ITA No. 3726/Mum/2009

D. Manmohan, VP And Sanjay Arora, AM

For the Appellant : None
For the Respondents : Shri Girish Dave & Ms Kadambari Dave

ORDER

Sanjay Arora, AM-Vide this Appeal the Assessee agitates the Order by the Commissioner of Income Tax (Appeal) Central-I, Mumbai ('CIT(A)' for short) dated 17.11.2008, dismissing the Assessee's appeal contesting its assessment u/s.143(3) r/w s. 147 of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2000-01 dated 19.3.2008.

2. None appeared for and on behalf of the assessee when the appeal was called out for hearing, even as the assessee has caused to place on record a General Power of Attorney dated 02.2.2010, duly accepted, in favour of one Shri Sunil Shinde, CA on record (zerox copy), authorizing him to represent the assessee before the Tribunal in, among others, Income-tax matters. Despite several attempts, no service of the notice of hearing could be affected on the assessee. The last such attempt, vide notice dated 10.4.2015 for 09.6.2015, sent through RPAD, came back unserved with the postal remarks 'Not claimed, return to the sender' on 15.4.2015. The hearing of this group of appeals, outstanding for long, was accordingly proceeded with, so as to adjudicate these appeals after hearing the party before us and considering the material placed on record by the parties, including the assessee, who has filed a paper-book containing 31 pages, and which includes written submissions before the Assessing Officer (A.O.). In addition, the assessee has also made an Application vide letter dated 01.10.2013 for admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 (containing 79 pages), which is a combined one for assessment years 2001-02 to 2007-08, through one, Shri Nand Kishore of HSA Advocates. The said application contains a letter dated 29.2.2008 by UBS AG, Zurich (a bank in Switzerland) to the Enforcement Directorate (ED) in respect of its letter dated 11.2.2008 (at PB pgs.64-65, reproduced again at pgs.66-69 of the application). Para 2 of the said letter reads as under:

'2. We have reviewed the copy of the facsimile dated 12.4.1999 purported to be from Dr. P Waely, for the attention of H.A. Khan. You have asked whether this is a genuine document and whether the veracity of the contents can be confirmed.

We do NOT believe that this document is genuine. HAK, as we have previously reported, did not maintain accounts with us at this time. We explained in our previous letters the limited nature of the HAK relationship, which came later than the date of this facsimile. As we have previously confirmed, we did employ a Dr. P. Waely, who has since retired from UBS. However, the fact that Dr. Waely's name is misspelt in the letter and that the facsimile bears the heading and marks of one of our predecessor banks “Union Bank of Switzerland”, which was no longer in existence at the date of this letter (the merger of Swiss Bank Corporation and Union Bank of Switzerland took place in 1998 and resulted in the firm's name changing to “ÜBS”), leads us to conclude that this letter is a forgery.'

The assessee has, per his application afore-referred, prayed for the admission of the said letter, among others, as additional evidence, stating the same to have come into his possession in April, 2012, much after the conclusion of the proceedings before the first appellate authority. The ld. DR would, on this being put across to him (i.e., while hearing the appeals for AYs. 2001-02 to 2007-08), object, stating that the same cannot be admitted in-as-much as the document is not notarized or apostiled. Both India and Switzerland are signatories to the Hague Convention. Banking industry in Switzerland, it needs to be appreciated, encourages opening of bank accounts, and information in their respect is protected by privacy laws of that country.

In our view, in-as-much as the document under reference clearly relates to an addition for the current year, which stands disputed by the assessee per the instant appeal, it would firstly be of little consequence that the assessee's application is for A.Ys. 2001-02 to 2007-08, i.e., the years to which the evidence in the main relates, and not the current year. Before we may discuss the merits of the objections raised by the ld. Departmental Representative (DR), we observe that the letter under reference is unsigned. Its contents, therefore, carry little weight, i.e., as evidence. The same accordingly cannot be admitted in evidence.

3. The assessment in this case was made u/s. 143(3) r/w s. 147 of the Act, with the proceedings initiated on the basis of information found by the Revenue during searches u/s.132 of the Act carried at the residences of the assessee as well as that of Shri Kashinath Tapuriah and others on 05.01.2007, continuing up to 06.1.2007. The assessee, in response to notice u/s.148 dated 23.5.2007, furnished a return declaring an income of Rs. 1,50,000/-, as income from horse betting (Rs.9,950/-) and from business (Rs.1,40,050/-). The said incomes, in the absence of any material found in relation thereto in search as well as the non-furnishing of any books of account in respect thereof by the assessee, were retained by the A.O. as such, making the following additions:

The assessee failing to make any improvement in his case; rather, exhibiting un-cooperative behavior in the appellate proceedings, the addition was confirmed (refer para 2.2 of the impugned order), so that the assessee is in second appeal, challenging each of the three additions, which we shall take up in seriatim.

Ground 1: Addition on account of Pay Orders – Rs. 1714 lacs
4. A letter dated 12.04.1999 (April 12, 1999), bearing the seal of UBS (Union Bank of Switzerland), was found during search from the residence of Kashinath Tapuriah (KT) at Kolkata (assessee's paper-book – APB pg. 3), also reproduced at para 7 (pages 5-6) of the assessment order, which reads as under:

'Kind Attn: Mr. H. A. Khan
This is to inform you that the understated Pay Orders have expired its encashment period.

Fresh Pay Orders are in the process of being issued along with the amended name of Robert & Mclean Companies Limited to Robert Mclean and Companies Limited. I shall courier these pay orders to you at the earliest. And shall be informing the courier details to you telephonically.

VERY IMPORTANT

The validity for encashment of pay orders carry a thirty calendar days. Please ensure that the fresh pay orders are encashed within the stipulated period in order to avoid the repetition of this exercise.
I sincerely regret the inconvenience caused.

Thanking you,

Yours truly,
Sd/-
Dr. P. Wiely
Chief Manager
UBS AG'

The assessee, on being questioned in the matter, denied any knowledge of the said document. No revised pay orders have been received, i.e., after 12.04.1999, or at any time later, and toward which he furnished (uncertified) copy of his bank account with Bombay Mercantile Bank at Hyderabad, which was stated to be the only bank account maintained by him. An Affidavit was also furnished averring to have no foreign bank accounts. Summons u/s. 131 of the Act were issued to the assessee, specifically enquiring about foreign bank accounts, which remained un-complied. In fact, the assessee could not be traced despite best efforts, and even the summons were served through affixture at his Mumbai address (also refer para 6.1 of the assessment order). The assessee was merely in denial mode, alleging the letter, specifically addressed to him, bearing his name as the beneficiary of one of the pay orders, to be forged. Various documents seized during search also reveal close association between him and KT, Chairman (of the Board of directors) of Robert Mclean & Co. Ltd., as well as of them indulging in cross border transactions. The document was duly signed by the Chief Manager, also giving his name, and the assessee did not lead any evidence to rebut the presumption u/s.292C of the Act (refer para 7.7 of the assessment order). The pay orders received (or receivable) by the assessee in lieu of pay orders bearing Nos. 004 07192013276543 and 004 06298027432895, i.e., the first two pay orders mentioned in the letter, were, accordingly, brought to tax as his income and, in appeal, confirmed for assessment.

5. Before us, the assessee was unrepresented in person or through an Authorized Representative (AR), relying on the contents of the paper-book referred to earlier, which also contains the written submissions before the Revenue authorities. The ld. DR vehemently argued the Revenue's case, relying on the orders by the authorities below.

6. We have heard the parties, and perused the material on record.

Our first observation is that the conversion rate of US Dollar into Indian Rupees (Rs.42.85) has not been disputed at any stage. The second observation in the matter is that of the two pay orders under reference, one is in the name of a company by the name Pan Asian Distribution Ltd. The presumption u/s.292C would, therefore, suggest that there is a company by that name, and the money represented by the said pay order is to be conveyed to it, as its' beneficiary. How could, then, one may ask, the same be considered as the payment to or on behalf of the assessee, for it to represent or be considered as his income? True, we observe no contention – which in the normal course would be the first argument by the assessee in the matter. So, however, we find nothing on record to suggest any link between the assessee and the said company, which appears to be an Indian company and is only to be regarded as a distinct legal entity. And income due to or receivable by it could be regarded as the assessee's income only on the strength of evidence which leads to the inference of it being the assessee's money, being transferred to it, or the like. There is, in fact, no mention or even a whisper in this regard, or of any association or link between the two. Clearly, no case for including the amount received or receivable by the said company (US $ 2 million) in the assessee's hands is made out.

Coming, next, to the amount paid to the assessee. Again, in view of the clear prescription of section 292C, it is the assessee who is to disprove the said document as not representing the truth. Merely denying the knowledge of the said transaction/s or stating of not having any foreign bank account, etc. would be of little assistance to the assessee. Monies are payable in India, so that the non maintenance of any bank account abroad would even otherwise be of little consequence. In fact, as clarified by the A.O., the seized material itself reveals several accounts with UBS AG, Zurich (refer para 7.7 of the assessment order). The existence or the making of the pay order (No.004 06298 027 43 2895) by UBS AG - as stated by it, in assessee's favour, is neither disputed nor could be without any controverting material. The same, in the absence of anything to the contrary, establishes the assessee's right to the said amount. As such, the amount receivable by the assessee would not cease to be so merely because the pay order, per which it was conveyed to the assessee, gets lapsed by time (stipulated for its encashment) or due to the validity of the relevant instrument having expired. The assessee's right would subsist, resulting in the relevant amount being remitted to him vide a fresh instrument, which is precisely what the letter states.

Then, it is said that the amount has in fact not been received by the assessee at any time subsequent to 12.4.1999. Why, he does not answer, and which is the next logical question that arises. The fresh pay order/s is, and as per the letter itself, which would be governed by the presumption of section 292C, i.e., with regard to the truth of its' contents, to follow. Why, rather, should it not be so, allowing for the things to take their normal, regular course? There is no explanation in this regard. The assessee's case rests on a bald statement as to the ignorance of the transaction/s, and who does not even explain as to why, or on what account, or under what circumstances, was the amount due to or receivable by him in the first place? The charge of forgery is, again, without any basis. Rather, the letter itself may have been written by the bank to officially confirm the remittance by it, i.e., at the insistence of the beneficiaries themselves. On the other hand, the Pay Orders may have been deliberately not encashed, allowing them to expire, as the assessee (payee) did not wish monies to be brought into India. For all we know, the assessee may have issued fresh instructions to the bank, which is, as apparent from the letter, in clear communication with the assessee, to whom the letter is addressed, having the details, including telephone numbers, of all the beneficiaries. The change in the name of one of the companies to its' correct name also bears out the said communication in-asmuch as the bank stands conveyed the correct name, as against the original, incorrect name, to which the original pay order (number specified), issued in the first place, was made payable, also indicating its receipt. The non-receipt of money in India, not proved conclusively, would thus not be of much help to the assessee.

Continuing further, how, one wonders, the non-receipt of the sum extinguishes the assessee's right thereto. To, again, no answer by the assessee. The assessee has in fact not divulged either its banking relationship with UBS AG, or even the activity/s resulting in or leading to the impugned amount being due to him, and which prompted us to suggest that the monies may have been diverted to a different destination. There is, in any case, nothing on record to rebut the statutory presumption of section 292C, so that it cannot be said that the earlier pay order/s was not followed, as the letter states, by fresh pay order/s. The existence of cross border transactions, or foreign bank accounts, as the seized material bears out, only strengths this presumption. Income, it is well-settled, could be brought to tax either on accrual or receipt basis. In the present case, the underlying transactions having not been divulged, much less explained, it is difficult to issue any definite finding with regard to accrual, except to state that the normal presumption is of payment following accrual. The payment is, as aforediscussed, only in the current year and, further, in one's own capacity.

Finally, would be the issue with regard to the nature of the receipt. The assessee, as would be abundantly clear by now, has not clarified the same; denying the receipt itself, which we have found as of no consequence in-as-much as the pay order stands already issued in assessee's favour, with the letter dated 12.04.1999, to which the presumption of section 292C shall apply, being issued only in view of the same having lapsed, i.e., in consequence, so that the payment shall have to be effected by issuance of a fresh pay order. It is only on its receipt that the payment could be said to have been received by the assessee. The concept of income under the Act is vast, so that anything corresponding with the notion of income or gain qualifies to be 'income'. The exception would be where the amount is received on capital account, where, again, that received/receivable on transfer of a capital asset would stand to be assessed, to the extent of the gain embedded therein, as capital gains. There is nothing to suggest that the amount is on capital account, or in lieu of a capital asset. Why, any unexplained deposit or money, etc., is, by virtue of the provisions of the Act, and for the same reason, also deemed as income. That is, the onus to establish the nature (as well as the source) of the money, i.e., as being not in the nature of income, is on the assessee, and which he has clearly not.

There is, under the circumstances, no case for or no basis to consider the impugned sum as not received (during the relevant year) and, two, of it being not in the nature of income. The assessment of the amount, sought to be paid to the assessee initially vide Pay Order (No. 004 06298 027 43 2895), as income, is, accordingly upheld. We decide accordingly, and the assessee gets part relief.
Ground 2: Addition on account of 'opening capital' – Rs. 17.29 lacs

7. The assessee's next ground is in respect of the 'opening capital', i.e., as on 31.03.1999, as reflected in the assessee's balance-sheet as on 31.3.2000, the relevant year-end, accompanying his return furnished in response to the notice u/s.148. The detail of the said capital is as under (APB pg. 9/DPB pg. 28):

The same did not find favour with the Revenue authorities. The assessee had admittedly not filed any returns since A.Y. 2000-01, i.e., prior to the initiation of the assessment proceedings for these years. The returns for A.Ys. 1990-91 to 1999-2000 (filed at Hyderabad) were for meager sums, ranging from Rs. 41,000/- to Rs. 65,000/-. Further, the same were not accompanied by any balance-sheet, capital account, etc. No books of account were produced for the current year. The assessee's claim for opening capital was under the circumstances found not acceptable.

8. We have heard the parties, and perused the material on record, including the assessee's paper-book.

The assessee's case is sans any explanation. In fact, the assessee was recalcitrant, not appearing before the assessing as well as the first appellate authority, both of whom allowed extensive opportunity to him to state his case. We observe a statement by the assessee to the effect that the jewellery and watches were ancestral, family property, the details of which are in the possession of the Department, being explained to the competent authority, who had accepted the same (refer para 26 of the letter dated 24.2.2010 to the AO/APB pgs.5-10). It is the assessing authority to whom the nature and the source of the investment has, in any case, to be satisfactorily explained. The same being submitted during penalty proceedings, much after the conclusion of the quantum proceedings before the ld. CIT(A), could not form part of the record. The least that the assessee was, even so, required to do was to advert to the relevant statement/s, or even to the relevant part of the said deposition/s, including the same in his compilation. There is no reference to the date/s thereof, or even the authority before whom the same had been made, stating to be explaining the source. We have, on our part, perused the assessee's statements recorded on oath u/s. 131 of the Act on 27.4.2007 (continued from 26.4.2004) and 01.5.2007 (APB pgs. 11-27), forming part of the paper-book. Both the statements are before the investigating authority, being ADIT (Inv.), Unit-VIII(2), Mumbai, duly signed by him as well as the assessee. There is no reference therein to the said jewellery or watches. The assessee speaks of a rich ancestry (refer answers to Q. Nos. 16-20 of his deposition u/s.131 dated 26.4.2007). That may rather be responsible for his venturing into antique business (refer answer to Q. No.15 of the said statement), also returning income therefrom. The jewellery and watches would in fact have to be identified, being ascribed to ancestry, so that they would bear mark thereof. This becomes all the more relevant as jewellery was also found from his Pune and Mumbai residences, which were subject to search, and the assessee, as it appears, is a keen watch collector as well, having been found in search to be the owner of branded watches.

The assessee's claim of having produced computerized books of account before the A.O., so that the latter's stating of him as not maintaining any books of account is incorrect, is neither here nor there. The 'opening capital' has nothing to do with the books of account for the current year. Rather, the books of account could only be of a business, while the bulk of the 'opening capital' is claimed to be in the form of assets carried over from generations, as part of the family heirloom. The books of account for the earlier years have admittedly been not produced. How and why have the same, having been acquired without incurring any cost, been valued? The income as returned for the nine years preceding the current year is meager, being not sufficient for the family even to meet two ends. Then, again, is the question of valuation. The claim of the opening capital, to the extent it relates to cash-in-hand of Rs. 5 lacs, is thus, again, without any explanation, none being even otherwise furnished. The addition is, accordingly, confirmed. We decide accordingly.

Ground 3: Addition on account of life style other expenditure – Rs. 28.50 lacs

9. We may next consider the assessee's third and final ground, which concerns an addition of Rs. 28.50 lacs. The assessee, in response to Q. Nos. 7-10 of his statement u/s.132(4) dated 05.1.2007, stated his annual earnings to be around Rs. 30 lacs, while that of his wife at around Rs. 3 lacs. He had in fact disclosed income (including the additional income) for A.Y. 2003-04 onwards exceeding Rs. 30 lacs. The average income for A.Ys. 2000-01 to 2007-08 works to around Rs. 28 lacs p.a., corroborating the figure stated per the statement u/s.132(4). The assessee had in fact staggered his income toward the later years, with that for A.Y. 2007-08 being at Rs. 139.04 lacs (out of an aggregate income of Rs. 226.07 lacs for the said years), only to avoid interest u/ss. 234A, 234B and 234C. The assessee was even otherwise found to be leading a lavish lifestyle, travelling abroad, gifting luxury cars to his relatives, etc. All this lends credence to the statement u/s. 132(4)(supra), stating his annual earning to be to the tune of Rs. 30 lacs. The assessee having, however, returned his income at Rs. 1.50 lacs only, the balance Rs. 28.50 lacs was assessed as his income for the year (refer para 8 of the assessment order). The same came to be confirmed in first appeal on the same basis; the assessee having not improved his case before the ld. CIT(A) in any manner; rather, exhibiting un-cooperative behavior, not responding to the notices of hearing issued to him time and again (refer para 3.2 of the impugned order).

10. We have heard the parties, and perused the material on record.

It is nobody's case that the assessee had been disclosing his correct or true income from year to year; rather, he had not disclosed any income from A.Y. 2000-01 onwards, i.e., prior to the initiation of the assessment proceedings for these years by issue of notices u/s.148 or, as the case may be, section 153A, with that returned for the years preceding thereto being also for paltry sums, not sufficient to make two ends meet. He, in fact, is candid about it, explaining the various assets found during search as sourced from income from his business of horse betting/racing, and for which one only needs to visit his various statements. Why, income of Rs. 226.07 lacs, as returned for A.Ys. 2000-01 to 2007-08, which works to an average annual income of Rs. 28.25 lacs, and which the Revenue therefore considers as corroborative of the assessee's own estimation of his annual income of Rs. 30 lacs, is comprised of such assets, i.e., as found with him or his near relatives, stated to be gifted thereto by him. The assessee's stating of his admission being confined only to A.Y. 2007-08, i.e., the year during the previous year relevant to which the statement u/s.132(4) was made, is thus without any merit in the given facts and circumstances of the case. At the same time, the Revenue, having already made separate additions qua the assets found, is not justified in adding, once again, based on the assessee's statement of his annual earnings. Rather, if the assessee's disclosed income agrees, on an average, with his admitted income, no case for any further addition to the income would be made out, apart from the redistribution of the said income across different years! The income in respect of an asset could only be where the assessee is found to be in its' possession – physical or constructive, or otherwise found to be its owner, i.e., based on definite evidences and materials. The same, where contested, would require being decided on the basis of an appraisal of the said materials, and the explanation/s furnished in support. Reference thereto, which, as afore-stated, comprises the assessee's returned income in the main, would thus be of no assistance to the Revenue. The income toward which an estimate could be made, i.e., which could be justified on the basis of an informed estimate, is therefore only which does not result in any tangible (or intangible) asset, viz. expenditure. The assessee surely maintains a lavish lifestyle, frequently travelling abroad, staying at prime hotels there, gifting luxury cars to relatives, etc. A person so gifting would only be maintaining some for himself, of which he is in fact found to be the owner, entailing cost. By own admission, his monthly expenditure is to the tune of Rs. 60,000/- to Rs. 70,000/- p.m. (refer answer to Q. No.12 of statement u/s. 132(4) dated 05.01.2007). The same, also noted by the ld. CIT(A), translates into a sum of Rs. 7.20 lacs to Rs. 8.40 lacs p.a. The Revenue, on its part, has not impugned the same; rather, relies on the said statement. Though the assessee subsequently, vide his statement u/s.131 dated 01.5.2007, does state that the said estimate by him was only for the current year f.y. 2006-07, and that the household expenditure earlier was much lower at Rs. 20,000/- p.m., there is nothing to indicate that his lifestyle of few years earlier was any different, or any less ostentatious. Why, the letter under reference by UBS AG is itself of April, 1999, suggesting links abroad even at that time. Rather, he shifted to Mumbai and Pune from Hyderabad, whereat he filed his returns up to A.Y. 1999-2000, so that his reference to an earlier living could, then, only be to that at Hyderabad. The said estimate, to be valid in law, has to be an informed one, taking into account the different variables or attributes on which it depends, viz. the number of family members, their living style, including expenditure on food, clothing, domestic helps, etc.; the expenditure on their education, medical bills; the number of residences being maintained; social or health clubs joined, etc. No such exercise has been attempted by the Revenue. Under the circumstances, it is only considered proper to determine the addition on account of lifestyle, including by way of maintenance, expenditure on the basis of the assessee's own estimate, and which we do at Rs. 7.50 lacs. The assessee shall be allowed credit for any sum reflected in his books of account toward the same. We decide accordingly, and the assessee gets part relief.

11. In the result, the assessee's appeal is partly allowed.