Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI SANJAY ARORA, AM & SHRI AMIT SHUKLA, JM
O R D E R Per Sanjay Arora, A. M.: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-23, Mumbai (‘CIT(A)’ for short) dated 20.01.2010, confirming the levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (A.Y.) 2005-06 vide order dated 31.3.2009. The only issue in appeal is the sustainability or otherwise in law of the penalty u/s. 271(1)(c), levied in the sum of Rs.6,08,170/-, i.e., at the minimum rate of 100% of the tax sought to be evaded.
(A.Y. 2005-06) Amish R. Kapadia vs. ITO 2.1 The brief facts of the case are that the assessee-individual, a partner in a firm, M/s. Chunnilal Mulchand & Co., was observed by the Assessing Officer (A.O.) in the assessment proceedings to have deposited a sum of Rs.16.65 lacs during the year in his bank account (with UCO Bank, Madame Cama Road Branch, Mumbai, Saving Bank account 10390). In explanation as to its source, the same was stated as withdrawals from the same bank account. A total of Rs.25 lacs had been withdrawn during the year from the said bank account, of which Rs.16.65 lacs had been deposited back, with a part of the balance of Rs.8.35 lacs, i.e., Rs.6.10 lacs, being absorbed for personal/household expenses. There was, as such, no reason to consider the same as unexplained as to its’ source. Toward the reason for such heavy cash withdrawal, it was submitted that as he was not keeping well, money had been withdrawn and kept for any emergency requirement. As regards the reason for its’ deposit back, it was submitted that as he had recovered from illness, the money was deposited back in December, 2004. With regard to the withdrawals for personal/house-hold purposes, the same were stated to be in the range of Rs.40,000/- to Rs.50,000/- p.m., including the expenditure for general treatment and medicines. The said explanation did not find favour with the Revenue. The disease for which the assessee had been operated upon in December, 2005, i.e., ‘BIL Varicose Veins’, was, as per the diagnosis, a year old, and not since 1998, as stated by the assessee. The medical treatment, which was estimated to cost Rs.1.02 lacs by the (Jaslok) Hospital, was covered by a cash-less insurance policy. As the assessee, however, failed to produce the medical bills – which were settled directly by the insurance company, there was a distinct possibility of the expenditure incurred being in excess of the stated amount of Rs.1.02 lacs. There was, in any case, no need for the assessee to maintain such a huge cash balance (Rs.17.95 lacs/PB pg.2) and, further, continue to withdraw the same during the year. Also, the assessee has not maintained any cash- book, and there was no basis for stating the opening cash balance at Rs.3.75 lacs, which could, in any case, be estimated only on the basis of cash withdrawals during (A.Y. 2005-06) Amish R. Kapadia vs. ITO the preceding year as well as the total expenditure for house-hold/personal as well as medical expenses for the said period. Addition was, accordingly, made and confirmed at Rs.16.50 lacs; the A.O. accepting the cash deposit of Rs.15,000/- (made on 13.12.2004). The matter travelled up to the Tribunal, which confirmed the addition vide order dated 09.10.2009 (in the relevant part of which, extracted at para 2.3 of the impugned order, is reproduced as under: “considering the material on record and the circumstances on the case in our view the statement of the assessee that he had made huge withdrawals for emergency medical requirements and had deposited the same later cannot be accepted as reliable. Before the lower authorities the assessee explained that he was suffering from varicose veins. Before us it has been submitted that the assessee was also suffering from fear psychosis but no such claim had been made before the lower authorities nor the claim is supported by any evidence. The claim therefore cannot be accepted. The assessee in the year 2005 had undergone major treatment for varicose vein but the expenditure of Rs.1,02,000/- had been settled by the Insurance Company and no withdrawal was required. The assessee it is claimed had been treated for the same disease in August 2004 but no details of expenditure had been given. The disease is not such which requires emergency withdrawal of Rs.10 lacs on one day on 18.08.2004 followed by further withdrawal of Rs.6,65,000/- on 19.08.2004. Such heavy withdrawals are made for specific requirements. For arriving at a finding whether the assessee had made those withdrawals for emergency medical requirements or for making some undisclosed investments, the revenue authorities are entitled to look into the surrounding circumstances and Courts and Tribunals are required to evaluate the material placed before them after applying the test of human probabilities as held by Hon'ble Supreme Court in case of Morvi Industries (82 ITR 835). Considering the changing stand of the assessee and the nature of illness and the entirety of facts and circumstances, we agree that the conclusion drawn by the lower authorities that the withdrawals of Rs 10 lacs and Rs 6.65 lacs by the assessee had been utilized for undisclosed purposes and were not available for re-depositing the same in December, 2004. For the same reasons we also find reasonable the decision of lower authorities in rejecting the claim of the assessee that he was having opening cash balance of Rs 3,75,000/- on 01/04/2004 out of which deposits of Rs.2,50,000/- have been made on 30/07/2004. In case the (A.Y. 2005-06) Amish R. Kapadia vs. ITO assessee was having opening cash balance of Rs.3,75,000/-, there were no reasons for making regular cash withdrawals in subsequent months which is clear from the details at Page 2 of the order. However, the deposits of Rs.15,000/- on 12/12/2004 considering the smallness of the amount is easily explained from the monthly withdrawals in the preceding months. We therefore accept the source of deposit of Rs.15,000/-, but confirm the additions made on account of deposits of Rs.2,25,000/- (*), Rs 9,00,000/- and Rs.5,00,000/- on different dates. Accordingly we confirm the additions of Rs.15,60,000/- (@)." [(*) Rs.2,50,000/- (@) Rs.16,50,000/-] 2.2 Penalty proceedings, initiated on the passing of the assessment order on 24.12.2007, were while proceeded with on the confirmation of the assessment by the first appellate authority. The assessee’s explanation was completely un-evidenced and, besides, not consistent with the preponderance of probabilities. He, accordingly, levied penalty u/s. 271(1)(c) at the minimum rate of 100% of the tax sought to be evaded, relying on the following decisions: CIT vs. M/s. Dharmendra Processors [2008] 306 ITR 277 (SC); CIT vs. A. Sreenivasa Pai [2000] 242 ITR 29 (Ker); Addl. CIT vs. Bhartiya Bhandar [1980] 122 ITR 622 (MP); Western Automobiles (India) vs. CIT [1978] 112 ITR 1048 (Bom); and Durga Timber Works vs. CIT [1971] 79 ITR 63 (Del). The same was confirmed by the ld. CIT(A), meeting the assessee’s argument of both sections 68 & 69 being not applicable, relying on the order by the tribunal on quantum and finding the case law cited by the A.O. as relevant and applicable. Aggrieved, the assessee is in second appeal.
We have heard the parties, and perused the material on record. 3.1 At the outset, we may consider the preliminary argument of the ld. AR that in- as-much as the A.O. states that the addition made is u/s. 68/69, i.e., without specifying a particular section, the assessment and, consequently, the penalty proceedings are bad in law. Section 68, he would continue, is clearly not applicable – the assessee not (A.Y. 2005-06) Amish R. Kapadia vs. ITO maintaining any personal books of account. The argument only needs to be stated to be rejected. Section 69 is clearly applicable in the admitted facts of the case, i.e., cash deposit in the assessee’s bank account. In fact, the very fact that the argument does not address the application of section 69, the other section stated by the AO, which is clearly applicable in the undisputed facts of the case – the cash deposit in the assessee’s bank account, i.e., is incomplete, is itself a tacit admission of the said provision, which mandates for the deeming of the impugned deposit as income where not satisfactorily explained as to its source, being applicable. Further, as clarified by the Hon’ble Apex Court in L. Hazari Mal Kuthiala vs. ITO [1961] 41 ITR 12 (SC), the exercise of power by an authority is referable to a provision that validates it rather than one which makes it unworkable or invalid. The non-mention, or reference to a wrong, section/provision would thus not operate to invalidate otherwise valid proceedings or exercise of power – the assessee being called upon to explain the source of the impugned cash deposits. Rather, in our clear view, the mention of section 68, which is superfluous, even if regarded as a commission, is saved by the provision of section 292B of the Act.
3.2 The basis for the levy and confirmation of penalty by the Revenue is that no plausible explanation for cash retention (for 4 ½ months, i.e., from mid August to end December, 2004) and, in turn, for the cash deposit/s in the assessee’s bank account, admittedly by the assessee himself, has been furnished by him, much less substantiated, with the addition being since confirmed by the tribunal, the final fact finding body. No improvement in his case, i.e., on facts, stands made by the assessee, whose explanation for cash retention (of withdrawals), the stated source of cash deposit/s (in the bank), continues to be the same in the penalty proceedings, i.e., as in the quantum proceedings.
3.3 We begin by examining the date-wise profile of the cash withdrawals and deposits during the year, which is as under: (Amount in Rs.)
(A.Y. 2005-06) Amish R. Kapadia vs. ITO Date Withdrawals Deposits 30.4.2004 50,000 27.5.2004 10,000 05.6.2004 15,000 10.6.2004 40,000 02.7.2004 20,000 10.7.2004 50,000 15.7.2004 15,000 23.7.2004 15,000 30.7.2004 2,50,000 18.8.2004 10,00,000 19.8.2004 6,65,000 27.8.2004 40,000 02.9.2004 50,000 04.10.2004 30,000 11.10.2004 20,000 28.10.2004 50,000 30.10.2004 45,000 08.11.2004 20,000 09.11.2004 30,000 13.12.2004 15,000 30.12.2004 9,00,000 31.12.2004 5,00,000 28.01.2005 30,000 31.1.2005 50,000 05.2.2005 1,00,000 10.2.2005 20,000 17.2.2005 10,000 21.2.2005 50,000 21.2.2005 25,000 21.2.2005 50,000 Rs.25,00,000 Rs.16,65,000 Our first observation in the matter is that the assessee has withdrawn Rs.3.35 lacs after 31.12.2004, the last date of cash deposit. The explanation as to the withdrawal being the source of deposit/s would be valid only for the withdrawals made prior to the date/s of deposit/s, so that withdrawals, as a possible source of deposits, is valid only for Rs.21.65 lacs (Rs.25 lacs - Rs.3.35 lacs). Further, the (A.Y. 2005-06) Amish R. Kapadia vs. ITO assessee, though does not maintain any day-to-day cash-book, claims an opening cash balance (as on 1.4.2004) at Rs.3.75 lacs (PB pgs. 1 – 3), which did not find acceptance by the Revenue. We agree that in the absence of details as to cash withdrawals and deposits during the immediately preceding year, the claim as to the opening balance cannot be verified or opined upon. In fact, the cash utilized for personal/household purposes would also have to be factored there-into. Why, we wonder the assessee could not furnish, similarly, the said details for the immediately preceding year as well. Continuing further, the cash utilized for personal/household purposes for the months of April to July 2004 is admittedly at Rs.1.90 lacs (PB pgs. 1 – 2), which we accept in-as-much as the AO has not made any addition on account of low or inadequate household/personal withdrawals. This would, accordingly, consume almost the entire withdrawal of Rs.2.15 lacs made from during this period. In fact, another Rs.40,000/- to Rs.50,000/- would be required toward such monthly expenses for the month of August 2004, being generally drawn at the beginning of the month, so that the surplus of Rs.0.25 lacs (2.15 lacs -1.90 lacs) can be regarded as toward the same. The explanation of the withdrawals being the source of the deposit would thus not hold for Rs.2.50 lacs deposited in bank account on 30.7.2004. The explanation offered (qua this deposit) is not valid; rather, cannot be under the circumstances regarded as an explanation at all. The penalty in respect of the addition to this extent thus stands rightly levied, and is accordingly confirmed.
3.4 We next consider the second block of withdrawals (for Rs.19.50 lacs), i.e., beginning August 18, 2004, up to 09.11.2004. The next withdrawal being only in end January 2005, the withdrawal would firstly go to finance the personal/household withdrawals for this period, which is admittedly at Rs.3.10 lacs (PB pages 2-3). The cash deposit of Rs.15,000/- (on 13.12.2004) having been accepted as out of these withdrawals, the cash consumed out of such withdrawals, allowing for the excess (Rs.0.25 lacs) available (as on 01.8.2004), works to Rs.3.0 lacs, leaving a balance of (A.Y. 2005-06) Amish R. Kapadia vs. ITO Rs.16.50 lacs with the assessee. This is sufficient to cover the next deposits, made in December 2004, at Rs.14 lacs. The bulk of the withdrawal (i.e., at Rs.16.65 lacs) is, as in the case of cash deposits, spread over two consecutive days in August 2004, representing in fact the first withdrawals for this block of withdrawals (August to Dec., 2004). It is quite clear that the withdrawals, confined in the main to two consecutive dates, is for a purpose, even as opined by the tribunal in quantum proceedings on a consideration of the facts and circumstances of the case. We are not inclined to agree or believe that the same is either for safe-keeping or for an emergent situation, the tribunal also observing of the assessee’s medical problem being not such as would require cash (cost) to that extent. That could in fact at best explain a withdrawal/retention of Rs.1 lac to 3 lacs; the assessee in fact retaining Rs.2.5 lacs (Rs.16.50 lacs - Rs.14 lacs) out of these withdrawals. Further, the cash withdrawals continue unabated, in sums ranging from Rs.20,000/- to Rs.45,000/-, at regular intervals of time upto 09.11.2004, adding to Rs.2.85 lacs, underlining clearly that the earlier cash withdrawal of Rs.16.65 lacs (on August 18 & 19, 2004) was for a specific purpose/s. Or is it that amount to this extent (Rs.2.50 lacs) stands expended, so that balance Rs.14 lacs was deposited on 30/31.12.2004? In fact, withdrawal of cash in such huge amounts is a tedious and cumbersome affair, besides entailing risk. The assessee is a businessman, who well understands the opportunity cost of funds. His interest income from the partnership for the relevant year is at a meager Rs.3,000/- (refer pg. 4 of the assessment order), so that funds of the firm stand, as it appears, diverted, resulting in either loss of business or met by incurring borrowing (at a cost). Continuing further, even if such huge expenditure is contemplated, of which there is no evidence – why we wonder the same could not be adequately substantiated or in fact even met through the banking channel, viz. bankers’ cheque or demand draft, being only a matter of a couple of hours, if not a few minutes. The assessee is under regular medical treatment, so that a medical emergency is almost ruled out in- as-much as a serious condition would not, normally speaking, arise suddenly, and (A.Y. 2005-06) Amish R. Kapadia vs. ITO where so expected, would stand to be documented. The assessee, in any case, has a cashless insurance policy, as clearly stated in its’ orders by the Revenue, as well as emphasized by the ld. Departmental Representative (DR). No disease, not covered by the insurance policy contracted, has been brought on record or even to our notice. Even the assessee’s case qua medical treatment is sans any details, which, where so, would be fully evidenced in-as-much the treatment would be well-documented and from a credible source. The question however that arises is: Is it necessary for the assessee to disclose the purpose of his withdrawals to the Revenue where he claims the same has not been consumed and, further, considering that the period of retention is from 4 to 5 months. We think not. The same may, for example, be with the intent to invest in a property or extend a hand loan (by the assessee) to a close person for an emergency or for some other purpose he does not wish to disclose to the Revenue, which has no clue if the amount was actually expended. The period is not large, so that the Revenue’s case is based largely on a suspicion. The assessee being a partner in a partnership firm, it is also not its’ case that any transaction/s of the firm is doubtful and of which the assessee could as a partner be a beneficiary. These are surrounding facts and circumstances, which have a bearing in the matter, even if not direct. When the question is with regard to the validity of an explanation, the same could only be considered having regard to the entirety of the facts and circumstances. That is, there is nothing on record to suggest either the cash withdrawn being consumed (to the extent of Rs.16.50 lacs), so as to be not available with assessee in end-December, 2004, whereat Rs.14 lacs was deposited, or of a possible source of funds (income) with the assessee, as from the partnership; sale of property, etc. Once, therefore, the assessee has given a plausible source, i.e., the withdrawal from his bank account, the Revenue cannot insist on him divulging the purpose for which the same was withdrawn, or else it shall be regarded as consumed. Of-course, we do not intend to, or make, when we state so, an absolute statement, but only one having regard to the (A.Y. 2005-06) Amish R. Kapadia vs. ITO entirety of the facts and circumstances of the case. As afore-stated, there are mitigating factors, viz. the retention period; no possible source of income being indicated, etc., which have prevailed with us in making the said statement in the present case. Why, the assessee states of the medical emergency, for which cash was withdrawn, having subsided, leading to its deposit in the account – an explanation, though not substantiated, has not been controverted.
3.5 So, however, the tribunal, while deciding the quantum proceedings, has found that the assessee was treated for the same disease in August, 2004, the details of expenditure on which have not been furnished by him. This is a very important and relevant fact. The same is not disputed; why, would have rather originated from the assessee himself and, further, has been taken into account by the tribunal in deciding the assessee’s case on quantum. The same in fact stands corroborated by documents furnished in respect of the assessee’s operation (for Varicose Veins) in December, 2005, which states of his medical condition (problem) having a history of a year (refer para 8 of assessment order and para 2.3 of impugned order). The credibility of the information is, in any case, not in doubt. If that be so, it becomes incumbent both for the assessee to reveal the truth of the matter. The Revenue is also required to satisfy itself with regard to the veracity or the truth of the assessee’s explanation. What was the treatment undertaken by the assessee in August, 2004, which coincides with the date/s of the first withdrawal/s; the balance withdrawal (Rs.2.85 lacs) being in fact for minor amounts. Was the assessee hospitalized (implying an indoor treatment), or underwent any medical treatment during this period, i.e., August to December, 2004, whereat (Dec.,2004), the cash is deposited in bank. What was the cost of such treatment or the expenditure involved, even as noted by the tribunal. This fact, which agrees with the assessee’s explanation of the cash deposited representing the unutilized sum of the withdrawals made for an imminent medical condition, materially changes the complexion of the entire case (also refer paras 2.1, 3.2 & 3.4 of this (A.Y. 2005-06) Amish R. Kapadia vs. ITO order). We, accordingly, only consider it fit and proper that the assessment qua the addition of Rs.14.00 lacs is restored for consideration of this aspect of the matter back to the file of the AO. If the assessee fails to lead evidence, either disproving of any treatment having been undertaken during this period, i.e., August to December 2004, or the expenditure thereon being not more than Rs.2.50 lacs, which still remain with him in surplus, an addition for the unexplained cash deposit (i.e., to the extent that remains unexplained as to its source) would ensue. The AO shall decide the matter rendering definite findings of fact.
3.6 Both the sides have sought to rely on case law. The matter, as shall be apparent from the foregoing discussion, is purely and principally factual, with a view as to the acceptability of the assessee’s explanation being required to be taken on the anvil and upon a consideration of the entirety of the facts and circumstances of the case. Our earlier finding of the assessee’s explanation of the cash withdrawn (from his bank account) as the stated source of cash deposits, made after 4 ½ months, as acceptable even in the absence of a proper explanation or the substantiation of the purpose of withdrawal (in-as-much as the same could not be without any purpose), assumes a different complexion upon considering that the assessee had, as noted and considered by the tribunal, undergone a medical treatment in August 2004, whereat the cash was, in the main, withdrawn, with this being in fact the assessee’s explanation toward the reason for such heavy cash withdrawals. The acceptability or otherwise – in whole or in part, of the assessee’s explanation thus hinges critically on this fact and the concomitant expenditure incurred thereat. It may well be that the assessee spent the surplus (Rs.2.50 lacs) or similar amount on the said treatment, depositing the balance (Rs.14 lacs) in end-December, 2004, upon full recovery, so that there was no imminent need for cash. If the operation, which is stated to be for the same problem, costs Rs.1.02 lacs a year later, the same would cost the assessee – who is even otherwise covered by insurance, a similar amount – with we observing the assessee to (A.Y. 2005-06) Amish R. Kapadia vs. ITO have funds – despite the deposits, cash at Rs.2.50 lacs for the purpose. The question, however, is: Why does not the assessee state so, revealing the truth of the matter? Is it that only a balance of Rs.15,000/- was left with the assessee after the treatment, which he deposits in bank on 13/12/2004. The facts having already been taken cognizance of, would require being substantiated and cannot be overlooked or dismissed as not relevant. The matter being factually indeterminate, has been accordingly restored back, i.e., with regard to the explanation for Rs.14.00 lacs deposited in December, 2004. This also explains our non-reference to any case law, even as the law in the matter is well settled by a series of decisions by the Hon’ble Apex Court, to some of which we may refer, in illustration, viz.: Mak Data (P.) Ltd. vs. CIT [2013] 358 ITR 593 (SC); Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC); K.P. Madhusudhanan vs. CIT [2001] 251 ITR 99 (SC); B.A. Balasubramaniam and Bros v. CIT [1999] 236 ITR 977 (SC); Addl. CIT vs. Jeevan Lal Shah [1994] 205 ITR 244 (SC); besides by the hon’ble high courts as well, as CIT vs. Nathulal Agarwala & Sons [1985] 153 ITR 292 (Pat)(FB). As abundantly clarified, a plausible explanation saves penalty. It is the plausibility of this explanation with the assessee is required to establish. We decide accordingly.