Tayyab Habib Chotani, Through The Legal ... vs Assessee

u/s.158BFA(2) of the I.T. Act and upheld by the CIT(A) is the only

issue raised by the assessee in the various grounds of appeal.

3. Facts of the case, in brief, are that the assessee Late Mr.

Tayyab Habib Chotani was an individual and was engaged in the

business of Auto consultancy, Real Estate and Horse Racing etc.

A search u/s.132 of the I.T. Act was conducted at his premises on

14-02-2001 during which various incriminating documents were 2

found and seized. In response to notice u/s.158BC(a) the

assessee filed his return of income on 31-03-2002 declaring

undisclosed income of Rs.1,50,890/- only. The Assessing Officer

completed the assessment on a total income of Rs.1,54,28,744/-

which was reduced by the CIT(A) to Rs.83,00,323/-. On further

appeal by the Revenue as well as the assessee the Tribunal

dismissed both the appeals. The Assessing Officer thereafter

initiated penalty proceedings u/s.158BFA(2) on account of

following 3 additions :

(a) addition on account of suppressed Capital gain Rs.36,24,695/-

(b) unexplained educational expenses of son Rs.47,07,520/- (c) unaccounted investments in shares Rs. 1,37,500/-

4. So far as the penalty levied on addition on account of

suppressed capital gain of Rs.36,24,695/- is concerned, the facts

are that the assessee along with his mother Smt Jainabai H.

Chotani was the joint owner of the plot of land situated at 208,

Yerwada, Pune. The said plot of land was sold to Shri Shirish C

Karia vide agreement dated 14-04-1992 and 18-10-1991 for a

consideration of Rs. 76,00,000/- and additional consideration of

Rs. 20/- per sq. ft on free sale area i.e. about 2000 sq. mtrs and

Rs. 10/- per sq. ft on buildable area under section 21 of the

Urban Land (Ceiling & Regulation) Act. The consideration of

Rs.76,00,000/- was inclusive of the bungalow to be allotted to the

assessee. During the course of search action loose paper

(Computerized sheet) was found and inventorised at Party No 6 in

Bundle No 1, Page No 18. The said page contains the amount

received by the assessee in cash and by way of cheques from Mr.

Karia against the sale of plot of land situated at 208, Yerwada, 3

Pune. The AO made addition of cash received as per the loose

paper as undisclosed income of the assessee over and above the

consideration as decided in the agreement with Mr. Shirish Karia.

Thus, for the detailed reasons given in the Assessment Order, AO

computed the suppressed capital gain at Rs.63,79,104/-

a) by considering the said amount of Rs. 36,24,695/- as the on money received by the assessee over and above the consideration recorded in the agreement and

b) by estimating the cost of acquisition of the said property i.e. by estimating the fair market value of the said property as on 01/04/1981 at Rs. 10/- per sq.ft and thereby arriving at suppression of Capital gain amounting to Rs.27,54,409/-

5. Before CIT(A) the assessee did not press this ground for

which the Ld.CIT(A) confirmed the addition made by the

Assessing Officer. The assessee also did not challenge the issue

before the Tribunal. Penalty has been levied accordingly by the

AO u/s.158BFA(2) which has been confirmed by the Ld.CIT(A).

6. So far as the penalty levied on the second addition, i.e.

Education expenses of son is concerned, the facts are that during

the course of search it was revealed that the assessee's son Mr.

Mishaal Chotani was studying in Cornell University, New York

from 1997. During the course of search action, statements and

papers/documents relating to tuition fees and living expenses of

Cornell University were found and seized by Party No. 6 and are

inventorised at Page No. 25A, 26, 27, 28, 29, 47, 54, 66, 70,71,

and 72 of bundle no. 3 of the seized paper. These papers are the

monthly/periodical statement of bills raised by Cornell University,

New York and payments made by Mr. Mishaal Chotani. The

assessee was questioned in respect of source of expense i.e. 4

educational expenses of his son. The assessee stated that his

son's educational expenses were borne by Mr. Mohd. Siddique,

his cousin from U.A.E. It was further stated by the assessee that

Mr. Siddique, a Pakistani National, was going to become the

father in law of his son Mr. Mishaal Chotani. The confirmation of

Mr. Siddique to the effect that he had incurred educational

expenses of Mr. Mishaal Chotani was filed during the course of

assessment proceedings. The AO proposed to make addition of US

$ 1,39,978 on the basis of the seized documents on account of

unexplained expenditure of the education of son of the assessee.

It was brought to the notice of the AO that the actual payment as

revealed from this documents is US $ 27,325. The proposed

addition of US $ 1,36,978 is nothing but the cumulative total of

bills raised by Cornell University. The AO did not agree with the

contention of the assessee on the ground that the entire amount

of fees are paid before the date of search. Similarly, the AO drew

inference that the money belonged to the assessee and it is for

this reason that his son has brought all these documents to India

and has been giving accounts of his expenditure incurred in USA

to his parents. In respect of the claim of the assessee that the

expenditure on education of his son was borne by Mr. Usham

Ibrahim Siddique, the AO rejected the claim of the assessee on

the ground that assessee has not furnished any evidence in

support of his claim and made addition of Rs.54,79,120/- being

equivalent amount of US $ 1,36,988/-.

7. The assessee challenged the addition before CIT(A) stating

that the papers found during the course of search were the bills

issued by Cornell University for tuition fee, housing charges, 5

dining charges etc. and the bills were cumulative ones. On the

basis of the arguments advanced by the assessee the Ld.CIT(A)

deleted an amount of Rs.7,74,600/- and sustained an amount of

Rs.47,04,520/-. When the matter travelled to the Tribunal the

Tribunal vide order dated 29-07-2011 in ITA No.571/PN/2005 for

the block period 01-04-1990 to 14-02-2001 upheld the addition

made by the Assessing Officer. We find the Tribunal at para 19 of

the order has observed as under :

"19. Identity, credit worthiness, and the genuineness of the transaction are the relevant issues for deciding the present dispute. Regarding identity, from the above it is evident that it is case of the plurality of name of the impugned creditor ie Mr. Usman Ibrahim Aias Mohamed Siddique alias Osman Ibrahim alias Mohd.Siddique etc. The same cannot be put to rest unless, a copy of the passport is in the records. Unfortunately, neither the assessee nor the creditor has filed the copy of the cited passport No.F123860 said to have been issued by Pakisthan Government, Regarding the creditworthiness, there are n't any information on records about the same. Therefore, we are unable take a decision on the issue. In any case, the onus is on the assessee to demonstrate the same and therefore, we hold the same against the assessee. Regarding the issue of genuineness, we find there is lack of transparency in the matter and claim of Sri Siddique about destroying of the records and thereby following the Dubai's way of accounting and book keeping is not acceptable. Should one destroy the records which constitute the evidences? Thus, there is opacity in matters of identity, creditworthiness and genuineness of the transactions involving Sri Siddique. In effect, the confirmation letter filed by Mr Siddique is as good as the one which does not cater to the needs of concern section and therefore, it amounts no confirmation of said sum."

8. So far as the third issue is concerned, i.e. unexplained

investment in shares etc,, the relevant facts are that during the

course of search action shares of the value of Rs.3,49,540/-

which were owned by the assessee's wife and his son Mishaal

were found. Out of these shares found, the shares valued at

Rs.1,37,500/- were acquired in the block period. During the

course of assessment proceedings, the assessee contended that

the shares stood in the maiden name of his wife who was filing 6

returns even before the marriage. Similarly, the assessee also

contended that the shares were not purchased but were accrual

to the original shares in the form of bonus shares. The AO as well

as the Ld. CIT(A) did not accept the contention of the assessee on

the ground that the assessee's wife had not filed returns of

income after assessment year 1987-88 and hence the sources of

income to justify the acquisition of such shares remained

unexplained. Therefore, the AO made the said addition and the

Ld. CIT(A) confirmed the same. ITAT has also dismissed the

appeal of the assessee and the order of ITAT has not been

challenged by the assessee.

9. In this background, the Assessing Officer levied penalty of

Rs.59,43,634/- being 100% of the tax sought to be evaded which

was upheld by the CIT(A) by observing as under :

"4.3 I have carefully considered the facts of the case and the law as are apparent from the record. Section 158BFA was introduced by the Income Tax(Amendment) Act, 1997 w.e.f. 1/01/1997, in chapter XIVB, as a lacuna was noticed for not providing provision for interest for delayed filing of return and penalty for understatement of undisclosed income in the block return. Sub.sec.(1) deals with levy of interest and sub.sec.(2) deals with levy of penalty. Penalty u/s.158BFA(2) is leviable by the AO or the CIT(A) in the course of any proceedings under chapter. XIVB to a person which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the AO under clause (c) of sec.158BC. Therefore from the perusal of the main provision, the penalty can be directed to be levied by the AO/CIT(A) on undisclosed income determined under sec.158BC(c). In addition to the above, only the rates are provided in the main provision which is to be from minimum of the tax leviable upto the three times of the tax leviable. However the two provisos available under this sub sec. defines the circumstances in /which these penalties can be levied or not levied. Though the penalty structure provided in this sub-sec, is similar to the one available in sec.271(1)(c), but it has to be noted that there is no whisper of the words like 'concealment' or 'filing of inaccurate particulars of income', etc. in this provision and therefore it is incorrect to equate it in terms of requirement of law with sec.271(1)(c). From the plain reading of the main provision it is clear that the penalty is leviable for entire undisclosed income assessed by the AO u/s 158BC(c). However first proviso grant immunity to the 7

assesses where the return is furnished u/s 158BC and taxes are paid, evidences for payment of taxes enclosed and no appeal is filed after assessment. Second proviso, disables the applicability of immunity available under the first proviso where the assessed income is more than the returned income and appeals are filed by the appellant. Second proviso therefore can be seen to be dealing with situations in which the additions are made by the AO over and above the returned income and in this respect it has been provided that the penalty shall be imposed on that portion of undisclosed income which are determined in excess of the amount shown in the return. There also have been instances in which AOs, considering the language of the main provision as well as the proviso, have been found to be holding the view that this penalty is mandatory in all cases where the returned undisclosed income is more than the assessed undisclosed income. It is a fact that the Courts have held that this penalty is not mandatory as the main provision itself says "The Assessing Officer or the Commissioner(Appeals), may direct that a person shall pay by way of penalty ..............". It has been held that the word "shall"

appearing before the rates to be applied only leads to the interpretation that once the penalty is held to be leviable, it cannot be less than the amount of tax determined and which may extend upto three times of the tax so determined. There cannot be any dispute to this interpretation also. Though the appellant has tried to argue that the AO has levied the penalty treating the provision as mandatory, but the same does not appear to be so. After careful consideration of the penalty order, I am of the considered opinion that the AO has not treated levying of penalty u/s.158BFA(2) as mandatory in the facts and circumstances of this case. He has considered the facts of this case and examined the conditions prescribed in this proviso before levying the penalty. The emphasis placed by the appellant that the AO failed to appreciate that the penalty and the assessment proceedings are different, also was found to be incorrect. In this context, the appellant has tried to argue the facts relating to additions made in respect of unaccounted receipts resulting into higher capital gains and the unaccounted expenditure found relating to educational expenditure of appellant's son at Cornel University, USA.

What the appellant appear to be suggesting was the fact that the AO is required to prove more than what is required for making the assessment, while levying the penalty u/s.158BFA(2). Similar arguments have also been made in respect of unexplained investment in shares. I have carefully considered the arguments of the appellant in the facts and circumstances of this case. All the aforesaid additions, in respect of which penalty has been levied by the AO, has been examined by the AO, the Ld. CIT(A) and the ITAT. The additions sustained by the Ld. CIT(A) has been upheld by the Hon'ble ITAT in ITA No.571/PN/2005 dtd. 29/07/2011 and it is abundantly clear that all possible angles were examined before dismissing the appeal of the appellant filed against the order of the CIT(A). Therefore it is incorrect to claim that any positive evidence was not available on record, for levying the penalty. The order of the Hon'ble ITAT referred to above can be seen for the same alongwith the orders of the lower authorities. Without prejudice to the above finding, as discussed above, in my considered opinion levying of penalty u/s.158BFA(2), does not require fulfillment of conditions similar to sec.271(1)(c), as has been sought to be claimed by the appellant.

As already discussed, what is required is addition over and above the returned income, which 8

could show that the appellant has tried to suppress the declaration of undisclosed income and paying of taxes even after the search and discovery of incriminating evidences. These conditions available in this section are clearly fulfilled in this case and therefore I do not find any fault in the penalty levied by the AO. The AO has levied the penalty at the minimum rate and therefore even the quantum of penalty cannot be considered to be excess. The claim of the appellant that the AO has not considered the decision of the jurisdictional High Court given in the case of CIT vs Dodsal Ltd. 312 ITR 112 (Bom), has also been found to be incorrect. As already discussed, the AO has not levied the penalty because he was of the opinion that the penalty is mandatory in all cases of additions. He has considered the nature of the additions and thereafter concluded the penalty as leviable. It is a fact that the Courts in certain cases have allowed relief only where it were found that the additions have been made on estimate basis. In DCIT vs Spark Electro Communication Systems (2006) 281 ITR (AT) 13 (Mum), it has been held that the block assessment is an assessment of the block period and therefore where the assessee has no cogent explanation for omitting an income in the block return, penalty is exigible. In the case of CIT vs Becharbhai P. Parmar (2012) 341 ITR 499 (Guj), it has been held that where an addition on merit has become final, the claim of the assessee that penalty cannot be levied because the addition itself was not justified could not be entertained, and therefore penalty in such cases have to be upheld. The case of the appellant is exactly covered by this judgment also. In Harish Dargan vs. DCIT (2011) 8 ITR (Trib) 125 (Dei), it has been held that where assessee's explanation for cash found was found to be not bonafide, penalty was justified. In the case of the appellant also, it has been found that the additions have been sustained and most of the explanations given in respect of their claim were not found to be bonafide even by the highest fact finding authority. In view of the discussions made above, I do not see any merit in the claim of the appellant and therefore Ground No. 1 is dismissed."

10. Aggrieved with such order of the CIT(A) the assessee is in

appeal before us with the following grounds :

"1) On the facts and circumstances of the case and in law the honourable CIT (A) erred in confirming the penalty levied Rs.59,43,634/- by the learned ACIT Central Circle 1(1) Pune under section 158BFA(2) of the Income Tax Act, 1961 without appreciating the facts of the case and the law in proper perspective. The appellant prays that the penalty may please be deleted.

Without prejudice to above the appellant is preferring the following grounds of appeal.

2) The appellant had received aggregate payment in cash and cheques not exceeding Rs. 85,22,516/- being agreement vale of the land under consideration. Similarly, the appellant did not receive any further amount out of the so called balance consideration after the date of search till date. Therefore, addition on account of suppression of capital gain was based only on the surmise that cash 9

received was not the part of the consideration and was over and above the agreed consideration.

On the facts and circumstances of the case and in law the honourable CIT (A) erred in confirming the penalty levied in respect of so called suppression of the capital gain of Rs.36,24,695/- without appreciating the fact that the appellant had received aggregate cash and cheque not in excess of the agreement value. The honourable CIT (A) and learned AO failed to appreciate the facts of the case. The appellant prays that the penalty levied by AO and confirmed by CIT(A) in respect of alleged suppression of capital gain may please be deleted.

3) On the facts and circumstances of the case and in law the honourable CIT (A) erred in confirming the penalty levied by the learned ACIT Central Circle 1(1) Pune under section 158BFA(2) of the Income Tax Act, 1961 in respect of unexplained educational expenses of his son of Rs. 47,04,520/- without appreciating the fact that the expenditure was made by his son who was major at the relevant point of time and the addition, if any, should have been made in his hands and not in the hands of the appellant. The appellant prays that the penalty may please be deleted.

4) On the facts and circumstances of the case and in law the honourable CIT (A) erred in confirming the penalty levied by the learned ACIT Central Circle 1(1) Pune under section 158BFA(2) of the Income Tax Act, 1961 in respect unaccounted investment in shares of Rs. 1,37,500/- without appreciating the fact that the said shares stood in the name of the wife of the appellant. The appellant prays that the penalty may please be deleted.

5) The appellant hereby reserve the right to add, amend, delete, withdraw, any ground/s of appeal."

11. The assessee has also raised the two additional grounds

which are as under :

"1. On the facts and the circumstances of the case and in law the Hon'ble CIT(A) erred in confirming penalty levied by AO in respect of suppressed capital gain Rs.36,24,695/- even though addition confirmed on account of suppressed capital gain was Rs.33,07,363/-. The appellant hereby prays that the penalty may please be restricted with reference to suppression of capital gain of Rs.33,07,363/-.

2. On the facts and the circumstances of the case and in law the Hon'ble CIT(A) erred in confirming penalty levied by AO in respect of educational expenses of Rs.47,04,520 without considering the telescoping effect of cash available of about Rs.23.52 lacs. The appellant hereby prays that the penalty may please be reduced considering cash available".

10 12. After hearing both sides and considering that all material

facts are available on record, the additional grounds raised by the

assessee are admitted.

13. We have considered the rival arguments made by both the

sides. So far as the penalty levied on addition of Rs.36,24,695/-

on account of suppressed capital gain is concerned, we find the

assessee withdrew the ground raised before the CIT(A). No such

ground was taken before the Tribunal also. The Assessing Officer

thereafter initiated penalty proceedings u/s.158BFA(2). We find

out of addition of Rs.63,79,104/- made by the Assessing Officer

on account of suppressed capital gain on sale of plot of land

situated at 208, Yerawada, Pune, the CIT(A) had granted relief of

Rs.30,71,741/- and sustained addition of Rs.33,07,363/-. We

find the Assessing Officer levied the penalty on account of

suppressed capital gain of Rs.36,24,695/- for the purpose of levy

of penalty. It is the submission of the Ld. Counsel for the

assessee that in the order giving appeal effect after the order of

the CIT(A) the Assessing Officer himself has made addition of

Rs.33,07,363/-. Therefore, penalty if any u/s.158BFA (2) has to

be restricted to the addition finally sustained at Rs.33,07,363/-

and not on Rs.36,24,695/-. It is a matter of fact that in view of

enhanced claim of section 54F the addition confirmed comes to

Rs.33,07,363/- only as pointed out by the Assessing Officer in

the penalty order at page 4 para 8(i). Since the addition

sustained is only to the extent of Rs.33,07,363/-, therefore, we

find merit in the argument of Ld. Counsel for the assessee that

penalty u/s.158BFA(2) should be levied only on Rs.33,07,363/-

and not on Rs.36,24,695/-. The additional ground raised by the 11

assessee is accordingly allowed and ground of appeal No.2 is

dismissed.

14. So far as the penalty levied on addition on account of

unexplained expenditure on education expenses of son of the

assessee amounting to Rs.47,04,520/- is concerned, we find the

Tribunal has already given a clear cut finding that the assessee

could not prove the source of this expenditure being incurred

towards education expenses of his son. It is the submission of

the Ld. Counsel for the assessee that if telescoping effect is given

to the various additions sustained by the CIT(A) the assessee is

still left with an amount of Rs.23,52,702/- which is available to

him for meeting the expenditure out of the addition of

Rs.47,04,520/- and penalty can be levied only on the balance

amount of Rs.23,51,818/- (i.e. 47-04,520 - 23,52,702). We find

some force in the above argument of the by the Ld. Counsel for

the assessee. We find from the various details filed in the paper

book that the son of the assessee went to USA during the period

1997 to 2000. The addition is based on the documents found

during the search action. It is the submission of the Ld. Counsel

for the assessee that during 1993 to 1998 cash receipts of

Rs.36,24,695/- was taxed as undisclosed income in addition to

Rs.14,50,000/- cash receipt as part of sale consideration of land.

Therefore, according to the Ld. Counsel for the assessee, the cash

available with the assessee was Rs.36,24,695/- minus the

telescoping benefit granted by CIT(A) + Rs.14,50,000/-. Thus

according to the Ld. Counsel for the assessee, the cash available

with the assessee was as follows :

12

Cash Receipt Rs.36,24,295 Less : Adjusted against bungalow Allotted by Mr. Karia Rs.10,40,000 -------------------- Total Rs.25,84,294 --------------------

Add : Cash receipt accepted as a Part of sale consideration Rs.14,50,000 ------------------- Total Rs.40,34,295 Less : Telescopic benefit granted by CIT(A) Rs.16,81,591 -------------------- Rs.23,52,704 --------------------

15. Since the addition on account of on-money has been

confirmed, therefore, the said amount is available to the assessee

to meet the unaccounted expenditure apart from meeting the

amount paid towards bungalow. Further, cash receipt to the tune

of Rs.14,50,000/- has been accepted by the assessee. Since,

telescoping effect has been given only for Rs.16,81,591/-,

therefore, we find some force in the argument of the Ld. Counsel

for the assessee that for levying penalty u/s.158BFA(2) penalty

can be levied only on the balance amount, i.e. Rs.23,51,818/- as

against Rs.47,04,520/-. It is the settled proposition of law that

penalty proceedings and assessment proceedings are separate

and distinct. An assessee can advance fresh argument during

penalty proceedings for non-levy of penalty or penalty of a lesser

amount. However, the above details furnished by the Ld. Counsel

for the assessee requires verification at the level of the AO. We

therefore remit this issue to verify as to whether the assessee has

taken any benefit out of the on-money received as well as the

cash receipt of Rs.14.50 lakhs and adjustment at Rs.10.40 lakhs.

The AO shall compute the penalty on the balance amount. 13

Needless to say, the AO shall give due opportunity of being heard

while computing the penalty on this issue. We hold and direct

accordingly. Ground of appeal No.3 and additional Ground No.2

are accordingly partly allowed for statistical purposes.

16. So far as the penalty levied u/s.158BFA(2) on account of

addition of Rs.1,37,500/- being unexplained investments are

concerned, we find it is the submission of the Ld. Counsel for the

assessee that there was no investment in shares during the block

period and all those shares were bonus shares out of the holding

of shares prior to the block period. However, this fact was also

stated before the CIT(A). However, the assesses had expressed his

inability to reconcile original and bonus shares as the same were

old for more than 20 years at the time of assessment. The

Ld.CIT(A) confirmed the addition on the ground that no evidence

was put forth to indicate that the shares acquired during the

block period were actually the conversion of debentures held in

the pre block period or accrual in the form of bonus shares. We

find although a specific ground was taken before the Tribunal

however the same remained unadjudicated. The assessee has

neither moved any Miscellaneous Application for adjudication of

the above ground by the Tribunal nor challenged the same before

the higher forum. It is the submission of the Ld. Counsel for the

assessee that given an opportunity he can prove that the shares

are not purchased during the impugned block period and are on

account of bonus shares issued out of the debentures or shares

held prior to the block period. However, nothing was produced

before us to substantiate that the investments are out of bonus

shares on shares or debentures held prior to the block period. 14

The assessee has already expressed his inability before CIT(A) to

substantiate the same. No purpose will be served by remitting

this issue to the file of the AO at this juncture. The penalty levied

by the AO on this amount of Rs.1,37,500/- is accordingly upheld.

The ground raised by the assessee on this issue is accordingly

dismissed.

17. Ground of appeal No. 5 being general in nature is

dismissed.

18. In the result, the appeal filed by the assessee is partly

allowed for statistical purposes.

Pronounced in the open court on 30-06-2015.

Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER

satish Pune Dated: 30th June, 2015

Copy of the order forwarded to :

1. Assessee 2. Department 3. CIT(A)-I, Pune 4. CIT-I, Pune 5. The D.R, "B" Pune Bench 6. Guard File

By order // True Copy //

Senior Private Secretary ITAT, Pune Benches, Pune