PR COMMISSIONER OF INCOME TAX-I vs. SHRI GULAM FAROOQ ANSARI

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 230 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj.) ----Appellant Versus Shri Gulam Farooq Ansari, 3261-62, Majid Mansion, Nawab Ka Chouraha, Ghatgate, Jaipur. ----Respondent D.B. Income Tax Appeal No. 231 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj.) ----Appellant Versus Shri Gulam Farooq Ansari, 3261-62, Majid Mansion, Nawab Ka Chouraha, Ghatgate, Jaipur ----Respondent D.B. Income Tax Appeal No. 234 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building Statue Circle, Jaipur Raj. ----Appellant Versus Shri Gulam Farooq Ansari 3261-62, Majid Mansion, Nawab Ka Chouraha, Ghatgate, Jaipur. ----Respondent D.B. Income Tax Appeal No. 235 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building Statue Circle, Jaipur Raj. ----Appellant Versus Shri Gulam Farooq Ansari, 3261-62, Majid Mansion, Nawab Ka Chouraha, Ghatgate, Jaipur.

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----Respondent D.B. Income Tax Appeal No. 249 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building Statue Circle, Jaipur Raj. ----Appellant Versus Shri Gulam Farooq Ansari 3261-62, Majid Mansion, Nawab Ka Chouraha, Ghatgate, Jaipur. ----Respondent D.B. Income Tax Appeal No. 254 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building Statue Circle, Jaipur Raj. ----Appellant Versus Shri Gulam Farooq Ansari, 3261-62 Majid Mansion, Nawab Ka Chouraha, Ghatgate, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay For Respondent(s) : Mr. Siddharth Ranka with Mr. Muzaffar Iqbal _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE DEEPAK MAHESHWARI Judgment 22/11/2017 1. In all these appeals common questions of law and facts are involved, hence, they are decided by this common judgment. 2. By way of these appeals, the appellant has assailed the

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judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department and partly allowed the appeal of the assessee. 3. This Court while admitting the matters framed the following questions of law:- In DBITA No. 230/2017 i) Whether on the facts and circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 3,46,548/- made by the Assessing Officer and confirmed by CIT(A) u/s 56(2) on account of alleged foreign gifts, received by the assessee?” In DBITA No. 231/2017 “i) Whether on the facts and in the circumstances of the case and in law the Tribunal has erred in deleting the addition made by the Assessing Officer of Rs. 4,58,300/- in the case of the assessee at 1/3rd of the income on the basis of transactions recorded in seized record marked as Annexure A-2. ii) Whether on the facts and in the circumstances of the case and in law the Hon’ble Tribunal has erred deleting the addition of Rs. 14,00,000/- on account of undisclosed jewellery found? iii) Whether on the facts and circumstances of the case and in law Hon’ble ITAT has erred in directing the AO to compute income on the basis of transaction recorded in seized record marked as Annexure A-2 @ 8% of gross receipts instead of treating entire receipts as income? iv) Whether on the facts and in the circumstances of the case and in law the Hon’ble ITAT has erred in allowing relief of Rs. 1,50,00,000/- out of the addition made by the AO on account of entries recorded in seized record marked as Annexure A-2 without appreciating the facts and circumstances of the case?” In DBITA No. 234/2017

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“i) Whether on the facts and in the circumstances of the case and in law the Tribunal has erred in deleting the addition made by the Assessing Officer of Rs. 1,26,50,240/- in the case of the assessee at 1/3rd of the income on the basis of transactions recorded in seized record marked as Annexure A-2. ii) Whether on the facts and in the circumstances of the case and in law the Hon’ble ITAT has erred in allowing relief of Rs. 11,00,000/- out of the addition made by the AO on account of entries recorded in seized record marked as Annexure A-2 without appreciating the facts and circumstances of the case? iii) Whether on the facts and circumstances of the case and in law Hon’ble ITAT has erred in directing the AO to compute income on the basis of transaction recorded in seized record marked as Annexure A-2 @ 8% of gross receipts instead of treating entire receipts as income? In DBITA No. 235/2017 “i) Whether on the facts and circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 24,62,523/- made by the Assessing Officer and confirmed by CIT(A) u/s 56(2)(vi) on account of alleged foreign gifts, received by the assessee.? ii) Whether the Tribunal was justified in holding that nephew falls within the definition of relative as defined in Section 56(2) of the Act.” In DBITA No. 249/2017 “i) Whether on the facts and circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 3,29,436/- made by the Assessing Officer and confirmed by CIT(A) u/s 56(2)(vi) on account of alleged foreign gifts, received by the assessee. ii) Whether the Tribunal was justified in holding that gifts were not made by nephew but by brother of the assessee which is contrary to record as the bank accounts were admittedly in the name of nephew of the assessee.” In DBITA No. 254/2017 “i) Whether on the facts and in the circumstances of the case and in law the Tribunal has erred in deleting the addition made by the Assessing Officer of Rs. 68,75,060/- in the case of assessee at 1/3rd of the income on the basis of transactions recorded

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in seized record marked as Annexure A-2. ii) Whether on the facts and in the circumstances of the case and in law the Hon’ble ITAT has erred in allowing relief of Rs. 1,00,00,000/- out of the addition made by the AO on account of entries recorded in seized record marked as Annexure A-2 without appreciating the facts and circumstances of the case? iii) Whether on the facts and in the circumstances of the case and in law Hon’ble ITAT has erred in directing the AO to compute income on the basis of transaction recorded in seized record marked as Annexure A-2 @ 8% of gross receipts instead of treating entire receipts as income?” iv) Whether on the facts and circumstances of the case and in law the Hon’ble Tribunal has erred in deleting the addition made u/s 56(2) of the Income Tax Act on account of alleged foreign gifts received by the assessee.?” 4. Counsel for the appellant has taken us to the order of AO as well as the Tribunal and has relied upon the decision of the Supreme Court in case of Smt. Tarulata Shyam & Ors. vs. Commissioner of Income Tax (1977) 108 ITR 0345 wherein it has been held as under:- “We have given anxious thought to the persuasive argument of Mr. Sharma. His arguments, if accepted, will certainly soften the rigour of this extremely drastic provision and bring it more in conformity with logic and equity. But the language of Sections 2(6A) (e) and 12(1B) is clear and unambiguous. There is no scope for importing into the statute words which are not there. Such import would be, not to construe, but to amend the statute. Even if there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation. 35. To us, there appears no justification to depart from the normal rule of construction according to which the intention of the legislature is primarily to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt J, in Cape Brandy Syndicate v. I.R.C. (1) at p. 61 that "in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is

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no enquiry about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used". Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be.” 4.1. He has further relied upon the decision of Supreme Court in case of Commissioner of Income Tax-III vs. Calcutta Knitwears, Ludhiana (2014) 6 SCC 444 wherein it has been held as under:- “23. Lord Granworth in Grundy v. Pinniger (1852) 1 LJ

405

has

observed

that: To adhere as closely as possible to the literal meaning of the words used, is a cardinal rule from which if we de-part we launch into a sea of difficulties which it is not easy to fathom. That is to say, once the literal rule is departed, then any number of interpretations can be put to a statutory provision, each Judge having a free play to put his own interpretation as he likes. This would be destructive of the edifice of fiscal legislations which impose economic duties and sanctions. 24. In taxing statutes, even if the literal interpretation results in hardship or inconvenience, it has to be followed (G.P. Singh's Principles of Statutory Interpretations, 12th Ed, 2010, Lexis Nexis Butterworths Wadhwa Nagpur; Bennion on Statutory Interpretation, 5th Ed., Lexis Nexis, p.863; Vepa P. Sarathi, Interpretation of Statutes, 5th Ed., Easter Book Company, Chapter VIII, Taxing Statutes). This Court in CIT v. Keshab Chandra Mandal MANU/SC/0021/1950 : AIR 1950 SC 265 has held that hardship or inconvenience cannot alter the meaning of the language employed by the legislature if such meaning is clear and apparent. Hence departure from the literal rule should only be done in very rare cases, and ordinarily there should be judicial restraint to do so. (Pandian Chemicals Ltd. v. C.I.T. MANU/SC/0487/2003 : 2003 (5) SCC 590, Narsiruddin v. Sita Ram Agarwal MANU/SC/0100/2003 : AIR 2003 SC 1543, Bhaiji v. Sub-Divisional

Officer,

Thandla MANU/SC/1154/2002 : 2003 (1) SCC 692, J.P. Bansal v. State of Rajasthan and Anr. MANU/SC/0235/2003 : AIR 2003 SC 1405, State of Jharkhand

and

Anr.

Govind

Singh

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MANU/SC/1133/2004 : JT 2004 (10) SC 349, Jinia Keotin v. K.S. Manjhi MANU/SC/1192/2002 : 2003 (1) SCC 730, Shiv Shakti Co-operative Housing Society

Swaraj

Developers MANU/SC/0335/2003 : AIR 2003 SC 2434, Grasim Industries Limited v. Collector of Customs MANU/SC/0256/2002 : 2002 (4) SCC 297 and Union of India v. Hamsoli Devi MANU/SC/0768/2002 :

2002

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SCC

273) 25. The Australian High Court in Federal Commissioner of Taxation v. Westraders Pty Ltd. (1980) 144 CLR 55 considered the scope of Section 36A of the Income Tax Assessment Act, 1936(Cth), which on a literal interpretation allowed the taxpayer to make a profit and still claim a loss for tax purposes. The Commissioner argued the taxpayer's conduct amounted to a tax avoidance scheme and should therefore be disallowed under Section 260 of the Income Tax Assessment Act, 1936(Cth). The Court held that under a literal interpretation Section 36A could apply to allow the taxpayer to claim a loss. Barwick CJ, speaking for the majority relied on the decision in Inland Revenue Commissioners v. Westminster (Duke) [1936] AC 1 which advocated the literal approach be applied when interpreting taxation legislation and

stated

the

following: It is for the Parliament to specify, and to do so, in my opinion, as far as language will permit, with unambiguous clarity, the circumstances which will attract an obligation on the part of the citizen to pay tax. The function of the court is to interpret and apply the language in which the Parliament has specified those circumstances. The court is to do so by determining the meaning of the words employed by the Parliament according to the intention of the Parliament which is discoverable from the language used by the Parliament. It is not for the court to mould or to attempt to mould the language of the statute so as to produce some result which it might be thought the Parliament may have intended to achieve, though not expressed in the actual language

employed. 26. In Cooper Brookes (Wollongong) Pty Ltd. v. Federal Commissioner of Taxation (1981) 147 CLR 297 it is held that in a taxing statute if the language is unambiguous, departing from the literal approach 'may lead judges to put their own ideas of justice or social policy in place of the words of the statute'. Similar view was espoused in C and J Clark Ltd. v.

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Inland Revenue Commissioners [1975] 1 WLR 413 and BP Refinery (Westernport) Pty Ltd. v. Hastings Shire

(1977)

180

CLR

assessable. 28. This Court in Tata Consultancy Services v. State of Andhra Pradesh has ascribed plain meaning to the terms computer and computer programme in a fiscal statute and reiterating the proposition laid down in Inland Revenue Commissioner case (supra), observed that a court should not be over zealous in searching ambiguities or obscurities in words

which

are

plain. 29. In Prakash Nath Khanna v. C.I.T. MANU/SC/0134/2004 : 2004 (9) SCC 686, this Court has explained that the language employed in a statute is the determinative factor of the legislative intent. The legislature is presumed to have made no mistake. The presumption is that it intended to say what it has said. Assuming there is a defect or an omission in the words used by the legislature, the Court cannot correct or make up the deficiency. Where the legislative intent is clear from the language, the Court should give effect to it (Delhi Financial Corporation v. Rajiv Anand MANU/SC/1105/2004 : 2004 (11) SCC 625; Government of Andhra Pradesh v. Road Rollers Owners Welfare Association MANU/SC/0653/2004 : 2004

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SCC

210). 30. In B. Premanand and Ors. v. Mohan Koikal and Ors. MANU/SC/0249/2011 : (2011) 4 SCC 266 this Court

has

observed

follows: 24. The literal rule of interpretation really means that there should be no interpretation. In other

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words, we should read the statute as it is, without distorting

twisting

its

language. We may mention here that the literal rule of interpretation is not only followed by Judges and lawyers, but it is also followed by the lay man in his ordinary life. To give an illustration, if a person says "this is a pencil", then he means that it is a pencil; and it is not that when he says that the object is a pencil, he means that it is a horse, donkey or an elephant. In other words, the literal rule of interpretation simply means that we mean what we say and we say what we mean. If we do not follow the literal rule of interpretation, social life will become impossible, and we will not understand each other. If we say that a certain object is a book, then we mean it is a book. If we say it is a book, but we mean it is a horse, table or an elephant, then we will not be able to communicate with each other. Life will become impossible. Hence, the meaning of the literal rule of interpretation is simply that we mean what we say and we say what we mean. 31. Thus, the language of a taxing statute should ordinarily be read understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative animation. A taxing statute should be strictly construed; common sense approach, equity, logic, ethics and morality have no role to play. Nothing is to be read in, nothing is to be implied; one can only look fairly at the language used and nothing more and nothing less.” 5. Counsel for the respondent Mr. Ranka has supported the order of the Tribunal and contended that the Tribunal while considering the matters has rightly interpreted in para 3.4 & 4 observing as under:- “3.4 We have heard the rival contentions and perused the materials available on record. Brief facts of the case are that the assessee is an individual. The assessee is partner in firm M/s N.N. Jewellers. The assessee was not carrying any regular business activities in his personal capacity. The department carried out search & seizure operations over assessee group on 22-09-2010 (Copy of Panchanama at PB Page 1 to 4). 4. The

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case of assessee was centralized at Central Circle-3, Jaipur. Notice u/s 153A was issued on 15-12-2011 (Copy at PB Page 76). In pursuant to notice u/s 153A of Income Tax Act, the assessee filed his return on 25-06-2012 declarin the total incom of Rs.9,05,380/-). During the year, the assessee received gift of Rs.24,62,523/- from his brother Gulam Mohemmad Ansari through the bank account of Shri Adil Pervez Ansari (son of brother) and Shri Shah Nawaz Ansari (Son of sister). Shri Gulam Mohemmad Ansari is NRI residing in Hong Kong ad doing business of gem stones. The assessee filed copy of confirmation letter of gift received, copy of profit tax assessment of Shri Gulam Mohemmad Ansari filed in Hong Kong and documents in support of the identity and creditworthiness of the donor. However, the AO held taht the gifts were received from persons not covered within the meaning of relative as given in section 56(2) of Income Tax Act and also treated as not genuine and added the same to the income of the assessee. The assessment of the assessee was completed by AO vide her order dated 31.3.2013 assessing the total income of assessee at Rs. 33,67,903/- as against returned income Rs.9,05,380/- by making following addition in total income:- S.N o. Particulars Amount(Rs.) 1. Treated the gift as received from persons not covered within the meaning of relative as given in section 56(2) of Income Tax Act and also treated as not genuine 24,62,523/- Thus the AO has disallowed the gift only on the basis that person from whose bank account money came to assessee was not covered by the definition of relative u/s 56(2) of the I.T. Act. In first appeal, the ld. CIT(A) has confirmed the action of the AO. It is noted that the lower authorities have held that the assessee received the gifts from nephews and section 56(2) defines words "Relative" which indicate that such relationship is not applicable for gift from nephew accordingly, gift accepted by assessee from nephews does not cover within the

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provision of that section, besides that the lower authorities have held that the assessee has not proved creditworthiness of the donor and the gift is not genuine as there was no occasion to give the gift, no corresponding gift to other close relative was made by the donor and the assessee has routed his undeclared profit back to his possession in the shape of gift through business connection with his brother. Further, the assessee received the gift when he was in need of funds for investment in properties. It is observed taht Shri Gulam Mohd Ansari is brother of assessee and doing business in Hong Kong in name of M/s Evergreen Exports. The assessee has proved identity of the donor by furnishing the copy of passport and id proof of Shri Gulam Mohd Ansari (donor), and capacity of the donor by submitting profit tax assessment of Shri Gukam Mohd Ansari for AY 05-06 to AY 11-12 (Copy at PB Page 95-108) assessment made by Inland Revenue Department of Hong Kong. The genuineness of gift is proved by bank statement and Bank Advice against foreign remittance. The assessee has submitted the confirmation of Shri Gulam Mohd Ansari donor stating that gift was actually made by him though the bank account of his son/son of sister maintained by him and the fund deposited in their bank account were deposited by him out of his own income/savings. Further the assessee submitted the copy of Bank advice against foreign remittance wherein it has been mentioned that the reason of transfer is Gift and further mentioned in the bank advice "by the order of GM Ansari". This noting on the bank advice/TT is sufficient to show that gift was made by Shri Gulam Mohd Ansari. Therefore, it cannot be held taht gift was made by neqhew of assessee. The assessee has sucessfully shown that the gift was made by his brother not by nephew so the gift is covered proviso to clause (vi) of section 56(2) of Income Tax Act. It is noted that the ITAT Coordinate Bench of Chandigarh in the case of Shri Ramesh Garg Vs. ACIT, Circle-5(1), Chandigarh in ITA No. 29/Chd./2013 vide order dated 13.05.2014 has held that gift received from nephew (son of sister) on the direction of sister falls within the definition of relatives as provided u/s 56(2) of the Act. The relevant para of ITAT Chandigarh Bench in ITA No. 29/Chd/2013 is as under:- "7. We have considered the rival submission of the ld. Representative of both the parties. It is an admitted fact the amount in question had been transferred through banking channel. There is no

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doubt about the identity and financial capacity of the transfer of the amount. It is also an admitted fact that the transfer of money was from the son of the sister of the assessee. The sister of the assessee has given a written confirmation that the said money was transferred through banking channel on her direction by her son to the assessee. The amount involved in the dispute is also a nominal amount which is not unusually high. It is in the normal course of relations that the mother asks her son to do certain activities relating to financial matter also due to old age or other related compulsions. Similarly, in our society the son also feels an obligation to respect and obey the orders of the mother. The amount of gift being nominal and fully explained and also in view of the confirmations letter issued by the sister of the assessee that the money was in fact gifted by her and the same was transferred in the account of the assessee by her son on her directions, leaves no doubt that the gift was made by sister of the assessee who falls within the definition of relative as provided u/s 56(2) (vi) of the Act. 8. In view of the above observations, the impugned order of the CIT(A) is hereby set aside and the disallowance in question is ordered to be deleted." It is also worthwhile to mention that ld. CIT(A) has rejected the confirmation of the donor by mentioning that the confirmation is not notorized for which there is no law under which notarization is mandatory for valid confirmation. It is also notable that there is no need to prove source of source for which following Hon'ble Courts have given the verdict in favour of the assessee 1. CIT Vs Orissa Corporation (P) Ltd (1986) 159 ITR 79 (SC) 2. CIT Vs Heera Lal Chagan Lal Tank (2002) 157 ITR 281 (Raj) 3. Aravali Trading Co. Vs. Income Tax Officer (2008) 8 DTR (Raj) 199. It is also noted that the department has carried out search operation and no document was found to show that the assessee has transferred money to the donor for obtaining bogus gift. The department has seized several loose papers and dairy from the possession of assessee and AO has not brought to notice any entry showing the transfer of cash to donor against gift received by him from his brother. Further It is not necessary to make the valid gift,

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there should be corresponding gift by the donor to his other close relatives. It is also motable that the gift should be only on some specific occasion which may be made at any time. It is also noted from the available records that the AO has not brought any positive material to show that the assessee has routed his undeclared profit back to his possession in the shape of gift through business connection with his brother. The partnership firm of assessee is doing business of exports/imports of gem stones which is always subject to monitoring of custom authorities and the payments are always routed through banking channels. In view of the above facts and circumstancs of the case, we do not concur with the views of the ld. CIT(A) and direct to delete the addition of Rs.24,62,523/- made by the lower authorities. Thus Ground No.1 and 2 of the assessee is allowed. 4.1 In assessment year 2007-08, the Ground No. 3 of the assessee is regarding not allowing the benefit of telescoping, recycling and rotation of fund out of income of the partnership firm of M/s. N.N. Jewellers. 4.2 We have heard the rival contentions and perused the materials available on record. The Ground No.3 of the assessee is infructuous as no addition has been sustained on account of gift. Thus Ground No.3 of the assessee is dismissed. 6. Taking into consideration the factual matrix, it is contended that the Tribunal has rightly held in favour of the assessee. 7. We have heard counsel for both the sides. 8. Looking to the definition of relative, the amount which has been added by the AO is just and proper, though the Tribunal has while interpreting extended the meaning of gift by including gift made by the brother which was transferred from the bank account of nephew. 9. In that view of the matter, the amount transferred by the nephew as gift to the brother of father (Uncle) cannot be

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exempted. Thus, the interpretation put forth by the Tribunal is required to be reversed and the same is reversed. 10. This issue is decided in favour of the revenue against the assessee. 11. Counsels has taken us to the order of CIT(A) as well as the Tribunal and contended that looking to the facts which have been decided by the Tribunal, the amount which was received from foreign exchange from the brother is required to be accepted under Section 56(2) of the Income Tax Act. We are in complete agreement with the finding recorded by the Tribunal in this regard hence, the issue is decided in favour of assessee. 12. After hearing the counsels, on other issues, we do not find any ground to interfere with the finding arrived at by the tribunal. 13. In that view of the matter, the issue regarding gift from Nephew is decided against the assessee and all other issues are decided in favour of the assessee and against the department. 14. The appeals stand disposed off. (DEEPAK MAHESHWARI)J. (K.S. JHAVERI)J. A.Sharma/