2021 (6) TMI 757 - AT - Income Tax

Tribunal rules in favor of assessee, deleting penalties and dismissing appeals.

Shri Sunil Chimanlal Gandhi Versus Dy. Commissioner of Income Tax, Central Circle-8 (3), Mumbai (Erstwhile ACIT, CC-46, Mumbai And Dy. Commissioner of Income Tax, Central Circle-8 (3), Mumbai Versus Shri Nirav Sunil Gandhi And (Vice-Versa) And Dy. Commissioner of Income Tax, Central Circle-8 (3), Mumbai Versus Shri Pranav Sunil Gandhi And (Vice-Versa)

The Tribunal ruled in favor of the assessee, Shri Sunil Chimanlal Gandhi, by quashing additions made under Section 69A for an undisclosed foreign bank ... Assessment u/s 153A - addition made u/s.69A of the Act in respect of monies lying in foreign bank account as undisclosed income - HELD THAT:- Undisputed fact that there is no incriminating material found during the course of search and in view of the fact that the statement made u/s.132(4) of the Act does not constitute incriminating material, we have no hesitation in quashing the assessment made u/s.153A of the Act r.w.s.143(3) of the Act on 31/03/2015 for the A.Y.2006-07. We also find that on similar facts and circumstances in respect of Base note received from French Government and in respect of assessment completed u/s.153A of the Act, the Co-ordinate Bench of Kolkata Tribunal in the case of Bishwanath Garodia vs. DCIT [2016 (9) TMI 1365 - ITAT KOLKATA] had also held that the ld. AO cannot make any assessment u/s.153A of the Act making addition to assessee’s income in respect of amount deposited in foreign bank since assessment for relevant assessment year have already been completed u/s.143(3) Penalty u/s. 271 (1)(b) - HELD THAT:- This action of the assessee was found to be of non-cooperative attitude by the ld. AO for which penalty u/s.271(1)(b) of the Act was levied. In our considered opinion, the assessee has given a plausible explanation on the subject mentioned issue and the said explanation was not accepted by the ld. AO. However, we find that ultimately the assessments were framed by the ld. AO for all these assessment years only u/s.143(3) of the Act which goes to prove that assessee had indeed cooperated with the ld. AO for smooth completion of assessment proceedings by making some addition. Hence, we do not deem this as fit case for sustaining the levy of penalty u/s.271(1)(b) of the Act. Accordingly, the penalty levied u/s.271(1)(b) of the Act are hereby directed to deleted for A.Y.2006-07 to 2012-13. Penalty appeals u/s. 271(1)(b) of assessee allowed. Penalty u/s. 271AAA - HELD THAT:- When the only source of income is from diamond business, it could be safely concluded and inferred that assessee could have earned undisclosed income only from such businesses, hence, the second condition prescribed in 271AAA(2) i.e. substantiating the manner in which undisclosed income has been derived has been duly complied with by the assessee in the instant case. Hence, we hold that assessee is duly entitled for immunity from levy of penalty in respect of undisclosed income disclosed during the course of search in terms of Section 271AAA(2) of the Act. Accordingly, the penalty levied in the case of Shri Sunil C Gandhi is hereby directed to be deleted. Addition u/s.153A - addition u/s.69A of the IT Act made on protective basis in the case of the assessee - HELD THAT:- We find that assessee in response to the queries raised by the ld. AO confirmed that he was the beneficial owner of the foreign bank account of HSBC Bank at Geneva and that he has been operating the same since 2000. We find that assessee has also confirmed before the ld. AO that all the funds in the said bank account are in relation to his (i.e. Shri Nirav Gandhi) business activities outside India and do not represent any income from any sources in India. It was also pointed out that the said funds have duly been disclosed by Shri Nirav Gandhi while filing his tax returns in Belgium, which fact was also later confirmed by the Belgium revenue authorities. Hence, there cannot be any addition that could be made in the hands of a non-resident in respect of a foreign bank account either on substantive or on protective basis. On this preliminary ground, we are inclined to grant relief to the assessee (i.e. Shri Nirav Gandhi). We find that assessee has not preferred any appeal against the order passed by the ld. CIT(A). We find that Revenue has challenged the deletion of protective addition made by the ld. CIT(A). Since assessee is a non-resident, at the cost of repetition, there cannot be any addition in respect of a foreign bank account in HSBC Bank, Geneva in India either on substantive or on protective basis. Accordingly, the ground raised by the Revenue is dismissed. Issues Involved:1. Addition under Section 69A for undisclosed foreign bank account.2. Validity of additions in concluded assessments without incriminating material.3. Imposition of penalties under Section 271(1)(c) and Section 271(1)(b).4. Protective vs. substantive additions.5. Penalty under Section 271AAA.Detailed Analysis:1. Addition under Section 69A for Undisclosed Foreign Bank Account:The assessee, Shri Sunil Chimanlal Gandhi, contested the addition made under Section 69A of the Income Tax Act for monies lying in a foreign bank account as undisclosed income. The assessee argued that the bank account was opened and operated by his son, Shri Nirav S. Gandhi, a resident of Belgium, for his business purposes. Despite initially accepting the addition to avoid litigation, the assessee retracted this acceptance after receiving legal advice. The Tribunal found that no incriminating material related to the foreign bank account was seized during the search, and the Base Note from the French Government was not considered sufficient to justify the addition under Section 69A.2. Validity of Additions in Concluded Assessments Without Incriminating Material:The Tribunal emphasized that no addition could be made in a concluded assessment in the absence of incriminating material found during the search. This principle was supported by the decisions of the Hon'ble Delhi High Court in CIT vs. Kabul Chawla and the Hon'ble Jurisdictional High Court in CIT vs. Continental Warehousing Corporation. The Tribunal quashed the assessments made under Section 153A read with Section 143(3) for the assessment years 2006-07 and 2007-08 due to the lack of incriminating material.3. Imposition of Penalties under Section 271(1)(c) and Section 271(1)(b):Since the quantum assessments were canceled, the concealment penalties under Section 271(1)(c) for the assessment years 2006-07 and 2007-08 were also deemed to have no basis and were accordingly deleted. Similarly, penalties under Section 271(1)(b) for non-cooperation by not signing the consent waiver form were deleted. The Tribunal found that the assessee had provided a plausible explanation for not signing the form, asserting that he had no ownership or interest in the foreign bank account.4. Protective vs. Substantive Additions:For the cases of Shri Nirav Sunil Gandhi and Shri Pranav Sunil Gandhi, the Revenue made protective additions of the same amount added substantively in the hands of Shri Sunil Chimanlal Gandhi. The Tribunal held that since Shri Nirav Gandhi was a non-resident and the funds in the foreign bank account were related to his business activities outside India, no addition could be made in his hands either substantively or protectively. Similarly, Shri Pranav Gandhi was not obliged to explain the funds in the foreign bank account, and hence, no addition could be made in his hands.5. Penalty under Section 271AAA:For the assessment year 2012-13, the Tribunal found that the assessee, Shri Sunil Chimanlal Gandhi, had disclosed the unexplained cash and jewelry found during the search in his return of income. The Tribunal held that the assessee had satisfied the conditions stipulated under Section 271AAA(2) for immunity from penalty, as he had disclosed the income in his statement under Section 132(4), substantiated the manner in which the income was derived, and paid the taxes due. Consequently, the penalty under Section 271AAA was deleted.Conclusion:The Tribunal allowed the appeals of the assessee for the assessment years 2006-07 and 2007-08, quashing the additions made under Section 69A and deleting the penalties under Sections 271(1)(c) and 271(1)(b). The appeals of the Revenue for protective additions in the cases of Shri Nirav Sunil Gandhi and Shri Pranav Sunil Gandhi were dismissed. The penalty under Section 271AAA for the assessment year 2012-13 was also deleted.