SHRI GIRISHKUMAR VACHHRAJ DHOLAKIA,,AHMEDABAD vs. THE COMMISSIONER OF INCOME TAX-3, RAJKOT-GUJARAT

आदेश / O R D E R

PER WASEEM AHMED, ACCOUNTANT MEMBER: The two captioned appeals have been filed at the instance of the different Assessee against the separate orders of the Commissioner of Income

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 2 - Tax–3, Rajkot [CIT in short] dated 27-03-2015 & 26-03-2015 relevant to Assessment Year (AY) 2010-11.

The issue involved in both the appeals filed by the different assessee are common. Therefore both the appeals have been clubbed together for brevity, convenience, and adjudication.

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 3 - 6. The Ld. CIT ignored significant material being result of his direct inquiry u/s. 133(6) with the donor and unambiguous confirmation with evidence produced by the donor and without even referring to such material on his own record, wrongly held that the gift is unexplained. 7. The Ld. CIT erred in law and on facts in issuing direction to initiate proceedings under W.T. Act ignoring the fact that stock in trade and residence are not assets within the meaning of section 2(ea) of the W.T. Act. 8. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of appeal.” 3. The only issue raised by the assessee in this appeal is that ld CIT erred in holding the order of the AO passed u/s 143(3) of the Act as erroneous in so far prejudicial to the interest of the revenue.

4.1 Subsequently, the ld CIT u/s 263 of the Act observed that the AO passed the assessment order without carrying out proper verifications in respect of four items. One of the item was that the assessee during the year had received 10 kg of gold from his relative vide gift deed dated 25.02.2010. As per the ld. CIT, this item, i.e. receipt of a gift of gold of

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 4 - 10 Kg was not verified properly by the AO about the genuineness and creditworthiness of the donor. Therefore, the ld. CIT issued a notice u/s 263 of the Act vide letter dated 01.10.2013.

4.2 In compliance to it the assessee submitted as under: i. He has received gold in the form of bullion for 10 kg which is not a property. Therefore, the provision of Section 56 of the Act cannot be applied.

ii. The gift received by the assessee is also not a capital asset as per the provision of Section 56(2)(vii) of the Act as the word capital asset was brought in the statute with effect from 01.10.2009.

iii. The assessee further vide his reply dated 15.10.2013 submitted that the donor had shown gold ornaments as stock in trade in his balance sheet as on 31.03.2006 as well as 31.03.2007. The Donor subsequently has given his gold as a loan in material form to M/s CVM & Co. vide agreement dated 20.04.2007. The assessee against this arrangement of giving gold loan was taking usage charges from CVM & Co. of Rs. 2,60,006.00. However, the donor has taken back the material loan given to CVM & Co. in the F.Y. 2009-10 and has given as a gift to the assessee dated 25.02.2010. The assessee in support of his claim filed the copy of the balance sheet of the donor, details of the loan given to the firm and its balance sheet, copy of the PAN and ITR to prove the genuineness and capacity of the donor. iv. The assessee also contended that the issue of the gift of the gold was duly examined thoroughly in detail and after that, the AO took a conscious decision for not making any addition to the total income of the assessee.

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 5 - In view of above, the assessee submitted that the order of the AO could not be held as erroneous in so far prejudicial to the interest of the revenue.

4.3 However, the ld CIT u/s 263 of the Act disagreed with the submission of the assessee and observed as under: i. There was only one submission filed by the assessee before the AO during the assessment proceedings. The AO has not further taken any clarification/explanation either from the assessee or the donor. The AO did not make any inquiry to prove the transaction as the genuine vis-à-vis creditworthiness of the donor

ii. The financial position of the donor is very poor, and he carries a lot of family responsibilities.

iii. The donor in response to the notice issued u/s 133(6) of the Act has replied by letter dated 28.10.2013 that he possessed the gold as owner. The donor also filed the copies of the balance sheet and other statements in which such loan was disclosed in the income tax return. However, the assessee failed to justify the source of fund for the accumulation of the gold. As per the ld. CIT, the assessee has not submitted documentary evidence suggesting that the donor is the owner of such gold.

iv. The gift was taken by the assessee from his cousin namely Shri Divyesh Ashok Dholakia and does not fall within the meaning of relative as explained in Section 56 (2)(vii) of the Act.

v. The CIT also observed that in the gift deed it is clearly mentioned that the gold ornaments were gifted to the assessee.

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 6 - There was no mention of bullion. There was also no conversion cost incurred justifying that the gold was converted into bullion.

vi. In view of the above, the ld. CIT directed the AO to make the addition by observing as under: “11.4. Keeping in view the above discussed facts and law, the AO is directed to make an addition of Rs.1,78,75,440/- being the value of gold ornaments weighing to 10833.6 gins, as mentioned in the deed of conveyance and acceptance. Since, the aforesaid asset has already been considered and the AO has been directed to add the same to the income of the assessee invoking the provisions of Chapter VI of the Act, the AO is directed to make an addition of Rs.1,78,75,440/- on account of receipt of gift u/s 56(2)(vii) of the Act on protective basis simultaneously. As the assessee has concealed his particulars of his income, penalty proceedings u/s 271(1)(c) of the Act shall be initiated.” Being aggrieved by the order of ld CIT assessee is in the second appeal before us.

5.1 The ld. AR further submitted that all the necessary details about the receipt of gift for 10 kg of gold were disclosed in the capital account of the assessee. The ld. AR in support of his claim drew our attention on the copy of the capital account of the assessee placed on page 234 of the

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 7 - paper book. Therefore, the finding of the ld CIT that no concrete evidence was provided during assessment proceedings is not correct.

5.2 The ld AR also submitted that the ld CIT u/s 263 of the Act has held that the assessee did not provide sufficient details. Thus the ld. CIT alleged that no proper verification was carried out by the AO during the assessment proceedings. But the ld. CIT after the expiry of 15 months has directed to make the addition to the total income of the assessee on account of such gold received as a gift. The ld. CIT before giving the direction to the AO has not issued any show-cause notice to the assessee asking to provide the requisite information.

5.3 The ld. AR further drew our attention on page 215 of the paper book demonstrating that the AO duly enquired about the details of the capital account of the assessee. The Ld AR accordingly submitted that the reply was duly filed to the AO during the assessment proceedings which is placed on pages 128, 154 and 155 of the paper book.

5.4 The ld AR also submitted that the amount of gold received as a gift from the donor was duly disclosed in the books of accounts which is placed on page 196 of the Paper Book.

5.5 The ld AR further submitted that the amount of usage charges received from CVM & Co. by the assessee was duly disclosed in its books which is placed on page 95 of the paper book. Similarly, the entry

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 8 - for receipt of gold as a loan by CVM & Co. was shown in the books of accounts which is placed on page 96 of the paper book.

5.6 The ld. AR also submitted that the amount of gold was received by the assessee as a gift, as a result of family arrangement. Thus the gold was received by the assessee from the relative.

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 9 - 9. We have heard the rival contentions and perused the materials available on record. In the instant case, the ld CIT u/s 263 of the Act has held that the order of the AO erroneous in so far prejudicial to the interest of revenue and accordingly, directed the AO to make the addition for the amount of gift received by the assessee in the form of gold. The ld CIT, u/s 263 of the Act, also issued notice u/s 133(6) of the Act to the donor to verify the genuineness and creditworthiness of the donor. In reply, the donor has submitted that he has fully disclosed the gold in his balance sheet in the earlier years but failed to establish the source of accumulation of such huge gold to his hands. Thus, the ld CIT directed the AO to make the addition for the gift received by the assessee.

9.1 From the preceding addition, it is an undisputed fact that the ld CIT passed the order after the expiry of 15 days after the last conclusion of the hearing. In this regard, we find that the CBDT has issued instruction vide its File No. 279/MISC/53/2003/ITJ dated 19.06.2015 to pass the order within 15 days of the last hearing. The relevant extract of the instruction is reproduced below:

“CBDT has lately noticed that terms of Instruction No. 20/2013 dated 23-12-2003 (copy enclosed) on the subject mentioned above are not being adhered to. The operative part of the Instruction is reproduced below for ready reference:

“2. The Board desires that appellate orders by Commissioner of Income Tax (Appeals) should be issued within 15 days of the last hearing. Any lapse on this account shall be viewed adversely.

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 10 - “3. This shall be applicable to orders passed by the CIT (administration)/CCIT as regards matters within their purview under varied Sections of Income Tax Act such as Sections 80G, 264, 263 or Orders under Rule 86 of Second Schedule and under other allied direct taxes.”

From the above, it is clear that the ld CIT has passed the order u/s 263 of the Act after a considerable delay of 15 months and in between no notice of hearing was issued to the assessee.

9.2 We also find that Hon’ble Supreme Court in his landmark judgment in the case of Anil Rai vs. State of Bihar in Appeal (Crl.) 389 of 1998 has laid down certain guideslines for passing the order within the reasonable time. The relevant extract of the order is extracted below:

“20. Under the prevalent circumstances in some of the High Courts, I feel it appropriate to provide some guidelines regarding the pronouncement of judgments which, I am sure, shall be followed by all concerned, being the mandate of this Court. Such guidelines, as for present, are as under: (i) The Chief Justices of the High Courts may issue appropriate directions to the Registry that in case where the judgment is reserved and is pronounced later, a column be added in the judgment where, on the first page, after the cause-title, date of reserving the judgment and date of pronouncing it be separately mentioned by the court officer concerned. (ii) That Chief Justice of the High Courts, on their administrative side, should direct the Court Officers/ Readers of the various Benches in the High Courts to furnish every month the list of cases in the matters where the judgments reserved are not pronounced within the period of that months.

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 11 - (iii) On noticing that after conclusion of the arguments the judgment is not pronounced within a period of two months, the concerned Chief Justice shall draw the attention of the Bench concerned to the pending matter. The Chief Justice may also see the desirability of circulating the statement of such cases in which the judgments have not been pronounced within a period of six weeks from the date of conclusion of the arguments amongst the Judges of the High Court for their information. Such communi-cation be conveyed as confidential and in a sealed cover. (iv) Where a judgment is not pronounced within three months, from the date of reserving it, any of the parties in the case is permitted to file an application in the High Court with prayer for early judgment. Such application, as and when filed, shall be listed before the Bench concerned within two days excluding the intervening holidays. (v) If the judgment, for any reason, is not pronounced within a period of six months, any of the parties of the said lis shall be entitled to move an application before the Chief Justice of the High Court with a prayer to withdraw the said case and to make it over to any other Bench for fresh arguments. It is open to the Chief Justice to grant the said prayer or to pass any other order as deems fit in the circumstances. 21. We hope and trust that the above guidelines shall be strictly followed and implemented, considering them as self-imposed restraints.” 9.3 We also find that the assessee has filed additional documents detailed as under: “Appellant craves leave to place the following additional evidence on record of this Hon'ble Tribunal. 1. J V Voucher dated 20.04.2007 for original loan by Donor (Pages 1 to 1) 2. Copy of day book from the books of original Donor (Page 2-3) 3. Vouchers for melting by Donor dated 03 to 18.04.2007 (Pages 4 to 5) 4. Family Tree (Page 6) 5. Order of ITAT quashing 263 order for A.Y.2010-11 in the case of M/S. Chokshi Vachhraj Makanji & Co. (Pages 7-20) 6. Show Cause for 263 in the case of M\S. Chokshi Vachhraj Makanji & Co. (Pages 21 to 27) 7. Assessment Order u/s. 143 (3) for A.Y.2009-10 in the case of M/S. Chokshi Vachhraj Makanji & Co. (Pages 28 to 31)

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 12 - The additional evidence is hereby placed on record of this Hon'ble Tribunal as same is to prove that the Gift is genuine, the donor had capacity & the subject matter of gift was Gold Bullion and not Gold Ornaments same will help to appreciate the controversy in a better and proper manner and further the evidence proposed to be placed before this Hon'ble ITAT is important and decisive evidence in determining the controversy in just and equitable manner.” 9.4 On perusal of these additional documents, we find that these additional documents go to the root of the matter and are very crucial in the decision making process. At this stage, we find important to refer the Rule 29 of the ITAT Rule which reads as under: “ [Production of additional evidence before the Tribunal. 29. The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or , if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.]”

9.5 In the light of the above Rule, we deem it fit and appropriate to admit the additional evidence filed by the assessee for the consideration of the AO. In holding so, we find support and guidance from the order of Hon’ble ITAT Chennai Bench in the case of Mascon Global Limited vs ACIT reported in 37 SOT 202 wherein, it was held as under: “The other objection of the Judicial Member was that there was no formal application under rule 29 of the ITAT Rules for admission of the additional evidence. On going through the rule, no requirement was found therein that there should be a formal written application before the Tribunal for admission of the additional evidence. These are rules of

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 13 - procedure and in a fit case and depending on the circumstances it would be open to the Tribunal to admit additional evidence when it is produced in the Court and an oral application is made. There is no hard and fast rule in this behalf and it should be left to the discretion of the Bench. The Accountant Member exercised such discretion properly. Rule 29 permits the Tribunal to admit the additional evidence for any substantial cause. Apparently the Accountant Member had admitted the additional evidence on this ground which could not be disagreed with. The intention behind the rule is that substantial justice should be done and the interest of the justice should be the overriding consideration. Therefore, there was no error in the Accountant Member admitting the additional evidence and sending it to the Commissioner for examination and decision.”

9.6 Thus, in view of above we incline to admit the additional evidence as discussed above. Thus, we direct the AO to make the assessment afresh after considering the additional documents as discussed above and without getting influenced by the order of ld CIT passed u/s 263 of the Act dated 26.03.2015. Thus, the appeal filed by the assessee is allowed for statistical purposes.

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 14 - M/s. Chokshi Vachhraj Makanji & Co. for A.Y.2010-11 in which the subject matter of gift was initially received by the said group concern as material loan in A.Y. 2008-09 and therefore could not be treated as unexplained in A.Y. 2010-11. 4. Without prejudice to ground No. 1 & 3, the Ld CIT erred in law and on facts in treating the value of gold bullion received by the appellant as taxable u/s. 56(2) ignoring all evidences already examined by him in connection with proceeding u/s. 263 in other group cases on the same issue without noticing any prejudice to revenue on same facts. 5. The Ld. CIT passed order u/s. 263 almost 15 months after the last hearing and leveled allegations of non compliance (Para 11.3 of his order) when none was ever called for. The order being in gross violation of principle of natural justice is liable to be set aside. 6. The Ld. CIT ignored significant material being result of his direct inquiry u/s. 133(6) with the donor and unambiguous confirmation with evidence produced by the donor an without even referring to such material on his own record, wrongly held that the gift i unexplained. 7. The Ld. CIT erred in law and on facts in issuing direction to initiate proceedings under W.T. Act ignoring the fact that stock in trade and residence are not assets within the meaning of section 2(ea) of the W.T. Act. 8. The Hon. CIT-3, Rajkot has erred is setting aside the source of investment made of Rs. 21,18, 585/- + Rs.125918/- in spite of the same being verified by Ld. A.O. 9. The appellant humbly requests that cost be awarded in this appeal on account of arbitrary manner in which the order is passed by the department. 10. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of appeal.”

ITA Nos.157 & 158/Rjt/2015 Shri Girishkumar Vachhraj Dholakia & Shri Deepakkumar Natvarlal Dholakia A.Y. 2010-11 - 15 - respectfully following the order as discussed above, we allow the grounds of appeal of the assessee for the statistical purposes in terms of the above.

In the result, both the appeals of the assessee are allowed for the 12. statistical purposes. This Order pronounced in Open Court on 03/10/2018

Sd/- Sd/- ¼jktiky ;kno jktiky ;kno jktiky ;kno½ jktiky ;kno ¼olhe vgen olhe vgen½ olhe vgen olhe vgen U;kf;d lnL; U;kf;d lnL; U;kf;d lnL; U;kf;d lnL; Yks[kk ln Yks[kk ln Yks[kk lnL; Yks[kk ln L; L; L; (RAJPAL YADAV) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 03/10/2018 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 3, Rajkot. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,राजोकट/DR,ITAT, Rajkot 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, राजोकट / ITAT, Rajkot