2018 (4) TMI 1054 - AT - Income Tax

Acquisition of foreign currency from undisclosed sources - addition u/s 69A - Held that - The assessee has given an initial explanation and he himself abandoned this explanation later and came out with an altogether different theory. Applying the dictum falsus in uno. Johns in omnibus , even subsequent explanation does not have any credence. Thus the explanation of the assessee with respect to receipt of gifts of US 22,000 does not deserve to be accepted. Referring to assessee s contention that explanation has been accepted by the Dy Director in Enforcement Directorate, and accordingly, the said foreign exchange is treated as explained, we have very carefully perused the said order and we are not persuaded by the reasoning or approach adopted in the I said order. It is not and it cannot be, the case of the assessee that the said order constitutes a binding judicial precedent. If at all it has any value, it can only be a persuasive value. At the cost of repetition, we may add that having perused the order, we are not at all persuaded. Nothing, therefore, turns on the order passed by the Enforcement Directorate accepting the plea of the assessee. We uphold the impugned addition to the extent the same is relatable to US 21,000, which, by adopting the conversion rate of 1 US ₹ 43.62- as adopted by the Assessing Officer, works out to ₹ 0,16.020. AO is directed to delete the balance amount out of the impugned addition. - Decided partly in favour of assessee

Issues Involved:
1. Legitimacy of the addition of ?9,46,952 under section 69A of the Income Tax Act for alleged acquisition of foreign currency from undisclosed sources.
2. Validity of the assessee's explanation regarding the source of foreign currency found during the search operation.
3. Consideration of the assessee's claim of receiving foreign currency as gifts.
4. Evaluation of the evidence and declarations provided by the assessee.
5. Impact of the Enforcement Directorate's order on the Income Tax proceedings.

Issue-Wise Detailed Analysis:

1. Legitimacy of the Addition under Section 69A:
The assessee challenged the addition of ?9,46,952 under section 69A of the Income Tax Act, which was made by the Assessing Officer (AO) on the grounds of possession of foreign currency from undisclosed sources. The AO rejected the assessee's explanation and made the addition, which was confirmed by the CIT(A). The Tribunal upheld the addition to the extent of US $21,000, converting it to ?9,16,020 at the rate of ?43.62 per US Dollar.

2. Validity of the Assessee's Explanation:
The assessee initially explained the possession of foreign currency as savings from foreign tours and gifts received by his daughter. However, during the assessment proceedings, a different explanation was provided, stating that the foreign currency was received as gifts from various individuals. The AO found discrepancies in the explanations and noted that the assessee did not mention these gifts during the search operation. The Tribunal found the explanation for small amounts of foreign currency (US $111, Euros 440, Yuan 255, Yen 2000, and UAE Dirhams 30) reasonable and accepted it, but rejected the explanation for the remaining US $21,000.

3. Assessee's Claim of Receiving Foreign Currency as Gifts:
The assessee claimed that the foreign currency was received as gifts from Kewas K Mistry, Cyrus K. Mistry, Hema K Mistry, Cherag K Mistry, and Mitul M Desai. The AO and CIT(A) found the declarations of these gifts unreliable due to discrepancies in the notarization, signatures, and dates. The Tribunal also found the story of receiving such large amounts as gifts from young individuals in the USA incredible and unsupported by contemporaneous evidence or banking records.

4. Evaluation of Evidence and Declarations:
The AO and CIT(A) noted several irregularities in the gift declarations, such as expired notary commissions, discrepancies in signatures, and lack of dates. The Tribunal emphasized the importance of human probabilities and ground realities in evaluating the genuineness of the transactions. It referred to the Supreme Court's observations in CIT v. Durga Prasad More and Sumati Dayal v. CIT, highlighting that the courts should look beyond the face value of documents and consider the surrounding circumstances.

5. Impact of the Enforcement Directorate's Order:
The assessee contended that the Enforcement Directorate had accepted the explanation regarding the foreign currency. However, the Tribunal noted that the Enforcement Directorate's order did not constitute a binding judicial precedent and had limited persuasive value. The Tribunal was not convinced by the reasoning or approach adopted in the Enforcement Directorate's order and upheld the AO's addition to the extent of US $21,000.

Conclusion:
The Tribunal partially allowed the appeal, directing the AO to delete the balance amount out of the impugned addition, except for the US $21,000 (?9,16,020), which was upheld as unexplained investment under section 69A. The Tribunal emphasized the importance of evaluating the explanation in light of human probabilities and surrounding circumstances, rejecting the assessee's claim of receiving large amounts as gifts without credible evidence.

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