Sri.K.V.Mathew, Cochin vs Assessee

Shri K.V. Mathew, Vs. The Income Tax Officer, Ward- Phoenix Enterprises, 2(3), Ernakulam. Mullassery Canal Road, Kochi-682 011. [PAN: AEBPM 4915K] (Assessee-Appellant) (Revenue-Respondent)

Assessee by Shri C.B.M. Warrier, CA Revenue by Shri K.K. John, Sr. DR

Date of hearing 29/12/2014 Date of pronouncement 09/01/2015

ORDER

Per CHANDRA POOJARI, Accountant Member:

This appeal filed by the assessee is directed against the order dated 27-

06-2014 passed by the CIT(A)-II, Kochi, for the assessment year 2005-06.

2 The grievance of the assessee in this appeal is with regard to levy of

penalty of Rs.7,30,000/- u/s. 271(1)(c) of the I.T. Act.

3. The brief facts of the case are that the assessee had deposited cash in

excess of Rs.10.00 lakhs in an account maintained with Citi Bank. On enquiry, it

was noticed that the assessee did not disclose the said bank account in his 2 I.T.A. No.408/Coch/2014

Income tax record. It was noticed that the assessee had deposited

Rs.22,51,000/- in the Savings Bank A/c with Citi Bank for F.Y. 2004-05.

However, during the assessment proceedings, the Assessing officer rejected the

assessee's claim in the absence of proper evidences. According to the Assessing

officer, the assessee's claim regarding the availability of funds from his sister

who is at abroad was not maintainable. The assessee could not prove that the

money received from his sister routed through his brother has actually been

made available to him for making deposits. Accordingly, the Assessing officer

treated the cash credits amounting to Rs.22,51,000/- as unexplained and added

to the total income u/s. 69 of the Act. In this context the Assessing officer relied

on the judgment of the Delhi High Court in the case of ACIT vs. Rajeev Tandon

reported in 294 ITR 435 wherein it was held that unless the bank statements

are supported by any other corroborate evidence to establish the financial

capacity of the donors the bank statement do not prove the creditworthiness of

the donors for showing that they are financially sound for making such gifts

because the bank statements merely indicate the movement of the funds and

not the creditworthiness of the account holder. In the above circumstances of

the case, the Assessing officer held that the assessee has concealed income to

the extent of Rs.22,51,000/- in the aggregate within the meaning of section

271(1)(c) and Explanation 1 thereto. Accordingly, he levied a penalty of

Rs.7,30,000/- u/s. 271(1)(c) of the I.T. Act.

3 I.T.A. No.408/Coch/2014

4. On appeal, the CIT(A) upheld the findings of the Assessing Officer by

observing that since the quantum additions have also been confirmed by the

Tribunal vide order in I.T.A. No.48/Coch/2010 dated 06/01/2012, it is evident

that although the assessee contended that cash credits amounting to

Rs.22,51,000/- were given by his sister but neither at assessment and appellate

stages nor during the penalty proceedings, the assessee could substantiate his

plea by furnishing any supporting evidence towards source of these cash credits.

According to the CIT(A), to this extent the assessee has furnished inaccurate

particulars of income and has concealed his income. Hence, the CIT(A)

confirmed the penalty of Rs.7,30,000/- levied by the Assessing officer u/s.

271(1)(c) of the Act. Thus, both the tax authorities were not convinced with the

explanation of the assessee. Against this, the assessee is in appeal before us.

5.1 With regard to the availability of sources for making deposits in the

account maintained with Citi Bank, the Ld. AR submitted that the said funds were

obtained from his sister, who is residing in Rome in Italy. It was further

submitted that the said funds were initially received by the brother of the

assessee who had earlier taken money from the assessee. It was claimed that

the brother of the assessee returned the funds out of the amount received from

their sister. With regard to the occasion for making the impugned payment, the

assessee explained that his sister had agreed to sponsor the medical educational

expenses of the assessee's daughter, who is pursuing the course in Czeck

Republic. The Ld. AR submitted that the assessee has filed a copy of bank 4 I.T.A. No.408/Coch/2014

statement of SB A/c. No. 5-000552-463 with Citi Bank, Kochi, stating that most

of the amounts have been deposited in the form of cheques and the transactions

were genuine. The Ld. AR also filed a copy of bank account wherein the

assessee has withdrawn money on two occasions in connection with educational

expenses of his daughter.

5.2 The Ld. AR submitted that the amount received from the assessee's sister

or brother cannot be reason for levy of penalty u/s. 271(1)(c) of the Act.

Further, the Ld. AR submitted that because quantum addition was confirmed by

the higher forum, it cannot be reason for sustaining the penalty. According to the

Ld. AR, the quantum addition and penalty matters stand on different footing.

According to him, both the proceedings require to be examined independently

and it should stand on its own merit. He submitted that the Assessing officer

made addition u/s. 69A of the I.T. Act. However, the Ld. AR submitted that in

the penalty order, the Assessing officer has stated that the addition was made to

the total income of the assessee u/s. 69 of the I.T. Act. According to him, the

Assessing officer was not sure whether the addition was made u/s. 69A or 69 of

the I.T. Act. According to the Ld. AR, if there is confusion in the mind of the

Assessing officer, penalty cannot be levied.

5 I.T.A. No.408/Coch/2014

6.. On the other hand, the Ld D.R submitted that the confirmation letters are

self serving documents and further the assessee has failed to make proper

reconciliation of the receipts vis-à-vis the amount claimed to have been

transacted between the brother and sister of the assessee.

6.1 The Ld. DR submitted that there is concealment of income as well as

furnishing of inaccurate particulars of income on the part of the assessee and the

addition is also confirmed at the level of the High Court and hence, the levy of

penalty should be confirmed.

7. We have heard both the parties and perused the record. There was a

deposit of Rs.22,51,000/- into the assessee's bank account. However, the

assessee has failed to establish the nexus between each individual deposit into

the assessee's bank account with receipt of that amount from the assessee's

sister. It is the duty of the assessee to explain the source from whom it was

received by the assessee. The assessee has failed to produce any evidence to

prove that the above amount was received from his sister. The assessee has

taken the plea that the funds have been routed through one of his brother. It

was stated by the assessee in his letter dated 14/12/2007 that the funds were

withdrawn from the Savings Bank Account to advance to his brother and when

such amounts were returned by his brother, the same were deposited into his

account. However, no evidence was shown regarding the original source from 6 I.T.A. No.408/Coch/2014

where it was received inspite of giving enough opportunity to the assessee to

prove the source of funds, except stating that his brother Mr. Thomas K. George

had received amounts from his sister in Italy through Western Union Money

Transfer which was credited to the Post Office Saving Bank Account of Mr.

Thomas George and Raji Thomas. The amounts that were received by them from

his sister in 2003-04 were used as temporary fund adjustments which got routed

in his Savings Bank Account. The assessee did not furnish any proof regarding

his claim other than producing a copy of the Post Office Savings Bank Accounts

pass book before the Assessing officer. In view of this, the Assessing officer

found that there was no proof to substantiate such contention. When the

amounts in the Savings Bank account of the assessee remained unexplained,

definitely, the Assessing officer was justified in passing the impugned order.

7.1 Even though the onus of the assessee during the assessment proceedings

is confined to submitting evidence regarding identity of the creditor,

creditworthiness of the creditor and genuineness of the transaction, however, in

penalty proceedings, it is not the case that entire burden is on the Department

to show that what was added was in fact concealed income of the assessee.

Explanation to s. 271(1)(c) provides for deeming addition as concealed income or

income in respect of which inaccurate particulars have been furnished provided

conditions laid down in either of the clauses are satisfied. If the assessee does

not furnish any explanation, in respect of addition made, or explanation 7 I.T.A. No.408/Coch/2014

furnished is found false, then clause (A) of Explanation 1 can be invoked. Where

the assessee furnishes an Explanation in respect of addition made, then as per

clause (B) of Explanation 1, the addition would be deemed as concealed income

or income in respect of which inaccurate particulars have been furnished,

provided following three conditions are satisfied:

(i) Assessee is not able to substantiate his explanation.

(ii) Explanation furnished by him is not bona fide.

(iii) All the material facts, necessary for assessment, or in respect of explanation, are not furnished by him. If assessee is able to show prima facie that he is neither hit by clause (A) or by clause (B) of Explanation 1, then onus will shift to the Assessing officer that conditions laid down therein are satisfied.

For the sake of convenience we produce sec. 271(1)(c) as under:

"271. (1) If the Assessing officer or the CIT(A) or the CIT in the course of any proceedings under this Act, is satisfied that any person -

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty:

(i) ********

(ii) ********

(iii) In the cases, referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income.

Explanation 1. - Where in respect of any facts material to the computation of the total income of any person under this Act -

(A) such person fails to offer an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been 8 I.T.A. No.408/Coch/2014

disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purpose of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."

7.2 In respect of Explanation 1 the deeming fiction is raised and

added/disallowed amount is treated as the income in respect of which particulars

have been concealed. Explanation 1(B) will not apply if the explanation, given by

the assessee in the quantum proceedings which he could not substantiate in

those proceedings was (i) bona fide and (ii) he had disclosed all the facts relating

to the same and material to the computation of his total income. In cases where

explanation was offered, but was rejected as it could not be substantiated by the

assessee, there would arise no presumption of concealment of the particulars of

income that was added or disallowed if such assessee can show that the said

explanation offered by him was a bona fide one and that he had disclosed all

facts relating to such explanation and material to the computation of his total

income during the quantum proceedings. For bringing the case under the main

provision the onus is put on the Department to prove that the assessee has

concealed the particulars of his income or furnished inaccurate particulars

thereof. To bring the case of the assessee within its mischief, mere rejection of

assessee's claim would not be sufficient and the assessee cannot be held guilty

of concealment. It is by virtue of explanation that the Assessing officer can raise

the presumption about additions made to the total income or deduction

disallowed that it represents assessee's concealed income or the income in 9 I.T.A. No.408/Coch/2014

respect of which assessee has furnished inaccurate particulars. When we

examine Part-B of Explanation 1 carefully then we are of the view that the words

'not substantiate' is opposite to the word "vague" or "fanciful" or "without any

foundation or basis". The phrase "to prove that such explanation is bona fide"

means that the assessee has to show that circumstances existed whereby he has

made the claim, or that, as in the present case, he had in fact received the

amount from his sister but her credentials cannot be established. It has to be

proved that failure of the assessee to furnish evidence in support of the claim

was beyond his control. The assessee has to prove or furnish evidence that

circumstances existed which disabled him to furnish evidence in support of his

claim. The third condition is that all the facts relating to the claim and material

to the computation of his total income has been disclosed by him. It means that

all the material facts which are relevant for computation of income of the

assessee have been disclosed to the Department not merely during the

assessment proceedings but in the return of income.

7.3 When we examine the facts of the present case, we notice that the

assessee did not furnish any evidence about the source of deposit. The

explanation furnished by the assessee cannot be said to be substantiated. It is

apparently vague, fanciful and without any foundation or basis. In respect of

second condition, in Explanation 1(B), we are of the view that explanation

furnished by the assessee is not bona fide in respect of funds received from his 10 I.T.A. No.408/Coch/2014

sister towards his daughter's medical education routed through his brother's

bank account. This explanation is in the nature of contradiction leading to the

belief that it is false. There is no evidence that the assessee really made any

attempt to obtain necessary confirmation to establish that the funds were

received from the assessee's sister or brother . There are no details about the

funds whether they were received from the assessee's sister or brother. The

assessee has to furnish necessary evidence to prove the identity of his sister or

her capacity to make such an advance to the assessee. The ingredient about a

bona fide claim is that the assessee should be able to show or prove some

intermediate steps in the whole process of transaction. If it is not able to give

evidence in respect of any step in the whole process of transaction then it can be

said that explanation furnished by the assessee is not bona fide. It is nothing

but bald claim. There is nothing to show that the details of funds as claimed by

the assessee have actually come from the assessee's sister. The alleged failure

on the part of the assessee to prove the transaction as actual transaction would

attract penalty u/s. 271(1)(c) of the Act. Thus, the explanation furnished by the

assessee cannot be treated as bona fide.

7.4. Regarding the third condition that all the facts relating to the explanation

and computation of income has been disclosed by the assessee, we are of the

view that in the present case, details of the identity of the creditor and the terms

and conditions under which the funds have been received by the assessee from 11 I.T.A. No.408/Coch/2014

his sister have not been provided. In view of this, all the three ingredients laid

down in Explanation 1(B) are fully satisfied, and therefore the lower authorities

can deem the addition as income in respect of which the assessee has concealed

the income or furnished inaccurate particulars of income. Being so, the penalty

levied u/s. 271(1)(c) is justified.

8.. In the result, the appeal filed by the assessee is dismissed.

Pronounced in the open court on 09-01-2015

sd/- sd/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Kochi Dated: 9th January, 2015 GJ Copy to:

1. Shri K.V. Mathew, Phoenix Enterprises, Mullassery Canal Road, Kochi-682 011.

2. The Income Tax Officer, Ward-2(3), Ernakulam.

3. The Commissioner of Income-tax(Appeals)-II, Kochi,

4. The Commissioner of Income-tax, Kochi

5. D.R., I.T.A.T., Cochin Bench, Cochin.

6. Guard File.

By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin