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Judgment
Ms. Sonia Gokani, J.—As both these appeals of different assessment years i.e. 1999-2000 and 2000-01 arise out of the common order of the Tribunal, both are being decided by way of this common order.
The appellant-assessee, being aggrieved and dissatisfied by the order of income tax Appellate Tribunal, Ahmedabad dt. 31st March, 2010 ("Tribunal" for short) has preferred the present appeal under s. 260A of the IT Act, 1961, (hereinafter referred to as "the Act") proposing the following questions of law for determination of this Court:
Issues arising in Tax Appeal No. 1762 of 2010:
(A) Whether on the facts and in the circumstances of the case. Tribunal was right in law in confirming the addition of Rs. 1,42,845 in respect of gift received from Shri Biral Patel as unexplained cash credits as well as non-genuine?
(B) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the disallowance of set off of short-term capital loss of Rs. 2,50,000 on cancellation of agreement to sell (Banakhat)?
(C) Whether on the facts and in the circumstances of the case, the conclusion reached by the Tribunal to uphold the addition of Rs. 1,42,845 in respect of gift received from Shri Biral Patel is such as could have been arrived at from the material on record or is reasonable?
(D) Whether on the facts and in the circumstances of the case, the conclusion reached by the Tribunal to uphold the disallowance of set off of short-term capital loss of Rs. 2,50,000 on cancellation of agreement of sell (Banakaht) is such as could have been arrived at from the material on record or is reasonable?
(E) Whether on the facts and circumstances of the case, the Tribunal was justified in holding the gifts received from Shri Biral Patel by taking into consideration the factors which were never confronted to the appellant by the lower authorities?
Issues arising in Tax Appeal No. 1763 of 2010:
(A) Whether on the facts and in the circumstances of the case, Tribunal was right in law in confirming the addition of Rs. 12 lakh in respect of gift received from Shri Biral Patel as unexplained cash credits as well as non-genuine?
(B) Whether on the facts and in the circumstances of the ease, the Tribunal was right in law in upholding the disallowance of set off short-term capital loss of Rs. 6,50,000 on cancellation of agreement to sell (Banakhat)?
(C) Whether on the facts and in the circumstances of the case, the conclusion reached by the Tribunal to uphold the addition of Rs. 12 lakh in respect of gift received from Shri Biral Patel is such as could have been arrived at from the material on record or is reasonable?
(D) Whether on the facts and in the circumstances of the case, the conclusion reached by the Tribunal to uphold the disallowance of set off of short-term capital loss of Rs. 6,50,000 on cancellation of agreement of sell (Banakhat) is such as could have been arrived at from the material on record or is reasonable?
(E) Whether on the facts and circumstances of the case, the Tribunal was justified in holding the gifts received from Shri Biral Patel by taking into consideration the factors which were never confronted to the appellant by the lower authorities?
Heard learned counsel Mr. S.N. Divatia appearing for the appellant and with his assistance examined the record.
Facts bereft of details need reproduction at the outset. It emerges from the record that on 26th Aug., 2003 at the premises of M/s Kalgi at Old Sharda Mandir Road, Ahmedabad, police had made a raid on account of illegal cricket betting activity. Statements of one Shri Tarun D. Karia and other persons who were arrested by the police, were recorded under s. 131(1A) of the Act. It got revealed that Shri Tarun Karia was an employee of the present appellant Shri Dinesh B. Thakkar and all payments and receipts in cash were made as per instruction of appellant. The warrant of authorization under s. 132A in the name of M/s Kalgi, Shri Tarun Karia and present appellant was issued on 28th Aug., 2003, pursuant to which the cash, gold ornaments and documents were seized, which were handed over to the IT Department.
Notice under s. 153A was issued on 12th March, 2004 and on due compliance to the same, appellant filed return of income declaring its income at Rs. 1,59,480. On different occasions, notices under s. 143(2) along with questionnaires were issued since various issues had arisen. On considering the replies of the appellant to these issues, the total income of the assessee was assessed at Rs. 5,32,355 where disallowances were made of loss on short-term capital of Rs. 2,50,000 and additions were made on unexplained cash credit.
This was when challenged before CIT(A), it noted the fact that the short-term capital loss of Rs. 2.50,000 and Rs. 6.50,000 had been claimed on account of cancellation of Banakhat in respect of land transaction for the asst. yrs. 1999-2000 and 2000-2001 respectively. CIT(A) extensively heard both the sides on the issue of long-term capital gain and the loss contrived to be set off against the long-term capital gain. It upheld the disallowance of capital loss of Rs. 2,50,000 and Rs. 6,50,000 respectively for both the years. With regard to the first question of gift received from one Shri Biral M. Patel out of his NRE account. CIT(A) found no infirmity in the action of AO in addition of Rs. 1,42,845 and Rs. 12,00,000 as unexplained cash credit for both the assessment years respectively.
When challenged before the Tribunal, it dismissed the appeal of assessee-respondent vide its order dt. 31st March, 2010 and impugned order is at large before this Court formulating aforementioned question of law.
While challenging the impugned order, it is fervently argued by the learned counsel Mr. Divatia that there is apparent error and illegality committed by the Tribunal in not appreciating the substantive material presented before it. He reiteratively emphasized that the order passed without application of mind and in disregard of the material aspects presented before the adjudicating authorities surely can be termed as perverse and therefore, the same would require interference.
There are separate questions for both the appeals however, they can be considered together broadly dividing them all under two heads and resultantly as only two proposed questions namely (1) Gifts received from Shri Biral M. Patel (2) Short-term capital loss.
With regard to the addition of Rs. 1,42,845 and Rs. 12,00,000 as unexplained cash credit for both the assessment years respectively. Assessee had claimed that he received the gift from one Mr. Mahendra Ambalal Patel in the asst. yr. 1999-2000 and Rs. 12,00,000 in the year 2000-01.
AO required details of donor and evidence establishing credit worthiness of his father and power of attorney holder of Shri Biral Patel donor gave confirmation with regard to such gift. Copy of NRE account from 7th July, 1999 onwards was also filed and source of gift was conveyed being sale of certain assets in USA. AO treated the entire amount as undisclosed income on the ground that Shri Biral Patel had sent fax message stating that he was engaged in the business in the year 1999 and sold his business for sum of US $ 1,10,000 in the year 2000. AO was of the opinion that details of business activities of Shri Biral Patel prior to 1999 was not provided. Huge gifts were sent to various persons had created doubt in the minds of AO.
CIT(A) was of the opinion that there was no occasion nor any reason for making such huge gifts to the appellant, nor was there any direct confirmation by the donor and confirmation came from his father only. The letter produced by the donor did not mention quantum of gift, name of the recipients or reason for such gifts. Again in the return of income, appellant had shown non-specific activities and moreover, other strong reasons for this disbelief was the version of Shri Tarun Karia who was an employee of the appellant who had confirmed that transactions involving money laundering were carried out with the help of said donor.
It is fervently submitted by the learned counsel that money had been transferred through banking channel and it is also come from NRE account of the donor. Donation given to the wife of the present appellant has been accepted by the Department and when the documents furnished in support of such gifts have been accepted in case of other donee, Department cannot look into the source of the source nor is there any necessity that donor must have relationship or there should be reason for giving gift. He relied upon the decision of this Court in case of Murlidhar Lahorimal Vs. Commissioner of Income Tax, .
As can be seen clearly the Tribunal concurred with the findings of the both the adjudicating authorities essentially on the ground that Shri Biral Patel''s relationship with the present appellant had not been established, so much so that for love and affection or for being an acquaintance also, not an iota of evidence was furnished. Decision of Rajasthan High Court in case of Commissioner of Income Tax Vs. Padam Singh Chouhan, sought to be relied upon in the case of blood relations. Moreover, Tribunal was also of the view that merely because transfer was through banking channel that ipso facto cannot termed as gift as genuine It doubted the very source of the gift and onus since is on the appellant to prove genuineness of the gift, the Tribunal referred to the various judgements and concluded as under :
We infer from the discussion made in these judgements that Revenue authorities are entitled to consider genuineness of the transactions and to generate the veil and ascertain the truth. They are entitled to look into the surrounding circumstances to find out the realities of the transactions shown to have been entered into by the parties. The other factors e.g. relationship, occasion for giving gifts, and gifts not given by the donee to the family members of the donor etc. In the present case, also all these factors put together leave no doubt that it is a fit case where form has to be ignored and one has to go into the realities of the transaction.
As far as question of gift is concerned which was received from Shri Biral Patel-donor, considering the judgment of this Court in case of Murlidhar Lahormal vs. CIT (supra) the source of the source is not and cannot be required to be ascertained by the adjudicating authorities however, in this matter from the evidence on record authorities have question marked the very source of the gift. The same was claimed to be from Mr. Biral Patel and his sale of assets in the USA and despite attempts to establish creditworthiness of the donor, all the three adjudicating authorities were not satisfied both on the aspect of creditworthiness of the donor, on huge amount of gift having been given without rhyme or reason to the present appellant. Donor was not a relative nor had offered himself for the examination.
On over all close reading of all the orders of adjudicating authorities, it does not emerge from the record that any error is committed in appreciating the facts which were at large before them. Illegal activities of M/s Kalgi, suspicious circumstances emerging from the material, non-availability of the donor personally, confirmation of his details not personally but by his father and huge amount of gift being sent to different persons including the present appellant without any occasion and also without any relationship, connection of family of donor with the activities of present appellant, non-availability of details of activities of the donor at USA are various circumstances emerging from the record which was threadbare scrutinized to examine creditworthiness of entire transaction, and thereafter, when concurrently all the three authorities concluded against the appellant and in favour of the Revenue. With no perversity having been pointed out, the issue merits no acceptance.
With regard to the addition of Rs. 2,50,000 claimed by way of short-term capital loss for the asst. yr. 1999-2000 and Rs. 6,50,000 in the asst. yr. 2000-2001, what gets revealed from the record is the agreement termed as "Banakhat-nama" entered into by the appellant with certain land owners. The appellant paid advances of Rs. 2,50,000 in the asst. yr. 1999-2000 and Rs. 6,50,000 in the asst. yr. 2000-01 to the land owners. Subsequently, this "Banakhat-nama" was cancelled and the advance given by the assessee were forfeited by the land owners as there was failure on the part of appellant to get the land registered in his name. This was claimed as "short-term capital loss" seeking set off against the "long-term capital loss (sic--gain)" arising out of the sale of diamonds disclosed by the appellant under the Voluntary Disclosure Scheme (VDIS) being the sum of Rs. 2,32,429 and Rs. 6,40,577 respectively in asst. yrs. 1999-2000 and 2000-01. This entire transaction was found by the AO to be non-genuine and too much of a coincidence. In fact, the same was found to be contrived loss only with a view to off set the long term capital gains arose on account of sale of diamond and jewellery. Accordingly, AO disallowed such claims.
CIT(A) also doubted seriously credibility and legitimacy of such documents, original of which were missing. Affidavit were also found to have been prepared in slip shod manner.
Before the Tribunal when this was argued at length, it held that no capital loss would be allowed if it is more than the cost of an assets. It also noted that there could be transfer of asset by the assessee and in the entire transaction of forfeiture of advances, no assets are owned by the assessee and nothing is transferred. In absence of any tangible, or intangible asset, by mere agreement with the alleged power of attorney holder of the land owners no rights get accrued examining some of the provision of IT Act. It held that for charging the capital gains or allowing the capital loss, essential requirements is of transfer of capital asset which should be effected in the previous year. The transfer as per s. 2(47) includes extinguishment of rights therein and for the extinguishment of rights, there needs to be an existence of capital asset. By detailed examination of the issue and relying on various authorities, it held that appellant was at no point of time in possession of any assets. There was no question of invoking any of the provisions of the IT Act to allow capital loss. It was also observation of the Tribunal that a colourable device was designed so as to get set off against the capital gains earned by assessee on sale of jewellery declared under VDIS. This entire exercise has been done by the Tribunal on closely examining the books of account of the appellant-assessee. Not only there are convincing reasons given by the Tribunal. It has further substantiated its logic by the provision of law and some of the decision of this Court. Analogy used by the Tribunal and other adjudicating authorities cannot be said to be conjectural in nature in as much as there was complete absence of original documents leading to establish genuineness of the transaction claimed to have been entered into by the present appellant and land owners. The device to set off capital gains earned by sale of jewellery and diamond was very apparent from the evidence on record due to contemporaneous record. We find absolutely no reason to hold any error in the detailed findings given by the Tribunal and conclusion drawn on the basis thereof. Tax appeals since are predominantly and essentially decided on the basis of the facts, with no error emerging either in the reasonings or in the conclusion drawn by the Tribunal, these tax appeals deserve dismissal. Not only question of law is absent, there is overwhelming material to establish that entire issue is in realm of facts. In light of the aforementioned discussion, tax appeals are dismissed.