessee has invested the sale proceeds in a residential house within the extended period of limitation, the capital gain is not payable. The judgments in Rajesh Kumar Jalan's case and Fathima Bai's case (supra) were referred to. It has been held as under:-
"Having heard learned counsel for the parties, we are of the opinion that subsection (4) of Section 139 of the Act is, in act, a proviso to sub-section (1) of Section 139 of the Act. Section 139 of the Act fixes the different dates for filing the returns for different assesses. In the case of assessee as the respondent, it is 31st day of July, of the Assessment Year in terms of clause (c) of the Explanation 2 to sub-section 1 of Section 139 of the Act, whereas sub-section (4) of Section 139 provides for extension in period of due date in certain circumstances."
From the propositions laid down by the aforesaid decisions, it is absolutely clear that provisions of section 139(4) is actually the extension of the due date of section 139(1) and, therefore, the due date for filing of the return of income can also be reckoned with the date mentioned in section 139(4).
14. In our considered opinion, once the legislature has not specified the "due date" as provided in section 139(1) in Explanation 5A, then by implication, it has to be taken as the date extended under section 139(4). In view of the above, we hold that the assessee gets the benefit / immunity under clause (b) of Explanation to section 271(1)(c) because the assessee has filed its return of income within the "due date" and, therefore, the penalty levied by the Assessing Officer cannot be sustained on this ground. Even though we are not affirming the findings and the conclusions of the learned Commissioner (Appeals), however, as per the discussion made above, penalty is deleted in view of the interpretation of Explanation 5A to section 271(1)(c). Consequently, the ground raised by the Revenue is treated as dismissed.
15. In the result, Revenue's appeal is treated as dismissed.
(Order pronounced in the open Court on 24.5.2013
[2012] 20 taxmann.com 606 (Delhi)
HIGH COURT OF DELHI
Commissioner of Income-tax
v.
Rajiv Shukla*
A.K. SIKRI AND M.L. MEHTA, JJ.
ITA NO. 620 OF 2011
[ASSESSMENT YEAR 2007-08]
APRIL 8, 2011
Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption of, in case of investment in residential house - Assessment year 2007-08 - Where net consideration received by assessee on sale of property was deposited in capital gains deposit account scheme, assessee was entitled to claim benefit of deduction under section 54F in respect of long-term capital gains arising on sale of said property [In favour of assessee]
The assessee had claimed deduction under section 54F in respect of long-term capital gain arising on sale of a property on the ground that he had invested net sale consideration amount in the Capital Gains Deposit Account Scheme. However, the Assessing Officer rejected the claim of the assessee and made addition. The Commissioner (Appeals) deleted the addition and the said order was confirmed by the Tribunal.
Held that the Tribunal had relied upon the judgment of the Bombay High Court in the case of CIT v.Ace Builders (P.) Ltd. [2006] 281 ITR 210. No other reason was found to take a different view. In these circumstances, no substantial question of law arose for consideration.
CIT v. Ace Builders P. Ltd. [2006] 281 ITR 210 (Bom.), CIT v. Assam Petroleum Industries P. Ltd. [2003] 262 ITR 587 (Gauhati), CIT v. Delite Tin Industries [2010] 322 ITR (St.) 8 (SC).
Ms. Prem Lata Bansal and Deepak Anand for the Appellant. Piyush Kaushik for the Respondent.
JUDGMENT
In the assessment year 2007-08, in the return filed by the assessee, herein, he had shown long-term capital gain on sale of property and also claimed the benefit of deduction under section 54F of the Income-tax Act, 1961 on the ground that he had purchased the said property in Mumbai from the said long-term capital gain. The details in this respect are as under :
The assessee had sold one flat at Defence Colony, New Delhi for a consideration of Rs. 1,04,00,000. The said flat was purchased on December 17, 1999 for Rs. 20 lakhs, stamp duty of Rs. 1,60,000 was paid on August 14, 2006, when the sale deed was executed and the said flat was used as an office on which, depreciation was claimed year to year. As on March 31, 2006, written down value was declared by the assessee at Rs. 10,62,882. The Assessing Officer further noticed that the assessee had declared the capital gain at Rs. 91,77,118 (Rs. 1,04,00,000 - Rs. 10,62,882 - Rs. 1,60,000) and had claimed deduction under section 54F treating the capital gain as long-term capital gain, stating that he had booked one flat with Chamber Constructions Pvt. Ltd., Mumbai for a sum of Rs. 2,71,55,555, possession of which was given on September 11, 2008. It was further stated that the assessee had paid a sum of Rs. 1 crore through cheque to M/s. Chamber Constructions (P) Ltd. The assessee also stated that the capital gain of Rs.91,77,118 was eligible for deduction under section 54F as the amount had been invested in the Capital Gains Deposit Account Scheme under section 54F.
2. However, the Assessing Officer rejected the claim of the assessee under section 54F on the ground that the assessee had not produced any evidence showing investment in the Capital Gains Deposit Account Scheme under section 54F and that the flat sold by him was a depreciable asset. As per the provisions of section 50, the capital gain arising from transfer of depreciable asset shall be deemed to be the capital gain arising from transfer of short-term capital asset and, therefore, deduction under section 54F was not available. Accordingly, the Assessing Officer made an addition of Rs. 91,77,118 under the head "Short-term capital gain".
3. In appeal, the Commissioner of Income-tax (Appeals) deleted the addition and the order of the Commissioner of Income-tax (Appeals) is confirmed by the Income-tax Appellate Tribunal. On a perusal of the order of the Tribunal, we find that it has relied upon the judgment of the Bombay High Court in the case of CIT v. Ace Builders P. Ltd. [2006] 281 ITR 210 (Bom.). This decision of the Bombay High Court was followed by the same court in CIT v. Delite Tin Industries in I. T. A. 1118 of 2008 dated September 26, 2008. Against the order passed in Delite ( supra) proceedings, the Revenue had preferred a special leave petition which has also been dismissed by Supreme Court on August 21, 2009 [2010] 322 ITR (St.) 8 (SC).
4. We have gone through the judgment of the Bombay High Court in the aforesaid two cases. Learned counsel for the respondent has also submitted that even the Gauhati High Court has taken an identical view in CIT v. Assam Petroleum Industries P. Ltd. [2003] 262 ITR 587 (Gauhati).
5. We do not find any reason to take a different view. In these circumstances, we are of the opinion that no substantial question of law arises for consideration.
6. Accordingly, the present appeal is dismissed.
IT: Delay in filing of application of refund even though due to fault of assessee should liberally be condoned
■■■
[2013] 34 taxmann.com 229 (Kerala)
HIGH COURT OF KERALA
Vasco Sales & Marketing Corpn.
v.
Deputy Commissioner of Income-tax, Circle - 1*
B.P. RAY, J.
W.P.(C) NO. 24109 OF 2005 (T)
MARCH  1, 2013 
Section 239, read with section 119, of the Income-tax Act, 1961 - Refunds - Form of claim for, and limitation [Delayed refunds] - Assessment years 1996-97 and 1997-98 - Petitioner filed its returns of income much belatedly only in response to notice under section 148 - While assessee's returned income for two years were either very nominal or loss, it had paid substantial amount of advance tax - Petitioner also filed belated application of refund of tax which was rejected by Commissioner - Whether delay in filing of application of refund even though due to fault of petitioner, should liberally be condoned - Held, yes [Para 6][In favour of assessee]
CASE REVIEW
 
Pala Marketing Co-op. Society Ltd. v. Union of India [2008] 167 Taxman 238 (Ker.) (para 6) followed.
CASES REFERRED TO
 
Pala Marketing Co-op. Society Ltd. v. Union of India [2008] 167 Taxman 238 (Ker.) (para 6)
K.P. Balasubramanyan for the Petitioner. P.K.R. Menon and George K. George for the Respondent.
JUDGMENT
 
1. The petitioner firm is an assessee under the Indian Income Tax Act. Exts.P13 and P16 orders of the first and third respondents rejecting the petitioner's claim for refund of the advance income tax paid for the assessment years 1996-97 and 97-98 is under challenge in this writ petition. This writ petition is filed with the following prayers:
(a)  to call for the records leading to Exts.P13 and P16 and quash the same by the issuance of a writ of certiorari or other appropriate writ, order or direction;
(b)  to issue a writ of mandamus directing the respondents to order refund as claimed by the petitioner.
2. Learned counsel for the petitioner submits that for the assessment years 1996-97 and 1997-98, the petitioner firm could not file the returns under the Indian Income Tax Act and the returns were filed only after notice under Section 148 of the Act. Even after the notice, the petitioner firm could not file the returns and extension of time was requested. The return for 1996-97 was filed on 30-6-1998 and the total income was only Rs.2520/-. A total amount of Rs.1,26,451/- was paid as advance tax. Therefore the assessing authority dropped the proposal for imposing penalty. Petitioner applied for refund of the tax which was rejected by the Chief Commissioner. Similarly for the assessment year 1997-98 also there was delay in filing the return. The return was ultimately filed on 29-2- 2000 declaring a loss of Rs.3,98,599/-. Since the request for refund of the advance tax was rejected by the Chief Commissioner, petitioner filed this writ petition.
3. Heard both sides and perused the materials available on record.
4. I have gone through the statement filed on behalf of the respondents wherein it is categorically stated that the returns for the assessment years in question were not filed by the petitioner voluntarily but field only in response to notice issued under Section 148 of the Income Tax Act. In as much as the claim of refund having been filed belatedly without any valid reasons, the authorities had to reject the claim as laid down in the Income Tax Act.
5. Learned counsel for the petitioner has relied upon a judgment of this Honourable Court reported in Pala Marketing Co-op. Society Ltd. v. Union of Indian [2008] 167 Taxman 238 (Ker.) wherein it is stated that the failure to condone the delay causes genuine hardship to the assessee. The relevant portion of the judgment reads as follows:
"Chapter XIV is mainly oriented to ensure assessment and recovery of tax to protect the interest of the Revenue. On the other hand, chapter XIV provides for refund and an application in this regard can be entertained only if it is filed within the time limit prescribed under Section 239 of the Act. In other words, if delay is not condoned by the Board under Section 119(2)(b), such application cannot be processed under Section 139(1) or 139(4) of the Act. I am therefore, of the view that in order to consider belated return for refund on merit, delay has to be necessarily condoned by the Board under Section 119(2)(b) of the Act."
6. Considering the entire facts and circumstances of the case and following the decision cited above, I am of the view that the delay even though due to the fault of the petitioner, should liberally be condoned. Therefore, I condone the delay in filing the application for refund and remit the matter to the third respondent/Chief Commissioner of Income Tax to reconsider the application afresh on merits in accordance with law and pass appropriate orders within three months from the date of receipt of a copy of this judgment.
Writ petition is disposed of.

IT : Where Assessing Officer had raised specific query during scrutiny assessment regarding allowance of bad debts reopening of assessment on same issue was not permissible
■■■
[2013] 34 taxmann.com 225 (Delhi)
HIGH COURT OF DELHI
Maruti Suzuki India Ltd.
v.
Deputy Commissioner of Income-tax*
BADAR DURREZ AHMED AND VIBHU BAKHRU, JJ.
W.P.(C) NO. 8562 OF 2007 
AND CM NOS. 16150 & 17153 OF 2007
MAY  13, 2013 
Section 147 of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts [To disallow bad debts under section 36(1)(vii)] - Assessment year 2003-04 - During scrutiny assessment, Assessing Officer had asked for details regarding bad debts written off, but had not made any disallowance for same - Subsequently assessment was reopened and bad debts written off was disallowed on account of it being on capital account - Whether, where Assessing Officer had raised a specific query with regard to bad debts written off, it could be concluded that he had examined issue at time of making original assessment and had formed an opinion by not making any addition in respect thereof - Held, yes - Whether, therefore, reopening of assessment on issue of bad debts written off was nothing but a mere change of opinion, and hence, not permissible - Held, yes [Para 10] [In favour of assessee]
FACTS
 
■  During original assessment under section 143(3), the Assessing Officer had raised a specific query with regard to bad debts/advances written off in response to which the assessee had filed details of the same. Thereafter, the Assessing Officer passed assessment order wherein no disallowance was made in respect of bad debts written off by the assessee.
■  Subsequently, notice under section 148 was issued for reopening of assessment under section 147, holding that the bad debts written off were disallowable on account of it being on the capital account. Thereafter, the Assessing Officer passed reassessment order.
■  On writ, the assessee challenged the validity of reopening of assessment and order of reassessment, contending that when the Assessing Officer had asked for specific details relating to bad debts, he had applied his mind and formed an opinion that no disallowance could be made in that respect. Therefore, assessee claimed that it was a mere change of opinion and reopening was not permissible.
HELD
 
■  It is apparent that the only reason indicated therein for reopening the assessment was the issue of bad debts written off. The issue that was sought to be raised in the reasons was with regard to the said amount being liable to be disallowed on account of it being deemed to be on the capital account. [Para 5]
■  The Assessing Officer had raised a specific query with regard to the issue of bad debts/advances written off during assessment. Therefore, in the present case it cannot be said that the Assessing Officer did not examine the issue of bad debts/advances which had been written off by the petitioner/assessee. In the facts of the present case, it is not a question of a deemed formation of an opinion, but of an opinion being formed inasmuch as the Assessing Officer in the original proceedings had raised a specific query which had been answered specifically by the petitioner/assessee, though it did not find mention in the assessment order. [Para 9]
■  It is obvious that when a claim for deduction is not at all examined by the Assessing Officer, it could never be a case of change of opinion. However, where a claim or deduction has in fact been examined by the Assessing Officer it would amount to formation of an opinion, despite the fact that no addition had been made or reason, therefor had been given in the original assessment order. Thus, when, after such an examination in the first round, the matter is sought to be reopened by issuance of notice under section 148, it would clearly be a case of change of opinion and the reassessment proceedings would be invalid. [Para 9]
■  From the decision in the case Usha International Ltd. [2012] 348 ITR 485/210 Taxman 188/25 taxmann.com 200 (Delhi), it is apparent that even in cases where no query is raised by the Assessing Officer in the course of the original assessment proceedings, it may yet be held that the Assessing Officer had examined the subject matter. This is so because the aspect or question in issue may be too apparent and obvious. [Para 10]
■  In the present case, the Assessing Officer had clearly raised a specific query with regard to bad debts/advances written off and the petitioner/assessee had given details in respect thereof. It is obvious that since no such addition was made on that count, the Assessing Officer had considered and examined the position and held in favour of the petitioner/assessee. Therefore, it can safely be concluded that, in the facts and circumstances of the present case, the Assessing Officer had, indeed, examined the issue at the time of the original assessment proceedings and had formed an opinion by not making any addition in respect thereof. Thus, the reopening of the assessment would be nothing but a mere change of opinion. [Para 10]
■  It may also be noted that in the reasons recorded for reopening of the assessment, the Assessing Officer did not say that he missed it. The reasons recorded reveal that the Assessing Officer, in the second round was of the view that the addition should have been made in respect of bad debts/advances because of the fact that it was on the capital account. Had the Assessing Officer felt that this point had been missed out in the first round, he would have stated so. The reasons as recorded also belie the contention raised by the revenue. [Para 11]
■  In view of the foregoing discussion, the notice under section 148 and all proceedings pursuant thereto are invalid and they are set aside. The reassessment order is also set aside. [Para 12]
CASES REFERRED TO
 
CIT v. Usha International Ltd. [2012] 348 ITR 485/210 Taxman 188/25 taxmann.com 200 (Delhi) (FB) (para 8), Kalyanji Mavji & Co. v. CIT[1976] 102 ITR 287 (SC) (para 9), A.L.A. Firm v. CIT [1991] 189 ITR 285/55 Taxman 497 (SC) (para 9) and Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996/2 Taxman 197 (SC) (para 9).
S. Ganesh, S. Sukumaran, Anand Sukumar and Bhupesh Kumar Pathak for the Petitioner. N.P. Sahni for the Respondent.
JUDGMENT
 
Badar Durrez Ahmed, J. - This writ petition is directed against the notice dated 18-04-2007 issued under section 148 of the Income-tax Act, 1961 (hereinafter referred to as 'the said Act'). The said notice was issued in respect of the assessment year 2003-04. Apart from the said notice, the present petition, after its amendment, also seeks to challenge the order rejecting the objections filed by the petitioner, a copy of which was received by the petitioner on 02-11-2007. The petitioner also seeks to challenge the reassessment order dated 22-11-2007.
2. As this juncture, we may point out that initially when the writ petition was filed the Court had granted a stay insofar as the passing of a reassessment order was concerned, though the proceedings were to continue. Apparently there was some confusion in the minds of the respondent with regard to that order as a result of which the above mentioned reassessment order came to be passed on 22-11-2007. And, that order was subsequently stayed by this Court by an order dated 27-03-2008.
3. We are not so much concerned about the fact that a reassessment order had been passed despite there being a direction that no such order be passed. We are, in fact, more concerned about the validity of the notice under section 148 and the initiation of proceedings under section 147 of the said Act.
4. Mr. Ganesh, the learned senior counsel appearing on behalf of the petitioner submitted that this was a clear case of change of opinion and as such the initiation of proceedings under section 147 of the said Act were invalid. In this context, Mr. Ganesh submitted that in the hearing conducted on 27-03-2006, in the course of the original assessment proceedings under section 143(3) of the said Act, the Assessing Officer had made an entry in the note sheet to the following effect:-
"Regarding TPO order, nothing new has been said except paras 6&7. I find no reason to disagree with finding of TPO.
There is no written agreement which stop the assessee from recovering amounts outstanding from Machino Plastics.
Regarding revised return, the questions asked was the reason for each and every modification made in the revised return and how the same was discovered subsequently and ignored at the original return stage.
What is Misc. Income amounting to Rs. 5270 lacs, detail thereof, Net prior period adjustment of Rs. 2 Crore, Other Misc expenses of Rs. 3520 Lacs, Bad debts advance written off: Rs. 40 Lacs. Sales return A/c No. 445001,445002, 445201,445202. How the sales return has been taken care vis a vis stock. How it is considered in stock valuation." (Underlining added)
It will be evident from the above extract that one of the queries raised was with regard to "Bad debts advance written off: Rs. 40 lacs." In response to the said query, the petitioner submitted a letter dated 29-03-2006 to the Assessing Officer wherein it was indicated that the details of bad debts written off were as enclosed as per Annexure "C". Annexure "C" was as under:-
 
"MARUTI UDYOG LIMITED
Assessment Year 2003-04
Details of Bad Debits/Advance written off.
 Annexure- C
  Voucher No. Voucher Date Amount (Rs) Particulars
  9927128730-Sep-02 1,034,012Simultaneously offered in Miscellaneous Income as submitted vide submission dated 18-02-2005
  9926989630-Sep-02 1,421,800This is on account of damages for late delivery of vehicles sold to Director General of Ordinance services, MGO Branch, Army Hqrs. New Delhi
  9929276031-Dec-02 831,986Provision made for non-recovery of amount due from dealers
  9929444331-Dec-02 1,683Provision made for non recovery of amount due from Dealers
  9931333231-Mar-03 726,046Advances given to parties written off as irrecoverable
   Total 4,015,528" 
On the strength of the above letter dated 29-03-2006, the learned counsel for the petitioner submitted that specific details had been sought by the Assessing Officer with regard to the bad debts which had been written off and the details were supplied by the petitioner by virtue of the said letter and which were more particularly set out in annexure "C" thereto. Thereafter, the Assessing Officer framed the assessment order under section 143(3) on 30-03-2006 wherein no disallowance was made in respect of bad debts written off by the assessee in its books of account. Thus, according to the learned counsel for the petitioner, the Assessing Officer had asked for specific details which were supplied by the assessee and after the Assessing Officer examined the same he was satisfied that no disallowance needed to be made on account of bad debts written off This, according to the learned counsel for the petitioner, meant that the Assessing Officer had, in fact, applied his mind and had formed an opinion to the effect that no disallowance could be made in respect of the bad debts written off by the assessee.
5. Thereafter, the notice dated 18-04-2007 was issued under section 148 seeking the reopening of the assessment completed on 30-03-2006. When the petitioner asked for the reasons which purportedly formed the basis of belief of the Assessing Officer as required under section 147 of the said Act, the Assessing Officer furnished the following reasons:-
"Maruti Udyog Ltd.
Assessment Year-2003-04
Reasons for issuing notice u/s 148 of the IT Act 1961
The return of income in this case was filed on 28-11-2003 declaring loss of Rs. 276,16,23,268/-. The return was processed u/s 143(1) at the same income and resultant refund was issued to the assessee. The assessment was completed u/s 143(3) in March, 2006 at income of Rs 562,70,10,730/-.
On going through the assessment record, it has been noticed that the assessee had written off, bad debts/advances amounting of Rs 40 Lacs in the P&L Account. Since it was from the capital head of the company it was required to be charged to the capital A/C. If a loan taken on capital account becomes irrecoverable, the loss incurred is capital loss. Consequently, amount off. Rs. 40 lacs claimed by the assessee in the P&L A/c needs to disallowed and added back to the income of the assessee.
On the basis of above, I have reason to believe that the income for A.Y. 2003-04 has escaped assessment.
Notice u/s 148 of the I.T. Act issued to the assessee.
(Anu Krishna)
Dy. Commissioner of Income-tax, Circle-6(1), New Delhi."
It will be apparent that the only reason indicated therein for reopening the assessment was the issue of bad debts written off which amounted to Rs. 40 lakhs. The issue that was sought to be raised in the reasons was with regard to the said amount being liable to be disallowed on account of being it deemed to be on the capital account.
6. Thereafter, as mentioned above, the petitioner filed its objections on 10-10-2007 to the proposed reopening of the assessment which had been completed on 30-03-2006. In paragraph 2.4 of the said objections the petitioner had submitted that the only issue for reopening of the case was with regard to the bad debts/ advance of Rs. 40 lakhs which had already been duly considered by the Assessing Officer in the original assessment proceedings. Therefore, the petitioner requested that the proceedings under section 147/148 of the said Act in respect of the assessment year 2003-04 be dropped.
7. The Assessing Officer, however, did not accede to this request and rejected the objections by an order which was received by the petitioner on 02-11-2007. In the said order, the Assessing Officer noted that the petitioner/assessee had only filed an annexure giving details of bad debts without any note/discussion on the subject and that the issue was nowhere debated by the Assessing Officer or the assessee at the time of the original assessment proceedings. Therefore, there was no question of there being a change of opinion, as, according to the Assessing Officer, no opinion had been formed in the first instance. Of course in the said order rejecting the objections there was no mention of the issue with regard to the bad debts being on the capital account.
8. This was followed by the reassessment order dated 22-11-2007 wherein an addition of Rs. 29,81,515/- was made under the head bad debts disallowed and which were added to the income of the petitioner/assessee. Furthermore, by virtue of the reassessment order dated 22-11-2007 an addition of Rs. 112,90,00,000/- was also made on account of royalty paid. According to Mr. Ganesh, the learned senior counsel for the petitioner, the issue of bad debts was only used as a 'key' to open up reassessment proceeding of which the issue of royalty was the main target. In any event, he submitted, the petitioner's case fell squarely within the parameters of the decision of this Court in the case of CIT v. Usha International Ltd. [2012] 348 ITR 485/210 Taxman 188/25 taxmann.com 200 (Delhi) (FB). He drew our attention straightway to paragraph 13 of the said decision, which inter alia, reads as under:-
"13. It is, therefore, clear from the aforesaid position that:
(1)  Reassessment proceedings can be validly initiated in case return of income is processed under Section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion.
(2)  Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by principle of "change of opinion".
(3)  Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons." (Underlining added)
Particular emphasis was laid on point No. (3) mentioned above. In the facts of the present case it was submitted that a specific query had been raised and had been answered by the petitioner in the course of the original assessment proceedings and the Assessing Officer did not make any addition in respect of that issue in the assessment order. Therefore, in light of the position indicated in Usha International Ltd case (supra), it was contended by the learned counsel for the petitioner that the position should be accepted that the issue had been examined by the Assessing Officer but he did not find any ground or reason to make an addition or to reject the stand of the assessee. The crux of the matter being that the Assessing Officer must be considered to have formed an opinion. As a result, the reassessment would be invalid because the Assessing Officer had formed an opinion in the original assessment though he had not recorded his reasons for the same. Thus, according to Mr. Ganesh, the facts of the present case were squarely covered by point No. 3 indicated in Usha InternationalLtd case (supra).
9. In response to the aforesaid arguments, Mr. Sahni appearing on behalf of the revenue referred to paragraph 23 of Usha International Ltd case (supra)and submitted that there cannot be a deemed formation of an opinion. Paragraph 23 of the said decision reads as under:-
"23. The said observations do not mean that even if the Assessing Officer did not examine a particular subject-matter, entry or claim/deduction and, therefore, had not formed any opinion, it must be presumed that he must have formed an opinion. This is not what was argued by the assessee or held and decided. There cannot be deemed formation of opinion even when the particular subject-matter, entry or claim/deduction is not examined."
The above observation is in the context where the Assessing Officer had not examined a particular subject matter, entry or claim/deduction. But the facts of the present case are different. The Assessing Officer had raised a specific query with regard to the issue of bad debts/advances written off Therefore, in the present case it cannot be said that the Assessing Officer did not examine the issue of bad debts/advances which had been written off by the petitioner/assessee. The majority view of the Full Bench in Usha International Ltd case (supra)quoted in paragraph 23 would therefore not apply to the facts of the present case as it is not a question of a deemed formation of an opinion but of an opinion being formed inasmuch as the Assessing Officer in the original proceedings had raised a specific query which had been answered specifically by the petitioner/assessee, though it did not find mention in the assessment order. It is that specific situation which has been categorically dealt with in point No. 3 referred to above which finds mention in paragraph 13 of the very same decision in Usha International Ltd case (supra). Therefore, the reliance placed by Mr. Sahni on the observation contained in paragraph 23 would be of no avail to the respondent in the factual matrix of this case. A reference had also been made by Mr. Sahni to the various decisions discussed in Usha International Ltd. case (supra)and, in particular, to the decision in the case of Kalyanji Mavji & Co. v. CIT [1976] 102 ITR 287 (SC) and A.L.A. Firm v. CIT [1991] 189 ITR 285/55 Taxman 497 (SC). A reference was also made to the Supreme Court decision in the case of Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996/2 Taxman 197. We find after examining these decisions and certain other decisions, the majority opinion in Usha International Ltd. case (supra)concluded as under:-
"36. The aforesaid observations are complete answer to the submission that if a particular subject-matter, item, deduction or claim is not examined by the Assessing Officer, it will nevertheless be a case of change of opinion and the reassessment proceedings will be barred."
It is obvious that when a claim for deduction is not at all examined by the Assessing Officer, it could never be a case of change of opinion. However, where a claim or deduction has in fact been examined by the Assessing Officer it would amount to formation of an opinion despite the fact that no addition had been made or reason therefor had been given in the original assessment order. Thus, when, after such an examination in the first round, the matter is sought to be reopened by issuance of notice under section 148 of the said Act, it would clearly be a case of change of opinion and the reassessment proceedings would be invalid.
10. We may also note the observations of theFull Bench in paragraph 39 of the said decision in the case Usha International Ltd. (supra)which are to the following effect:-
"39. In view of the above observations we must add one caveat. There may be cases where the Assessing Officer does not and may not raise any written query but still the Assessing Officer in the first round/original proceedings may have examined the subject-matter, claim, etc., because the aspect or question may be too apparent and obvious. To hold that the Assessing Officer in the first round did not examine the question or subject-matter and form an opinion, would be contrary and opposed to normal human conduct. Such cases have to be examined individually."
It is apparent from the above extract that even in cases where no query is raised by the Assessing Officer in the course of the original assessment proceedings it may yet be held that the Assessing Officer had examined the subject matter. This is so because the aspect or question in issue may be too apparent and obvious. However, the Full Bench cautioned by stating that such cases would have to be examined individually. It is, therefore, clear that even where no query is raised by the Assessing Officer and there is no discussion in the assessment order, it may yet be a case where the Assessing Officer would be considered to have examined the issue. However, we are not concerned with those type of cases inasmuch as in the present case the Assessing Officer had clearly raised a specific query with regard to bad debts/ advances written off and the petitioner/assessee had given details in respect thereof It is obvious that since no such addition was made on that count, the Assessing Officer had considered and examined the position and held in favour of the petitioner/assessee. Therefore, we can safely conclude that, in the facts and circumstances of the present case, the Assessing Officer had, indeed, examined the issue at the time of the original assessment proceedings and had formed an opinion by not making any addition in respect thereof. Thus, the reopening of the assessment which had been concluded on 13-03-2006, would be nothing but a mere change of opinion.
11. Mr Sahni appearing on behalf of the revenue had also submitted that the point of bad debts written off may have been missed by the Assessing Officer inasmuch as the present case was a complicated matter and even the assessment order framed on 13-03-2006 ran into 34 pages. He submitted that there was every possibility of some aspects being missed out by the Assessing Officer. And, such aspects which had been inadvertently missed by the Assessing Officer cannot be regarded as those on which the Assessing Officer had formed an opinion. For this proposition, Mr. Sahni relied on the decision of the Supreme Court in the case of A.L.A. Firm (supra). However, we do not agree with this submission because in the present case, the factual position is different. Whether it was a complicated matter or not is not what is relevant here. In the present matter the Assessing Officer had finally raised only 4 issues, one of them being the issue of bad debt/advances written off. Therefore, it is not as if the Assessing Officer had lost sight of the issue of bad debts/advances. In fact, he had specifically raised queries in this regard towards the fag end of the assessment proceedings and therefore it must be presumed that he was very much alive to the issue. We may also note that in the reasons recorded for reopening of the assessment, the Assessing Officer does not says that he missed it. The reasons recorded reveal that the Assessing Officer, in the second round was of the view that the addition should have been made in respect of bad debts/advances amounting to Rs. 40 lakhs because of the fact that it was on the capital account. Had the Assessing Officer felt that this point had been missed out in the first round he would have been stated so. The reasons as recorded also belie the contention raised by the learned counsel for the respondent.
12. In view of the foregoing discussion, the notice dated 18-04-2007 under section 148 and all proceedings pursuant there to are invalid and they are set aside. The reassessment order dated 22-11-2007 is also set aside.
13. The writ petition is allowed as above. There shall be no orders as to costs

IT : A gift through a loan is not a genuine gift
■■■
[2013] 34 taxmann.com 95 (Amritsar - Trib.)
IN THE ITAT AMRITSAR BENCH
Sat Pal John
v.
Income-tax Officer, Nakodar*
H.S. SIDHU, JUDICIAL MEMBER
AND B.P. JAIN, ACCOUNTANT MEMBER
IT APPEAL NO. 92 (ASR.) OF 2011
[ASSESSMENT YEAR 2006-07]
APRIL  30, 2013 
Section 68 of the Income-tax Act, 1961 - Cash credit [Gift] - Assessment year 2006-07 - Whether in case of a gift, it is necessary not only to establish identity of donor, but also creditworthiness of donor to show that money belongs to donor - Held, yes - Assessee had received gift of two sums from his brother's wife 'A' settled in UK - Statement of 'A' revealed that she was not a person of means or knowledge about her financial affairs and her finances were managed by her husband - Facts revealed that she had no independent source of income and money was not given from her own bank account or her sources, but stated to have been given out of a loan - Whether on facts, creditworthiness of donor was not proved and, therefore, amounts of gift would be added to assessee's income under section 68 - Held, yes [Para 6] [In favour of revenue]
FACTS
 
■  During relevant assessment year, the assessee received two gifts of Rs. 2,34,000 and Rs. 2,35,000 from his sister-in-law 'A' (Brother's wife) who along with his brother settled in UK. One of said two gifts came from A's NRE account in Indian bank and other from UK branch of Indian bank.
■  In the assessment proceedings, the assessee, to prove creditworthiness of 'A', submitted that his brother was doing barber business in UK and his sister-in-law was assisting him in his business; and that she had received 2241 pounds as allowance from the UK Government.
■  The Assessing Officer asked the assessee to give details of the bank account of 'A' from where the remittances were made but the same were not submitted. The assessee stated before the Assessing Officer that a sum of 6000 pounds was advanced by one 'J', cousin of assessee, to 'A' and thereafter 'A' made the gifts to the assessee.
■  The Assessing Officer noted that 'A' had received only Rs. 1,74,085 from the UK Government during relevant period and she had no other independent source of income. He was, therefore, not satisfied of the creditworthiness of 'A', more so since the utilization of the money received from UK Government was not submitted. He also noted that though 'A' claimed to have operated her bank accounts herself, she was not aware of the bank deposits in her bank account and expressed her inability to state the nature of the money she had given to the assessee: whether it was a loan or a gift. She was also not aware that the money given to the assessee had been received back or not. No gift deed in respect of amounts advanced to assessee by her was executed either in India or in the UK. The Assessing Officer, therefore, held that the assessee was not able to discharge his onus of proving the capacity and creditworthiness of the donor, and the source from where the funds were alleged to have been gifted was not clarified. He held the gift to be not genuine and made addition to the assessee's income.
■  The Commissioner (Appeals) confirmed the action of the Assessing Officer.
■  On second appeal:
HELD
 
■  The facts clearly show that the money stated to have been gifted by 'A' to the assessee was not her own, even if the loan from 'J' is accepted to be genuine. This is a significant factor as far as the genuineness of the gift is concerned. A gift normally connotes a transaction where a person parts his own property to another without consideration and for love and affection. It is rare to come across a person who makes a gift of money to another out of the borrowed funds. Moreover, 'A' was not a person of substantial means. The assistance from the Government of UK which is stated to have been received by her is on account of child tax credit amounting to 2241.10 pounds vide intimation dated 30-1-2006 (after the gifts were remitted) and she admits that she had no other independent source of income. Since she had no other independent source of income, it is not clear as to how she proposed to repay the loan of 6000 pounds taken from 'J'. More importantly, it is not clear as to why the "gift" was made out of the borrowed funds.
■  It is claimed that the money was received by the assessee so as to remove the other partners from his partnership firm and to bring his brother and his sister-in-law 'A' into the same partnership firm. If it is so, the claim of "gift" does not appear to be genuine. Quid pro quo is apparently involved in the entire transaction. In case the money has genuinely come from 'A, it would imply a consideration for taking a share in the partnership firm. Nevertheless the important point is that the creditworthiness of 'A' is certainly not proved since she had no independent source of income and she certainly did not have enough money of her own to advance a gift to the assessee. Both the remittances sent to the assessee through banking channels were transactions entered into by the assessee's brother by purchase of drafts and the only source of the same is stated to be a loan taken in cash from 'J', which being a late claim as also being in cash, is not verifiable and is quite doubtful. A gift through a loan is apparently not a genuine gift. There is no immediate occasion for giving the gift and the stated purpose for the gift appears to be a business consideration.
■  The statement of 'A' reveals that she was certainly not a person of means or knowledgeable about her financial affairs and her finances were being managed by her husband. Initially, she denied having given any gift to the assessee in cash, but later on stated that some gift was given, but again, she was unable to tell the amount or date or mode of gift.
■  Her statement, coupled with the fact that she had no independent source of income, and the fact that the money was not given from her own bank account or her sources, but stated to have been given out of a loan, leads to uphold the Assessing Officer's conclusion that the creditworthiness of the donor is not proved. In the case of a gift, it is necessary not only to establish the identity of the donor, but the creditworthiness of the donor also needs to be established to show that the money belongs to the donor.
■  Merely because a gift has come through banking channels and from identifiable sources would not be sufficient to discharge the burden of the assessee in respect of cash credit shown to be a gift, unless inter alia, the creditworthiness of the donor was also proven.
■  In the instant case, the alleged donor, 'A, is certainly not shown to be creditworthy since she had no independent sources of income and even the allowance received from the UK Government was not sufficient to cover the alleged gifts. The claim of taking a loan from 'J' is doubtful since the transaction was admittedly in cash and the claim has also been made at a very late stage. The transaction is also not verifiable. Further, the claim of making gift out of the borrowed money is against normal human probability.
■  The contention that the assessee had no other source of income is not relevant as far as addition under section 68 is concerned, since this is a deeming provision which treats unexplained cash credit as the assessee's income. [Para 6]
■  In the facts and circumstances of the case, there is no infirmity in the order of the Commissioner (Appeals), who has rightly confirmed the action of the Assessing Officer. [Para 7]
CASE REVIEW
 
Tirath Ram Gupta v. CIT [2008] 304 ITR 145/[2009] 177 Taxman 294 (Punj. & Har.); Yash Pal Goel v. CIT (Appeals) [2009] 310 ITR 75/181 Taxman 175 (Punj. & Har.) and Subhash Chand Verma v. CIT [2009] 311 ITR 239/[2007] 164 Taxman 401 (Punj. & Har.) (para 6) followed.
CASES REFERED TO
 
Ram Lal Agarwal v. CIT [2006] 280 ITR 547/[2005] 149 Taxman 342 (All.)(para 2) CIT v. Kamdhenu Steel & Alloys Ltd. [2012] 206 Taxman 254/19 taxmann.com 26 (Delhi) (para 2), Tirath Ram Gupta v. CIT [2008] 304 ITR 145/[2009] 177 Taxman 294 (Punj & Har.) (para 6), Yash Pal Goel v. CIT (Appeals) [2009] 310 ITR 75/181 Taxman 175 (Punj & Har.) (para 6) and Subhash Chand Verma v. CIT [2009] 311 ITR 239/ [2007] 164 Taxman 401 (Punj & Har.) (para 6).
Parveen Jain for the Appellant. Tarsem Lal for the Respondent.
ORDER
 
1. This appeal of the assessee arises from the order of the CIT(A), Jalandhar, dated 18.01.2011 for the assessment year 2006-07. The assessee has raised following grounds of appeal:
"1.  That the CIT(A) erred in confirming the addition of Rs.4,69,000/- by treating the gifts received as income from undisclosed sources, without considering that gifts were received through NRE account and moreover the Assessing Officer has not brought any material on record to show that it was the assessees income from undisclosed sources.
2.  Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in confirming the whole addition of Rs. 4,69,000/- by doubting the credit worthiness of donor and genuineness of transaction, without considering that there were ample funds at the disposal of the donor.
3.  That the addition confirmed by the Hon'ble CIT(A) is arbitrary, illegal, illogical and unwarranted without considering the facts and circumstances of the case.
4.  That the appellant craves to leave or amend grounds of appeal till the appeal remains undisposed off."
2. The brief facts in the grounds of appeal of the assessee are that the assessee had received gifts of various sums during the relevant previous year including a sum of Rs.2,34,000/- on 10.10.2005 and Rs.2,35,000/- on 03.11.2005, which were stated to be gifts from his sister in law Smt. Amarjit Kaur, who was settled alongwith his brother Ram Gopal in the UK. The assessee's brother Sh. Ram Gopal had also gifted sums of Rs.1,93,800/-, Rs.1,97,242/- and Rs.1,97,242/- of different dates in the month of March, 2006 to him. The gifts from Sh. Ram Gopal had been given from Sh. Ram Gopal's bank account No.13539 in Bank of India whereas the gifs from Smt. Amarjit had come from Canara Bank, Nakodar Branch NRE A/c No.40439 and Bank of Baroda, Birmingham, UK Branch respectively. In the assessment in the case of M/s. Gupta Brothers, where the assessee is a partner, these gifts totaling Rs.4,69,000/- received from Mrs. Amarjit were credited to his capital account were added on protective basis as the AO was of the opinion that these gifts were not genuine. Since the AO was of the opinion that the addition should be made primarily in the hands of the assessee and not of the firm. The assessment of the assessee was reopened u/s 147. In the assessment proceedings, the assessee submitted that his brother Sh. Ram Gopal was doing barber business in the UK and his sister-in-law was assisting him in his business. The income tax computation sheet of Sh. Ram Gopal in the UK showing income of Rs.17003/- pounds was submitted and it was also contended that Smt. Amarjit Kaur had received 2241 pounds as allowance from the UK government. The sum of Rs.2,35,000/- stated to be gift from Smt. Amarjit was stated to be given from her NRE Account/Cheque No.289801 in Canara Bank, Nakodar and the source of this sum was stated to be remittance by draft by Sh. Ram Gopal in UK. The other gift of Rs.2,34,000/- was also stated to be a cheque purchased by his brother Sh. Ram Gopal. Copies of the cheques were submitted before the AO as also the confirmation of all the gifts filed during the assessment proceedings. It was pointed out that Smt. Amarjit Kaur had also appeared before the AO and had admitted that these gifts were made by her. It was stated that she did not give the amount of gift or date in reply to a question during the statement since she was illiterate, but the same was reflected in her bank pass book.. Further, the A.O. asked the assessee to give the bank account of Smt. Amarjit Kaur from where the remittances were made but the same were not submitted. The assessee stated before the AO that a sum of 6000 pounds was advanced by Sh. Jatinder Kumar Sidhu, cousin of Sh. Satpal John on 06.10.2005 to Smt. Amarjit Kaur and thereafter Smt. Amarjit Kaur made the gifts to the assessee. The assessee also furnished a copy of bank account of Sh. Jatinder Kumar Sidhu with Barclays Bank alongwith his confirmation for advancing 6000 pounds.
2.1 The AO also noted that Smt. Amarjit Kaur had received only Rs.1,74,085/- from the UK Govt. between 06.04.2005 to 05.04.2006 and she had no other independent source of income. He was, therefore, not satisfied of the credit-worthiness of Smt. Amarjit Kaur, more so since the utilization of the money received from UK Govt. was not submitted. The AO noted that in the statement of Smt. Amarjit Kaur recorded during the assessment proceedings in the case of M/s. Gupta Bros, she could not give details of the bank account in which she had bank account at Nakodar or the amount deposited in the bank. She admitted that she had never given any type of gift whether in cash or kind to her parental relatives who were doing labour job in the village. Though she claimed to have operated her bank accounts herself, she was not aware of the bank deposits in her bank account. She expressed her inability to state the nature of the money she had given to the assessee: whether it was a loan or a gift and further admitted that all the transactions were between her husband and the assessee. She was also not aware that the money given to the assessee had been received back or not. No gift deed in respect of amounts advanced to assessee by her was executed either in India or in the UK. The AO, therefore, held that the assessee was not able to discharge his onus of proving the capacity and creditworthiness of the donor, and the sources from where the funds were alleged to have been gifted was not clarified. He noted that the occasion for making a gift was not established and no other instance of reciprocal gifts given by the assessee to his relatives or to the donor were informed. He also noted that the gifts were stated to be made out of funds of Sh. Ram Gopal and not of the donor Smt. Amarjit Kaur. He noted that during the assessment proceedings in the case of M/s. Gupta Bros; it was contended by Smt. Amarjit Kaur that she had given the gift from her own sources whereas a different stand was taken now that the money was taken from Sh. Jatinder Kumar Sidhu to give the gifts. He held that this was an after-thought and just to prove the genuineness of the gift. The AO held the gifts to be not genuine. He relied on the decision in the case of Ram Lal Agarwal v. CIT [2006] 280 ITR 547/[2005] 149 Taxman 342 (All.) and the judgment of the Hon'ble Delhi Court inCIT v. Kamdhenu Steel & Alloys Ltd. [2012] 206 Taxman 254/19 taxmann.com 26 (Delhi).
3. The Ld. CIT(A) confirmed the action of the Assessing Officer.
4. The Ld. counsel for the assessee, Mr. Parveen Jain, Advocate reiterated the submissions as made before the ld. CIT(A) by the Ld. AR before him.
5. The Ld. DR, on the other hand, relied upon the orders of both the authorities below.
6. We have heard the rival contentions and perused the facts of the case. The assessee has received two amounts of Rs.2,35,000/- on 03.11.2005 and Rs.2,34,000/- on 10.10.2005. We find no infirmity in the order of the ld. CIT(A), who has given the findings against the assessee in para 4.1 to 6 of his order that the sum of Rs.2,34,000/- was draft issued by Birmingham UK Branch whereas the sum of Rs.2,35,000/- is stated to be issued from NRE account of Canara Bank, Nakodar Branch by Smt. Amarjit Kaur. Sh. Ram Gopl is brother of the assessee and Smt. Amarjit Kaur is the wife of Sh. Ram Gopal. However, the source of both the remittances is not shown to be from Smt. Amarjit Kaur's bank accounts in the UK. In fact, no copy of her bank account in the UK has been submitted. It was contended before the AO in the assessment proceedings in the case of M/s. Gupta Bros. that since the money came from abroad and Smt. Amarjit Kaur had admitted having gifted these amounts to the assessee, the onus of the assessee was discharged in respect of the cash credits. Even during the assessment proceedings in the case of the assessee, the same contention was raised on 20th October, 2009. It is only on 7th December, 2009 that the assessee claimed that the sources of the funds gifted to the assessee was the money advanced by Sh. Jatinder Kumar Sidhu to the assessee after the AO asked for the production of bank statement of Smt. Amarjit Kaur. The copy of the bank account of Sh. Jatinder Kumar Sidhu shows a cash withdrawal of 6000 pounds in October, 2005, which is stated to have been given to Smt. Amarjit Kaur. Sh. Jatinder Kumar Sidhu is claimed to be a cousin of the assessee. These facts clearly show hat the money stated to have been gifted by Smt. Amarjit Kaur to the assessee was not her own, even if the loan from Sh. Jatinder Kumar Sidhu is accepted to be genuine. This is a significant factor as far as the genuineness of the gift is concerned. A gift normally connotes a transaction where a person parts his own property to another without consideration and for love and affection. It is rare to come across a person who makes a gift of money to another out of the borrowed funds. Moreover, Smt. Amarjit Kaur as not a person of substantial means. The assistance from the Govt. of UK which is stated to have been received by her is on account of child tax credit amounting to Rs.2241.10 pounds vide intimation dated 30.01.2006 (after the gifts were remitted) and she admits that she had no other independent source of income. Since she had no other independent source of income, it is not clear as to how she proposed to repay the loan of 6000 pounds taken from Sh. Jatinder Kumar Sidhu. More importantly, it is not clear as to why the "gift" was made out of the borrowed funds. It is claimed that the money was received by the assessee so as to remove the other partners from the partnership firm M/s. Gupta Bros. and to bring his brother Sh. Ram Gopal and his sister-in-law Smt. Amarjit Kaur into the same partnership firm. If it is so, the claim of "gift" does not appear to be genuine. Quid pro quo is apparently involved in the entire transaction. In case the money has genuinely come from Smt. Amarjit Kaur, it would imply a consideration for taking a share in the partnership firm. Nevertheless the important point is that the credit-worthiness of Smt. Amarjit Kaur is certainly not proved since she had no independent source of income and she certainly did not have enough money of her own to advance a gift to the assessee. Both the remittances sent to the assessee through banking channels were transactions entered into by Sh. Ram Gopal by purchase of drafts and the only source of the same is stated to be a loan taken in cash from Sh. Jatinder Kumar Sidhu, which being a late claim as also being in cash, is not verifiable and is quite doubtful. A gift through a loan is apparently not a genuine gift. There is no immediate occasion for giving the gift and the stated purpose for the gift appears to be a business consideration. A perusal of the statement of Smt. Amarjit Kaur recorded by the AO on 20th August, 2008 in the presence of the assessee's Chartered Accountant is also quite revealing. She admitted that she was uneducated and could not read or write any language and spoke in Punjabi only. Her brothers were stated to be doing labour job in India. She stated that she had no independent source of income and she only helped her husband in his business who was running a barber shop. She had 3 children, out of which one was married about 4 years ago and the rest were school/college going. She stated that she received some allowance from the UK Govt. and did not remember the exact details. The allowance was stated to have been remitted to her bank account directly and withdrawn when she visited India. She stated that she operated her own bank account herself. She stated that she had not extended any help to her brothers or their children for her marriage. In response to question no.13, she stated she never gifted any amount to any of her in-laws in the past, though some gifts in the nature of cloth, telephone or domestic use were given. She confronted that she had not made any gift in cash either to Sh. Sat Pal or any family member. Though she was aware of bank account in UK, she did not know the amount deposited therein. She was also aware of the bank account in Nakodar but did not remember the name of the bank or the amount deposited in the said bank account. In reply to question no.18 she stated that she had given some money to Sh. Sat Pal many times but did not remember the amount or the number of times the money was given, or whether it was a gift or a loan. When informed that Sh. Sat Pal had claimed to have received Rs.2,34,000/- and Rs.2,35,000/- from her and asked to confirm and give evidence for the same.She stated that she did not know the exact date and year of gift and had no evidence with her at that time. The aforesaid statement reveals that Smt. Amarjit Kaur was certainly not a person of means or knowledgeable about her financial affairs and her finances were being managed by Sh. Ram Gopal. Initially she denied having given any gift to the assessee in cash, but later on stated that some gift was given, but again, she was unable to tell the amount or date or mode of gift. Her statement, coupled with the fact that she had no independent source of income; the fact that the money was not given from her own bank account or her sources, but stated to have been given out of a loan, leads to uphold the AO's conclusion that the creditworthiness of the donor is not proved. In the case of a gift, it is necessary not only to establish the identity of the donor, but also the creditworthiness of the donor also needs to be established to show that the money belongs to the donor. In the case of Tirath Ram Gupta v. CIT[2008] 304 ITR 145/[2009] 177 Taxman 294 (Punj & Har.) the Hon'ble High Court have held that a gift could not be accepted as such to be genuine merely because the amount had been given by way of cheque or draft through banking channels, unless the identity of the donor, his creditworthiness, relationship with the donee and the occasion was proved. It was further held by the Hon'ble Court that unless the receipts were proved to be genuine, the same could very well be treated to be an accommodation entry of the assessee's own money which was not disclosed for the purposes of taxation. It was further held that the above considerations for testing the genuineness of the gift were not exhaustive as there may be other reasons also which should be appropriate for considering the genuineness of the gift. In the case of Yash Pal Goel v. CIT (Appeals) [2009] 310 ITR 75/181 Taxman 175 (Punj & Har) the Hon'ble High Court held that the onus was on the assessee not only to establish the identity of the person making the gift, but his capacity to give gift and that it had actually been received as a gift from the donor. In the case of Subhash Chand Verma v. CIT [2009] 311 ITR 239 [2007] 164 Taxman 401 (Punj & Har) the Hon'ble High Court noted that there was no occasion for the donor to make gift and the assessee had failed to establish the financial capacity of the alleged gifts as unexplained cash credits was upheld. The aforesaid decisions by the Hon'ble Jurisdictional High Court clearly convey that merely because a gift has come through banking channels and from identifiable sources would not be sufficient to discharge the burden of the assessee in respect of cash credit shown to be a gift, unless inter-alia, the credit-worthiness of the donor was also proven. In the present case, the alleged donor, Smt. Amarjit Kaur, is certainly not shown to be credit worthy since she had no indepdent sources of income and even the allowance received from the UK Govt. was not sufficient to cover the alleged gifts. The claim of taking a loan from Sh. Jatinder Kumar Sidhu is doubtful since the transaction was admittedly in cash and the claim has also been made at a very late stage. The transaction is also not verifiable. Further, as noted earlier, the claim of making gift out of the borrowed money is against normal human probability. The contention that the assessee had no other source of income is not relevant as far as addition u/s 68 of the Act is concernd, since this is a deeming provision which treats unexplained cash credit as the assessee's income.
7. In the facts and circumstances of the case and in view of the decisions of Hon'ble Punjab & Haryana High Court mentioned hereinabove, we find no infirmity in the order of the Ld. CIT(A), who has rightly confirmed the action of the Assessing Officer. Accordingly, the appeal of the assessee is dismissed.
8. In the result, the appeal of the assessee in ITA No.92(Asr)/2011 is dismissed.
VARSHA



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