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Cit vs Ramaraju Surgical Cotton Mills on 21 August, 2007
Cit, Delhi vs Swaran Singh Kanwar on 26 February, 1997

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Income Tax Appellate Tribunal - Mumbai
Chandrakant K. Shah, Mumbai vs Assessee on 29 February, 2012
              IN THE INCOME TAX APPELLATE TRIBUNAL
                     MUMBAI BENCH "J", MUMBAI

                  Before Shri P.M. Jagtap, Accountant Member
                     and Shri S.S. Godara, Judicial Member.

                            I.T.A. No. 1236/Mum/2006.
                            Assessment Year : 2000-01.

Shri Chandrakant J. Shah,                          The Income-tax Officer,
7, Narendra Industrial Estate,              Vs.    18(2)(4),
Opp. Kamgar Stadium, S.B. Marg,                    Mumbai.
Dadar (W),
Mumbai - 400 028.
PAN : AAPPS9701D

     Appellant.                                           Respondent.

Appellant by : Shri Vipul B. Joshi and Shri Sameer Dalal.

Respondent by : Shri V.S. Samuel.

Date of Hearing : 29-02-2012 Date of pronouncement : 16-03-2012 O R D E R.

Per P.M. Jagtap, A.M. :

This appeal filed by the assessee is directed against the order of learned CIT(Appeals)-XVIII, Mumbai dated 13-12-2005 whereby he sustained the penalty imposed by the AO u/s 271(1)(c) to the extent that the same was in relation to addition of Rs.3,50,000/- made to the total income of the assessee on account of alleged bogus gifts treating the same as unexplained cash credits u/s 68.

2. The assessee in the present case is an individual who is engaged in the business of trading in cloths in the name and style of his proprietary concern M/s 2 ITA No.1236/Mum/2006 Shah Fabrics. The return of income for the year under consideration was filed by it on 25-10-2000 declaring total income of Rs.1,77,350/-. During the course of assessment proceedings, the AO noticed that the assessee has introduced capital of Rs.11,25,000/- in the year under consideration, source of which was claimed to be gifts received from 8 donors. The claim of the assessee of having received the said gifts was examined by the AO and on such examination, he found that all the donors were hardly of sufficient means to give the gifts as claimed by the assessee. He found that the said donors had no financial capacity to give the gifts as claimed by the assessee and in most of the cases, cash was deposited in the accounts of the donors just before giving cheques to the assessee towards gifts. The AO, therefore, treated the said gifts as bogus which were shown to be received by the assessee to build up his capital by paying some premium amount. He assumed such premium as 10% of the gift amounts and added Rs.11,25,000/- to the total income of the assessee u/s 68 treating the gifts as unexplained cash credits and premium of Rs.1,12,500/- calculated at the rate of 10% of the gift amount. On appeal, the learned CIT(Appeals) restricted the said addition made by the AO to the extent of Rs.6,25,000/- on account of bogus gifts and to the extent of Rs.62,500/- on account of premium paid for arranging the gifts.

3. As a result of sustenance of the addition made on account of gifts and premium paid thereon by the learned CIT(Appeals) in the quantum proceedings, a penalty notice was issued by the AO requiring the assessee to show cause as to why penalty u/s 271(1)(c) should not be imposed on the said additions sustained by the learned CIT(Appeals). In reply to the said notice, it was submitted by the assessee that the gifts were treated as bogus merely on the ground that the concerned donors had no financial capacity to give such gifts and there was no adverse material brought on record to establish that the said gifts were arranged by 3 ITA No.1236/Mum/2006 the assessee by paying his own money. It was also submitted on behalf of the assessee that the addition made on account of alleged bogus gift in the assessment and partly sustained by the learned CIT(Appeals) has been challenged in an appeal filed before the Tribunal. The explanation of the assessee was not found acceptable by the AO. He held that to the extent of additions confirmed by the learned CIT(Appeals) in the quantum proceedings, it was properly proved that the gifts were bogus and were obtained on payment of premium. He held that the case of the assessee thus was covered by Explanation 1 to section 27(1)(c) and it was a fit case to impose penalty u/s 271(1)(c). Accordingly he imposed a penalty of Rs.3,71,250/- u/s 271(1)(c) being 100% of the tax sought to be evaded by the assessee in respect of addition of Rs.6,87,500/- made to the total income of the assessee holding that the assessee had furnished inaccurate particulars of his income to that extent.

4. The penalty imposed by the AO u/s 271(1)(c) was challenged by the assessee in an appeal filed before the learned CIT(Appeals) who upheld the action of the AO to impose penalty u/s 271(1)(c) observing that an attempt was made by the assessee to introduce huge amount as capital through the devise of receiving sham gifts from various persons. He, however, found that the addition on account of gift was sustained by the Tribunal only to the extent of Rs.3,50,000/- and accordingly he restricted the penalty imposed by the AO u/s 271(1)(c) only to the extent that the same was in respect of the addition of Rs.3,50,000/-. Still aggrieved by the order of the learned CIT(Appeals), the assessee has preferred this appeal before the Tribunal.

5. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the claim of the assessee of having received gifts from 8 donors aggregating to Rs.11,25,000/- was supported by the gift deeds 4 ITA No.1236/Mum/2006 executed by the concerned donors. All the relevant details of the said donors such as, names, addresses, premium account Nos. were also duly given in the said gifts. The AO, however, treated the said gifts as bogus and added the entire amount of gifts to the total income of the assessee u/s 68 treating the same as unexplained cash credit on the ground that the donors had no financial capacity to give such gifts to the assessee. He also found that cash was deposited in the bank accounts of many donors just before giving cheques to the assessee towards gifts. It is observed that the total addition of Rs.11,25,000/- made by the AO on account of bogus gifts, however, has been restricted initially by the learned CIT(Appeals) to Rs.6,25,000/- and finally by the Tribunal to Rs.3,50,000/- in the quantum proceedings accepting the remaining amount of gifts as genuine. Moreover, even if it has been alleged by the AO that the gifts were arranged by the assessee by paying premium amount, there is nothing brought on record to support and substantiate the said allegation. There is also nothing brought on record to show that the cash deposited by the donors in their accounts prior to giving gifts to the assessee was actually belonging to the assessee and the same was given by the assessee to the said donors for returning the same in the form of gifts. In the case of Addl. CIT vs. Rawalpindi Flour Mills Ltd. reported in 125 ITR 243, it was held by the Hon'ble Allahabad High Court that if the assessee fails to prove the genuineness of the loans in the assessment proceedings, the addition to the total income u/s 68 can be said to be justified but on that ground alone penalty u/s 271(1)(c) cannot be imposed. In the case of CIT vs. Bhimji Bhanjee & Co. 146 ITR 145, cash credits were found in the books of the assessee. In the assessment proceedings, assessee admitted the existence of creditors and stated that he was not in a position to produce the parties in whose names the said cash credits appeared. The ITO worked out the amount of such peak credits and assessed the said amount as income of the assessee. He also imposed penalty u/s 271(1)(c) which was cancelled by the Tribunal. On reference, 5 ITA No.1236/Mum/2006 the Hon'ble Bombay High Court upheld the decision of the Tribunal holding that there was nothing on record to show that the amount of cash credits added to the total income of the assessee was his concealed income earned from undisclosed sources. In the case of CIT vs. Balbir Singh reported in 214 CTR 147, the Hon'ble Punjab & Haryana High Court has held that the amount allegedly received by the assessee as gift having been disclosed by him and the same having come through banking channels and the identity of the donor having been established, penalty u/s 271(1)(c) was not imposable even though the genuineness of gift was not accepted and the amount of gift was added to the total income of the assessee u/s 68.

6. Keeping in view the legal position emanating from the judicial pronouncements discussed above and having regard to the facts of the case, we are of the view that the present case is not a fit case to impose penalty u/s 271(1)(c) in respect of addition made to the total income of the assessee on account of alleged bogus gifts treating the same as unexplained cash credit u/s 68. In that view of the matter, we cancel the penalty imposed by the AO and sustained by the learned CIT(Appeals) and allow this appeal of the assessee.

7. In the result, the appeal of the assessee is allowed.

Order pronounced on this 16th March, 2012.

               Sd/-                                    Sd/-
          (S.S. Godara)                            (P.M. Jagtap)
         Judicial Member.                        Accountant Member

Mumbai,
Dated : 16th March, 2012.
                                       6
                                                    ITA No.1236/Mum/2006

Copy to :

    1.   Appellant
    2.   Respondent
    3.   C.I.T.
    4.   CIT(A)
    5.   DR, J-Bench.

                        (True copy)           By Order


                                             Asstt. Registrar,
                                          ITAT, Mumbai Benches,
                                                 Mumbai.
Wakode