RAJASHRI D. MEHTA,MUMBAI vs. DCIT OSD-II CEN RG 7, MUMBAI

O R D E R Per R P Tolani, Judicial Member

These are two appeals by related assessees, one being daughter Ms. Rajshri D Mehta and mother Mrs. Pramila D Mehta. Common ground raised is as under:

In the case Rajshri D Mehta

“The CIT(A) has erred in law & on facts of the case by confirming the addition on estimation basis @1% of total deposits/withdrawals in the alleged bank account opened fraudulently by third person in assessees name and making addition of Rs.4,00,000/- ” The addition so made in the case of Pramila D Mehta is Rs.4,13,120/-.

Both these assessments were reopened u/s. 127/128. Following relevant para from the order of the learned CIT(A) will briefly highlight the facts and the issues involved (lead case of Ms. Rajshri D Mehta is taken)

“9. The next issue relates to addition of Rs.4,00,000/- made by the AO, as consideration received by the assessee for allowing the bank account with Bank of Baroda, Colaba Branch, to be operated by KFL group entities. It is gathered that the assessee was maintaining a bank account (No. 59561) with Bank of Baroda, Colaba Branch, and huge amounts were being deposited in and withdrawn out of this bank account, during the year. During the course of assessment proceedings, the assessee claimed before the AO that she was totally unaware of the fact that the above bank account was being operated by KFL group headed by Shri Satyanarayan Agarwal. The assessee also claimed that her photograph was taken by KFL group by fraudulent means for opening this account. However, the AO was not satisfied with the explanation of the assessee. The AO noted that during the year, a total amount of Rs.1,49,98,505/- was deposited in the above account and an amount of Rs.1,49,98,000/- was withdrawn. The AO held that the assessee would not have permitted anybody to open a bank account in her name without her tacit support and that she must have received some benefit or remuneration for allowing KFL group to use her name and bank account. The AO, accordingly, estimated income of the assessee for allowing such account to be operated by KFL group at 1% of the total transactions from the bank account, which worked out at Rs.4,00,000/-. He, accordingly, made an addition of Rs.4,00,000/- in the hands of the assessee.”

The other addition qua the benami income was deleted in both the hands. It shall be pertinent to mention that the additions that the additions in these two cases were made on protective basis and the substantive addition has been in the case of one Satyanarayan Agrawal HUF, which has owned up the income in this behalf. The learned CIT(A) thought in both cases deleted the dividend income, however upheld the estimated possible income in the hands of these assessees. Aggrieved, both the assessees are in second appeal.

on protective basis. Substantive income has been owned up and accepted by the said Shri Satynanarayan Agrawal HUF in VDIS. ii) The deletion of dividend income has not been appealed against by the revenue.

The relevant observations are as under:

“I have considered the facts of the case, submissions and contentions of the appellant, as also the order of the AO. It is gathered that 1,06,600 shares of Krishna Filaments Ltd. were purchased in the name of the assessee, on which dividend of Rs.3,12,200/- was received during the year. The net dividend of Rs.3,12,200/- was received during the year. The net dividend amount was credited in the bank account of the assessee (bearing No. 59561) with Bank of Baroda, Colaba Branch. This bank account was being operated by KFL group and Shri Satyanarayan G Agarwal HUF was held to be the beneficial owner of above shares and he himself owned up the investment in such shares. But the AO added the amount of dividend income of Rs.3,12,200/- in the hands of the assessee on substantive basis, treating it as consideration received for allowing to use her name for holding the shares of KFL. The issue of investment in 1,06,600 shares of KFL (on which the dividend income of Rs. 3,12,200/- has arisen) has been discussed in great detail in my appellate order dated 24/2/2015 in the case of the assessee for A.Y. 1996-97, wherein I have held that the above bank account was being operated by KFL group and the real beneficiary of the 1,06,600 shares of KFL, purchased in the name of the assessee through this bank account, was Satyanarayan G Agarwal HUF. The investment in these shares had already been surrendered by Shri Satyanarayan Agarwal HUF under VDIS, 1997 and such declaration was accepted by the competent authority (Commissioner of Income-tax concerned). Further, the Hon’ble Settlement Commission, Mumbai bench, vide order dated 28/3/2014 in KFL Group of cases, including Satyanarayan Agarwal HUF, also considered these shares in the name of Satyanarayan Agarwal HUF only. Further, the AO had also made addition in respect of investment in these shares only on protective basis in the hands of the assessee and substantive additions were made in the hands of Satyanarayan Agarwal HUF, which he has mentioned in the body of the impugned order. In the circumstances, it is not clear as to on what basis the AO wanted to add the dividend income in the hands of the assessee on substantive basis. There is no dispute to the fact that this bank account was being operated by Satyanarayan Agarwal HUF and KFL Group and apparently, all transactions from the same were being done by them. Therefore, it cannot be held that either the assessee received the dividend income or enjoyed such dividend income. Accordingly, the dividend income of Rs.3,12,200/- on such shares, cannot be treated as income of the assessee. Accordingly, the addition of Rs.3,12,200/- made by the AO is directed to be deleted and the grounds taken by the assessee in this regard are allowed.” Thus, in the same set of facts and circumstances the addition qua the dividend income made on protective basis has been deleted holding that substantive income has been assessed in the hands of Shri Satyanarayan Agarwal, HUF. However, when it comes to the bogus accounts operated by HUF, for which the assessee had no knowledge, about the accounts for possible estimated income as has been hypothetically added, the action of the CIT(A) is unjustified on the following grounds: i) The entire income remains assessed in the hands of Shri

Satyanarayan Agrawal, HUF, there is no dispute about it. ii) The affidavits filed by both the assessees categorically deposing that they had no idea that fraudulent accounts were opened in the name of these two lady assessees In view of these two vital factors, there is no justification in upholding part of addition on the basis of estimated possibility on hypothetical basis. The addition needs to be deleted.

i. It is undisputed that the addition in the hands of these two assessee’s were made on account of protective basis and the substantive additions in the hands of HUF remains owned up and taxes thereon paid in accordance with law. ii. The learned CIT(A) on one hand has accepted the assessee’s version in respect of dividend income but on assumption has upheld the other additions, which amounts to giving contrary findings. The order of the learned CIT(A) apropos dividend income has not been challenged by the revenue. iii. The affidavits filed by the assessees depose having no role or knowledge about the accounts, has not been controverted and stands corroborated by the above facts.

In the entirety of facts and circumstances of the case, I find no justification in the impugned additions, and are hereby deleted.

Order pronounced in the open court on this day of 30th January, 2017.