THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, RAJKOT vs. SHRI BALKRISHNA R. MEHTA, RAJKOT

The bunch of appeals filed by both the assessee and Revenue are directed against the order passed by the Ld. CIT(A)-13, Ahmedabad. Item No. 1, 2, 3 & 4 filed by the assessee are against the orders dated 13.10.2017 passed by the appellate authority for A.Y. 2006-07, 2007-08, 2008-09 and 2009-10. Item No. 5 & 6 filed by same assessee are against the order dated 14.02.2020 passed by the appellate authority for A.Y. 2006-07 & 2007-08. Item Nos. 7 & 8 have been filed by the Revenue against the order dated 14.02.2020 passed by the appellate authority for A.Y. 2006-07 & 2007-08 in respect of another assessee. Since most of the issues raised in the said bunch of appeals are identical and connected to each other, arising out of the assessment relating to common search proceedings the matters are heard analogously and are being disposed of by a common order for the sake of convenience.

Item No. 1 is taken as the lead case. Appeal has been filed by the assessee with the following grounds:- “

Ground Nos. 1, 2 & 3 are basically against the addition on substantive basis in the hands of the assessee on the sole finding of the Revenue that the deposits of the bank accounts held with the two sons and grandson belongs to the assessee. On 20.03.2012 a search under Section 132 of the Income Tax Act, (hereinafter referred to as “the Act”) was carried out in the case of the assessee whereupon a notice under Section 153A of the Act was issued upon the assessee on 16.11.2012 with a direction upon him to file the return of income within 30 days from the date of service of the notice. Pursuant to the same the assessee, an individual filed its return of income on 21.03.2013 showing therein income of Rs. 21,170/-. Relevant to mention that the notice under Section 143(2) dated 08.03.2013 was also then served upon the assessee.

During the course of search it was found that the assessee and other family members were holding foreign bank accounts with HSBC Bank Geneva and other banks which were not disclosed to the Income Tax Department. It was further found that during the year under consideration the assessee had Accounts bearing No. 4432541 and 4432533 with the HSBC Bank Geneva in the joint name of Shri Jawahir Mehta (son of the assessee) and Shri Balkrishna Mehta (son of the assessee) respectively. These two accounts were opened on 25.03.1998 and the funds in these accounts were transferred from the A/c. No. 130756 and 4431675 with HSBC Geneva respectively. The A/c No. 130756 was opened by the assessee on 03.06.1970 and the A/c. No. 4431675 was opened on 30.09.1996. A balance of USD 93,44,047/- and USD 87,79,478/- respectively was found as on February 2007 in these two accounts lying with HSBC Bank, Geneva. Though a reference to the competent authority was made by the CIT (Central)-II, Ahmedabad under Section 90 of the Act by and under letter dated 01.01.2013

The assessment was finalized upon determination of the interest income of Rs. 1,32,94,549/- and Rs. 1,44,53,534/- as shown interest income by two sons of the assessee namely Shri Bal Krishna Mehta and Shri Jawahir Mehta respectively and addition was made on the total amount of Rs. 2,77,48,083/- in the hands of the assessee on substantive basis.

The brief facts leading to the case is this that the appellant was staying at Dubai and residing there almost for 90 years. He did all his business activities in Dubai and the entire earning throughout his lifetime was from his business activities done abroad. During his lifetime the assessee being the then resident of Dubai has though it fit to invest some portion of his earning outside Dubai in order to safe guard his family and in order to make them financially stable during adverse circumstances, earned from business in Dubai. Some funds, therefore, were transferred from UAE to ABN AMRO Bank and HSBC, Geneva initially and after the demise of his wife in the year 1997, the appellant decided to distribute his asset/wealth equally to his sons and accordingly funds were transferred to two separate joint accounts held with his sons namely Balkrishna and Jawahir who were staying at Dubai. None of the family members had any IT(SS)A No.10/Rjt/2018 & 07 others - 5 - source of income in India except investment income earned from the funds transferred from abroad. Both the sons of the assessee since were engaged in business activities at Dubai and could not been able to take care of investments received on distribution in the family due to such engagement in business abroad, the appellant, father took the initiative and responsibility, (who practically left all business investments due to age and returned to India.) in order to manage investments of his sons in a better way kept started managing the funds in his managerial/guardian capacity. It is the sons of the appellant who had utilized their funds by making different investments in future.

During the course of search and seizure, numbers of documents including family arrangements were found wherein the direction to transfer the funds from one bank to the other was given to the appellant. Few correspondence shows that the assessee instructed the concerned bank to transfer fund from one account to other or one bank to another and therefore, the Revenue was of the opinion that the assessee is having absolute control over the funds in all the accounts particularly even after the demise of assessee’s wife on 1997 when the assessee’s investments/assets were distributed between his two sons, the assessee kept on instructing the bank authorities for making investment and/or transfer of funds from one to the other. In this regard, the Ld. AO relied upon the order passed in assessment order 1998-99 which dealt with different correspondences made to different bank authorities by the assessee. Relevant to mention that the assessee, in most of the bank accounts was holding the Power of Attorney to act on behalf of his sons for giving instructions for transfer of funds on their behalf for better management of their investments.

It appears from the observation made by the Ld. AO that only on the basis of the fact of instructions made by the appellant to the Bank authorities to transfer the funds to other account or to other bank, the Revenue came to a conclusion that none but the assessee is the real owner of the fund and the interest income of Rs. 1,32,94,549/- earned on the fund lying in Account No. 4432533 held with the assessee and his son Balkrishna Mehta and Rs. 1,44,53,534/- as IT(SS)A No.10/Rjt/2018 & 07 others - 6 - earned on the fund lying with Account No. 4432541 held with his son Jawahir Mehta with HSBC Bank, Geneva has been added in the hand of the assessee on substantive basis holding it as assessee’s fund.

At the time of hearing of the instant appeal the Ld. Counsel appearing for the assessee vehemently argued on the fact of the statement recorded under Section 132(4) of the Act during search wherein the assessee disclosed the fact of making division of his wealth between his two sons in 1979 which was never been deviated by the assessee in later period. It is a fact that there was frequent and continuous transfer of funds into two or more bank accounts out of which transfer of funds between two accounts with HSBC-Geneva started right from 1997-98 followed by other accounts including in India wherein his sons were also the name holders. Year-wise summary details drawn from the statement of various bank accounts were duly filed with the Ld. AO by and under the letter dated 17.02.2015 duly acknowledged by the Department, which was also submitted before us by way of a separate compilation of 18 pages. It was further stated by the Ld. Senior Counsel appearing for the assessee that no where it is evident that the assessee’s father has ever enjoyed or became beneficial use of the funds; thus it shows that fund lying with the different bank accounts in dispute never belonged to the appellant as submitted by the Ld. AR. These amounts have been taxed on substantive basis in the hands of the two sons namely Balkrishna Mehta and Jawahir Mehta by the Ld. AO during their assessment proceedings in the year under consideration. Hence, the addition of the said interest income in the hands of the assessee on substantive basis suffers from the principle of double taxation and thus, bad and liable to be deleted as argued by the Ld. AR.

The Ld. AR on this issue relied upon the order passed by the Allahabad Tribunal in the case of Prakash Wine Agencies vs. Income Tax Officer reported in 09 CCH 0116 38 TTJ 0039 (Allahabad Trib.) and the order passed by the Pune Tribunal in the case of Natwarlal Radheshyam Bagadiya vs. ACIT (Pune Trib.) where it was held that the right to make protective assessment is given to ITO

On the other hand, the Ld. DR relied upon the order passed by the authorities below. He relied upon different communications made by the appellant to the different bank authorities for transfer of funds wherein instructions have been given by the appellant some of which are at Page 7 dated 22.05.2007, Page 8 dated 05.12.2008, Page 12 dated 25.06.2004 of the Paper Book. Through these communications he wanted to justify the fact of controlling the funds by the assessee only. According to Ld. DR it shows that the assessee is the real owner of the funds and, therefore, the addition on substantive basis in the hand of the assessee is just and proper. The Ld. DR further submitted that it was an error and/or mistake on the part of the Ld. AO to make addition in the hands of the sons of the assessee on substantive basis in the year under consideration and later on such errors have rightly been cured by the Ld. Appellate Authority by reversing the same from substantive to protective in the hands of the sons.

We have heard both the parties, we have also perused the relevant materials available on record.

Question before us is as to whether the funds lying with the bank accounts as mentioned hereinabove belong to the assessee before us and finally the interest income arising out of those funds can be assessed in the hands of the assessee on substantive basis.

Without repeating the facts of the matter and the case made out by the assessee we would like to deal with the documents relied upon by the respective parties in support of their arguments.

We have considered the chart summarizing the transfer of fund from HSBC, Geneva Account No. 4432541 to the account lying with Jawahir R. Mehta at Dubai and India Bank accounts from F.Y. 1997-98 to 2007-08 as appearing at Page 1-3 of Paper Book III. Similarly we have perused the summarized chart showing transfer of funds from HSBC, Geneva account being No. 4432533 lying with Balkrishna R. Mehta from F.Y. 1997-98 to 2011-12 in the same Paper Book. Further that the instructions given by the assessee to the HSBC Bank, Geneva for transfer of funds to his sons namely Jawahir Mehta and Balkrishna Mehta along with the bank statements as appearing from Page 7 to 42 of the Paper Book No. III filed before us by the assessee has been considered by us.

The Ld. DR sought to justify the order passed by the Revenue on the premise that the funds in question belongs to the assessee since all the instructions to the HSBC Bank for transfer of funds in favour of his sons in the accounts of his two sons namely Jawahir Mehta and Balkrishna Mehta was made by the assessee only. The summarized chart showing that transfer of funds from HSBC Geneva to the concerned accounts of two sons in HSBC Bank at Dubai and India gives no indication that the fund transferred from HSBC Geneva to HSBC Dubai and HSBC India belongs to the assessee. Apart from that, perusal of the communications issued by the HSBC Bank Geneva dated 23.03.2012 merely shows the status of the account being No. 4432541 and 4432533 were closed on 27.09.2007 and 27.05.2008 respectively.

The details of fixed deposits of the appellant and his family as assessed by Revenue as made available at Page 47 to 50 in Paper Book No. III have been considered by us. In our humble understanding nowhere of the entire set of above documents gives any indication that the funds transferred from HSBC, Geneva to the son’s accounts lying with HSBC Dubai and India belongs to the assessee. These documents do not speak that the assessee is the real owner of the funds lying with those banks. We would like to mention here that the Revenue

The Ld. DR relied upon the judgment passed by the Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs. Anil Kumar Bhatia reported in [2012] 24 taxmann.com 98 (Delhi) on the point of reopening of proceeding which has been considered by us. The fact of the case on the basis of which the matter was decided in favour of the Revenue is completely different from that of the fact available before us in the case in hand. Hence, the judgment is not applicable.

Thus, upon considering the entire aspect of the matter, in view of the above we do not find any case in favour of the Revenue holding that the assessee is the owner of the funds who has acted on the basis of the power of attorney for giving instructions to transfer of funds from one account to another that too to the accounts belong to his two sons in the absence of any clinching evidence in support of the said observation and conclusion thereon.

Further fault in making addition of income of the son Balkrishna Mehta is glaring on the face of the records since Balkrishna Mehta has already shown the said income in his personal return and paid tax thereon. We would like to refer the assessment order of Shri Balkrishna Mehta all dated 27.02.2015 for A.Y. 2006-07, 2007-08, 2008-09 and 2009-10 respectively under Section 153A r.w.s. 143(3) of the Act. It is evident that addition were made in the hands of the said assessee as appearing from Page 88 to 133 for A.Y. 2006-07 and 2007-08 and the returns so filed by the said assessee were accepted for A.Y. 2008-09 and 2009-10 as appearing from Page 137 to 143 of the Paper Book filed before us. It is relevant to mention that none of these orders of assessment speaks of protective assessment against him. The interest income from Account No. 4432533/10998573 and 10978565 held with the HSBC Geneva has been estimated @10% per annum and added in the hands of Shri Balkrishna Mehta on substantive basis. Similarly, the assessment orders all dated 27.02.2015 for A.Y. 2006-07, 2007-08, 2008-09 and 2009-10 under Section 153A r.w.s. 143(3) of the Act in respect of the other son namely Jawahir Mehta as appearing from Page 167 to 187 were made on the basis of the capital gain shown and interest on NRO Account and added in the hands of the said Jawahir Mehta. Nowhere it is reflecting that the said assessments were made on protective basis on him. Be that as it may, if the assessment in the case of the father Ravichandra Mehta is made to be substantive in respect of the said sons namely Jawahir Mehta and Balkrishna the original assessment orders all dated 27.02.2015 in respect of both the sons do not alter its nature from substantive to protective. Ld. AO knowing fully well the fact again made addition on the same alleged income on substantive basis in the hands of the assessee. This is nothing but a case on double taxation. In this respect the Ld. AR relied upon the judgment passed by the Hon’ble Jurisdictional High Court in the case of M. R. Shah Logistics Pvt. Ltd. vs. DCIT reported in (2019) 308 CTR 0493. The same has been carefully considered by us. In this particular case by taking the shelter of reopening the AO sought to tax in the hands of the petitioner company of that particular income which was declared by another particularly when such declaration was accepted

Another judgment passed by the Jurisdictional High Court in the case of B. Nanji Enterprise Ltd. vs. DCIT reported in (2017) 84 taxman.com 155 (Guj.) as relied upon by the Ld. AR has been carefully considered by us wherein the Ld. AO added the cash seized from the bank locker of the assessee company as undisclosed cash receipt of the assessee. Subsequently, tax was paid on such income by the Directors of the company upon filing settlement application owning up such amount as his undisclosed income. The addition made on the company was then held to be bad and deleted since the same was suffering from the principle of double taxation. The income which was taxed in the case of the partnership farm cannot be taxed in the hands of the partner again as has been held by the Hon’ble Gujarat High Court in the case of Kanubhai Maganlal Patel reported in (2017) 79 taxman.com 257 as relied upon by the Ld. AR has also been considered by us.

Thus, considering the above facts and proposition of law we do not hesitate to hold that the addition made in the hands of the assessee suffers from the principle of double taxation. Needless to mention that our view has been strengthened by the principle laid down by the Hon’ble Jurisdictional High Court in the cases as discussed above. Hence, the addition is liable to be deleted.

We have further found that in the appellate proceeding the Ld. CIT (A) altered the nature of addition made by the Ld. AO in the case of the son Balakrishna on protective basis from substantive basis. It was an error made by the Ld. AO while making addition in the hands of Balkrishna on substantive basis as the observation made by the Ld. CIT(A). In this particular issue the Ld. Counsel appearing for the AR relied upon upon the judgment passed by Hon’ble Allahabad High Court in the case of Prakash Wine Agencies vs. Income Tax Officer, reported in 09 CCH 0116 38 TTJ 0039 (Allahabad Trib.) and the order in IT(SS)A No.10/Rjt/2018 & 07 others - 13 - the matter of Netwarlal Radheshyam Bagadiya vs. ACIT by the Pune Bench wherein it has been held that if the error is fatal it is not a curable error especially by the appellate authority. The right to make protective assessment is the right to be exercised by the ITO and not the appellate authority. Once addition made on substantive basis in the hands of the sons of the assessee and tax and/or penalty paid thereon the said category of assessment cannot be altered from substantive to protective by indicating the substantive assessment as an error on the part of the Ld. AO merely on the ground that the said income was added on substantive basis in the hands of the assessee. This proposition and conclusion made thereupon by the Ld. CIT(A) at the appellate proceeding is nothing but an afterthought, without any basis arbitrary, whimsical, erroneous and not sustainable in the eyes of law. This observation made by the Ld. CIT(A) thus may to be expunged. Thus, from all corners the Revenue has failed to satisfy us to how the addition in the hands of the assessee at all be sustainable. Therefore, by no stretch of imagination the addition made by Revenue on the interests income of Rs. 1,32,94,549/- & Rs. 1,44,53,534/- on substantive basis in the hands of the assessee holding assessee as the owner of the funds of the account only on relying upon the instructions to transfer the fund solely on the basis of surmise and conjecture cannot be said to be justified in the absence of corroborative evidence and/or clinching evidence in support of the same and also on the ground of assessment already made on substantive basis in the hands of the sons of the assessee on the same amount of interest income as narrated hereinbefore. In that view of the matter, the addition under challenge is hereby deleted.

Needless to mention that in this case also such addition in the hands of the assessee on substantive basis on the same amount already assessed and added in the hands of the grandson Vicky Mehta on substantive suffers from the principle of double taxation. Relying upon the observation made by us hereinabove on this issue in case of the assessment made in the hands of the sons, we find that the addition of Rs. 27,85,904/- by way of interest on ABN Amro Bank Account No. 208695A again in the hands of the assessee is not sustainable in the eye of law and, thus, deleted.

Ground No. 5:- The assessee does not want to proceed with the ground as submitted by the Ld. AR at the time of hearing of the matter. Hence, this ground of appeal is dismissed as not pressed.

The assessee has filed the appeal with the following grounds:- “(1) The Learned Commissioner of Income Tax (Appeals) - 13, Ahmedabad has erred in confirming the addition of Rs. 3,58,05,279/- by way of interest in the hands of the appellant on substantive basis. (2) The action of the learned assessing officer and the learned Commissioner (Appeals) - 13, Ahmedabad confirming the addition of Rs. 3,58,05,279/- on substantive basis in the case of the appellant and treating it as income on protective basis in the hands of the son of the appellant is bad in law, more so when credit of tax paid by son is not given to the appellant. (3) The Learned Commissioner of Income Tax (Appeals) - 13, Ahmedabad and the assessing officer failed to appreciate that the appellant treated his funds as divided between two sons and hence income thereon did not belong to the appellant. (4) The Learned Commissioner of Income Tax (Appeals) - 13, Ahmedabad erred in confirming the addition of Rs. 18,96,146/- by way of interest on ABN AMRO Bank account no. 208695A jointly held with grandson of the appellant. (5) The Learned Commissioner of Income Tax (Appeals)-13, Ahmedabad erred in confirming the addition of Rs. 1,45,000/- by estimating 10% interest income on fixed deposit held with HDFC bank by the appellant.”

Ground No. 5:- The assessee does not want to proceed with the ground as submitted by the Ld. AR at the time of hearing of the matter. Hence, this ground of appeal is dismissed as not pressed.

The assessee has filed the appeal with the following grounds:- “(1) The Learned Commissioner of Income Tax (Appeals) - 13, Ahmedabad has erred in confirming the addition of Rs. 3,70,91,517/- by way of interest in the hands of the appellant on substantive basis. (2) The action of the learned assessing officer and the learned Commissioner (Appeals) - 13, Ahmedabad confirming the addition of Rs. 3,70,91,5177- on substantive basis in the case of the appellant and treating it as income on protective basis in the hands of the son of the appellant is bad in law, more so when credit of tax paid by son is not given to the appellant. (3) The Learned Commissioner of Income Tax (Appeals) - 13, Ahmedabad and the assessing officer failed to appreciate that the appellant treated his funds as divided between two sons and hence income thereon did not belong to the appellant.”

The assessee has filed the appeal with the following grounds:- “(1) The Learned Commissioner of Income Tax (Appeals) - 13, Ahmedabad has erred in confirming the addition of Rs. 1,56,54,476/- by way of interest in the hands of the appellant on substantive basis. (2) The action of the learned assessing officer and the learned Commissioner (Appeals) - 13, Ahmedabad confirming the addition of Rs. 1,56,54,476/- on substantive basis in the case of the appellant and treating it as income on protective basis in the hands of the son of the appellant is bad in law, more so when credit of tax paid by son is not given to the appellant. (3) The Learned Commissioner of Income Tax (Appeals) - 13, Ahmedabad and the assessing officer failed to appreciate that the appellant treated his funds as divided between two sons and hence income thereon did not belong to the appellant.”

Both the appeals filed by the assessee are directed against the common order dated 14.02.2020 passed by the CIT(A)-13 arising out of the order dated 27.02.2015 under Section 153A r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for A.Y. 2006-07 and 2007-08 respectively. :- Shri Balkrishna Ravichandra Mehta vs. DCIT (A.Y. 2006-07):- 36. The assessee has filed the appeal with the following grounds:-

It is an admitted position that no opportunity of hearing has been afforded to the assessee before treating the substantive income of Rs. 1,31,94,550/- as returned by the appellant into protective income in his hands. In this regard, the Ld. Advocate appearing for the assessee drew out attention to the judgment passed by the Mumbai Tribunal in the matter Premkumari Surana vs. ITO, reported in 40 CCH 091 (Mumbai Trib.) and the judgment passed by the Andhra Pradesh Bench in the matter Brahmiya vs. ITO, reported in 229 taxman.com 558 (AP). It is a settled position of law that before making such order the person concern should be given an opportunity of being heard. Therefore, unless the person in whose hand the income is directed to be added on protective basis from substantive basis the direction issued by the appellate authority is an exercise in futility. The completed assessment cannot be disturbed in the manner as has been done by the Ld. CIT(A) in the case in hand. This direction is, thus, patently incorrect in the absence of providing an opportunity to the effected party while discharging judicial functions by the Ld. CIT(A). In that view of the matter relying upon the discussion on the identical issue as narrated hereinabove the assessment made by the Ld. CIT(A) in treating the substantive income of Rs. 1,31,550/- returned by the appellant into a protective income in his hands is not sustainable in the eye of law and thus the same is hereby expunged. :- Balkrishna Ravichandra Mehta vs. DCIT(2007-08):- 38. The assessee has filed the appeal with the following grounds:- “

The identical issue involved in the case has already been dealt with by us in A.Y. 2006-07 and in the absence of any changed circumstances the same shall apply mutatis mutandis. Hence, the ground preferred by the Revenue is dismissed.

In the combined result, the appeal preferred by the assessee in (i) IT(SS)A No. 10/Rjt/2018 is partly allowed (ii) IT(SS)A No. 11/Rjt/2018 is partly allowed. (iii) IT(SS)A No. 12/Rjt/2018 is allowed. (iv) IT(SS)A No. 13/Rjt/2018 is allowed. (v) is allowed. (vi) ITA No. 02/Rjt/2021 is allowed. (vii) Revenue is dismissed (viii) ITA No. 121/Rjt/2020 filed by the Revenue is dismissed. This Order pronounced in Open Court on 22/06/2021