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TMI Blog2025 (2) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... ate particulars. She submitted that withdrawal of money from the partnership firm M/s. Nirmal Enterprises and the consequent reduction in capital balance to Rs. 17,45,000/- was reflected in the capital accounts and the income return. She submitted that once primary facts were disclosed, it was up to the Assessing Officer to decide what inferences could be drawn from them. She submitted that because no such inferences were drawn, no case was made out for imposing any penalty upon the Appellant. She relied on Calcutta Discount Co. Ltd. 41 ITR 199-202, 207 (SC), Ananta Landmark Pvt. Ltd. 439 ITR 168, 179 (Bom) and Mangalam Publications vs CIT 461 ITR 159, 190. 5. Ms. Vissanji submitted that the Income Tax Appellate Tribunal (ITAT) erred in relying upon the provisions of Explanation-1 to Section 147 of the Income Tax Act, 1961 (IT Act, 1961) to hold that mere production of books of account did not amount to disclosure. She submitted that Explanation-1 applied only to books or other documents produced before the Assessing Officer. The balance sheets and other documents which the Appellant had filed along with the return of income were not books of account to which Explanation-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant and against the Revenue. 11. Mr. Devvrat Singh, the learned counsel for the Respondent, defended the ITAT's order based on the reasoning reflected therein. He submitted that no substantial question of law arises in this Appeal and that, in any event, such question should be answered against the Appellant and in favour of the Revenue. 12. Mr. Singh submitted that by the ITAT's order dated 22 February 1993, disposing of ITA No. 3330/BOM/88 and ITA No.5910/BOM/91, the ITAT confirmed the addition of Rs. 52,92,218/- to the Appellant's income after recording a finding of fact that the transaction with the firm Nirmal Enterprises was only a device to evade tax. He submitted that this addition has attained finality. He submitted that even the findings of suppression of material facts have attained finality in the quantum proceedings. He, therefore, submitted that there was no error in the ITAT's order imposing penalty and the substantial question of law should be answered against the Appellant. 13. Mr. Singh submitted that the Appellant's case was squarely covered by the decision of the Hon'ble Supreme Court in CIT vs Sunil Siddharthbhai 156 ITR 509 (SC). Based upon this pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the tax due on such amounts was never paid. Accordingly, he brought the amount of Rs. 52,92,218/- to tax as profit on transfer of stock-in-trade to M/s Nirmal Enterprises. 22. Aggrieved, the Appellant appealed to the Commissioner of Income Tax (Appeals). The Appeal was allowed, and the addition of Rs. 52,92,218/- ordered by the Assessing Officer was deleted. The Revenue appealed to the ITAT, challenging the Commissioner of Income Tax (Appeals)'s order dated 30 March 1988. The Appellant also appealed the same order, arguing that the powers under Section 263 should not have been exercised. 23. The ITAT, by its order dated 22 February 1993, allowed the Revenue's Appeal but rejected the Appellant's Appeal against the order under Section 263 of the IT Act. 24. The record also shows that the Appellant sought a reference to this Court, which the ITAT rejected on 10 January 1994. The Appellant filed Income Tax Application No. 43 of 1994 before this Court in which Rule was made absolute in respect of Q.1 only by order dated 29 March 1996. However, Ms Vissanji admitted that this matter was not pursued any further, as a consequence of which the assessment on quantum has attained fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k disclosure. The events were so arranged that the Appellant enjoyed the benefits of these amounts without paying any tax on them. 30. The Assessing Officer and the ITAT recorded categorical findings of fact about how the very constitution of the firm and the transactions with it was a device or subterfuge to evade taxes. The Assessing Officer and ITAT have recorded findings about the concealment of the crucial factor of withdrawal of amounts, including, in particular, the timelines of the withdrawals. The Assessing Officer and the ITAT have held that some reference in the capital account filed along with the return did not amount to a candid disclosure of all the material facts or the crucial facts of withdrawals and the timelines of such withdrawals. The ITAT held that the Appellant attempted to pass off the facts as similar to those in the case of Hind Construction (supra) by suppressing the vital distinction i.e., that the Appellant not only wrote up the value of the asset and brought the same into the firm M/s Nirmal Enterprises as its capital at an enhanced value but also withdrew the monies almost equal to the value of the asset within an extremely short span of time. 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ored. This was a case where the Explanation offered by the Appellant was found to be patently false. In any event, the Appellant failed to substantiate or demonstrate that such Explanation was bona fide. As noted earlier, the addition to the Appellant's income has already attained finality. Based on these factors, the minimum penalty imposed upon the Appellant warrants no interference. 36. The facts in the Jamnalal Sons Ltd (supra) case are also not similar in material respects to the Appellant's case. The Appellant's defence leaves too many questions unanswered and unexplained. This was a case where the asset was revalued substantially within a short period of its acquisition and development. This revalued asset was introduced in the firm, and within a short period, the Appellant withdrew a very substantial portion of its investment. The Appellant abruptly retired from the firm even before the project for which the firm was constituted could be completed. A false defence was raised regarding the withdrawals or the source from which such withdrawals were possible. There was hardly any increase in the firm's work in progress. None of these factors were involved in Jamnalal Sons Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gain, it will be open to the income-tax authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham transaction and, even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain. The Income-tax Officer will be entitled to consider all the relevant indicia in this regard, whether the partnership is formed between the assessee and his wife and children or subnstantially limited to them, whether the personal asset is sold by the partnership firm soon after it is transferred by the assessee to it, whether the partnership firm has no substantial or real business or the record shows that there was no real need for the partnership firm for such capital contribution from the assessee. All these and other pertinent considerations may be taken into regard when the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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