High Court Of Bombay
CIT, Central-III vs. Nirav Modi
Section 68, 263
Assessment Years : 2007-08 And 2008-09
M.S. Sanklecha And A.K. Menon, JJ.
IT Appeal Nos. 117 And 119 Of 2014
June 16, 2016
1. Both these Appeals under section 260-A of the Income-tax Act, 1961 (the Act), assail the common order dated 20th March, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal), for the Assessment Years 2007-08 and 2008-09.
2. The Revenue urges only the following common question of law for our consideration:
“Whether on the facts and in the circumstance of the case and in law, the Tribunal was correct in cancelling the order u/s. 263 and in passing the said order whether it was justified in relying upon the decision of this Court in the case of CIT v. Gabriel India Ltd.  203 ITR 108?”
3. It is an agreed position between the parties that the issue for consideration in both the Assessment Years is identical i. e. the receipt of gifts from abroad However, the only distinction, in facts is that for Assessment Year 2007-08, there is only one donor i. e. Deepak Modi (father of the Respondent-Assessee) while for Assessment Year 2008-09, besides Mr. Deepak Modi, the sister of Respondent i.e. Mrs. Purvi Mehta is also a donor of gifts to the Respondent-Assessee.
4. Brief Facts
(a) Assessment Year 2007-08:â
(i) The Respondent-Assessee had filed his return of income for Assessment Year 2007-08, declaring an income of Rs.50.43 lakhs. The Respondent-Assessee had claimed an amount of Rs.7 crores as gift from his father – one Mr. Deepak Modi (Non-Resident Indian, citizen of Singapore, presently residing in Belgium for the last 40 years). During the course of Assessment Proceedings, the Assessing Officer for the purposes of establishing the identity, source and financial capacity of the donor, called upon the Respondent-Assessee to submit the following details:-
(a) Please furnish name and address of the persons who made gift;
(b) Please furnish details of gifts received in last three years in the name of self and dependants;
(c) Please prove the creditworthiness of Shri Deepak Modi.
(ii) In response, Respondent-Assessee filed the following details:-
(a) Details of gifts received in last 3 years;
(b) Gift confirmation letter from father Shri Deepak Modi dated 30.11.2009, inter alia, pointing out that the gift has been given by him out of his income from M/s. Chang Jiang S.A. of which he is the sole beneficial owner;
(c) Note on creditworthiness of father Shri Deepak Modi;
(d) Creditworthiness of father Shri Deepak Modi given by UBS AG Singapore;
(e) Copy of passport of father Shri Deepak Modi;
(f) Copy of Bank account (NRE A/c.) of father Shri Deepak Modi with Union Bank Nariman Point branch in the name of Deepak Modi.
(iii) The Assessing Officer, on examination of the above and the explanation offered by the Respondent-Assessee was satisfied about genuineness of the gifts. Therefore, in his Assessment Order dated 31 December 2009 does not disturb the claim made by the Respondent-Assessee in respect of the gift received from abroad for the Assessment Year 2007-08.
(b) Assessment Year 2008-09:â
(i) The Respondent-Assessee filed his return of income declaring an income of Rs.6.08 crores. The Respondent-Assessee had claimed an amount of Rs.20.50 crores as gifts received by him from his father – Mr. Deepak Modi and Rs.116.60 crores received from his sister – Mrs. Purvi Mayank Mehta (NRI – resident of Hong Kong and citizen of Belgium). Identical queries were made during the Assessment Proceedings as were made during the Assessment proceedings for Assessment Year 2007-08 in respect of gift received from his father and also sister in the subject Assessment year. Details similar to that filed during the assessment proceedings for the Assessment Year 2007-08 were also filed in respect of gift received during the Assessment Year 2008-09 received by the Respondent-Assessee from his father – Mr. Deepak Modi. In particular a communication dated 10th December, 2010 received from Deepak Modi was also filed with the Assessing Officer pointing out that he is holding Bank Account with UBS AG Singapore, jointly with his daughter Mrs. Purvi Mayank Mehta, from where the funds have been credited to his NRE A/c with Union Bank of India Mumbai. Copies of bank statements of UBS AG Singapore and the NRE A/c with Union Bank of India, Mumbai were furnished. In the above letter, he reiterates that he is the beneficial owner of Chang Jiang S.A. Singapore, an investment company which trades in equities and bonds. Also enclosed was a letter of reference issued by UBS Singapore Branch certifying the establishment of investment fund in Singapore of more than Rs.50 crores. The gift of Rs.20.50 crores came from the above investment funds by being transferred to NRE A/c with Union Bank, Mumbai;
(ii) So far as gift of Rs.116.60 crores received from his sister is concerned, the Respondent-Assessee filed confirmation letter received from his sister Mrs. Purvi Mayank Mehta. This letter inter alia provided details of her identity by giving her PAN and the fact that she is assessed as an Non-resident Indian in India being a resident of Hong Kong (including address) and citizen of Belgium. Copies of her Bank Account with UBS AG Singapore from where the funds have been credited to Mr. Deepak Modi NRE A/c. with Union Bank of India, Mumbai. Copies of bank statements of UBS AG Singapore and of NRE A/c with Union Bank of India also submitted. Besides pointing out that she earned US $31,622,295 out of Foreign Exchange Transaction A/c with UBS AG Singapore. It is these funds which were used to give gifts of Rs.116.64 crores to the Respondent-Assessee;
(iii) On perusal of the aforesaid responses the Assessing Officer was satisfied with regard to the identity of the donor’s source of the gift and financial capacity of the donors. Resultantly, accepting the claim of the gifts received by the Respondent-Assessee from his father and sister. Therefore, Assessing Officer did not disturb the amounts of Rs.137 crores in the aggregate shown as gifts received by the Respondent from his father and sister for the Assessment Year 2008-09 in his Assessment Order dated 30th December, 2010;
(c) Thereafter, the Commissioner of Income Tax, [CIT], commenced proceedings in exercise of his powers of Revision under Section 263 of the Act in respect of Assessment Orders dated 31st December, 2009 and 30 December 2010 for Assessment Year 2007-08 for Assessment Year 2008-09 respectively. This was by issuing a notice to the Respondent-Assessee. The Respondent-Assessee responded by pointing out that due enquiry in respect of gifts was made by the Assessing Officer with regard to the identity, source and creditworthiness of the donors. It was also pointed out that the orders passed by the Assessing Officer not being erroneous, no occasion to exercise powers of Revision under Section 263 of the Act could arise;
(d) Nevertheless the CIT by two separate orders dated 12th March, 2012 and 28th March, 2012, in exercise of his powers under Section 263 of the Act set aside the Assessment Order dated 31st December, 2009 and 30th December, 2010 passed for Assessment Years 2007-08 and 2008-09 respectively. It further directed the Assessing Officer to enquire into the capacity of the donors and to decide the genuineness of the gifts received during the Assessment Years 2007-08 and 2008-09 . It further directed that in case the gifts are found to be not genuine, then the Assessing Officer was at liberty to invoke Section 68 of the Act.
(e) Being aggrieved, the Respondent-Assessee by two separate appeals, assailed the orders dated 12th March, 2012 and 28th March, 2012 of the CIT before the Tribunal. In the impugned order, the Tribunal placed reliance upon the decision of this Court in CIT v. Gabriel India Ltd.  203 ITR 108/71 Taxman 585 – and applying the principles therein allowed the appeals. It held that in the present facts, the Assessing Officer held enquiries with regard to the claim of the gifts received by the Respondent-Assessee from his father and sister in the two Assessment Years under consideration. In response to the queries of the Assessing Officer, the Respondent-Assessee filed various details to establish the identity of the donors, source of the gift as well as the creditworthiness of the donor. The Assessing Officer was satisfied with the explanations, along with evidence produced bythe Respondent-Assessee about the source, identity and creditworthiness of the donors. This satisfaction of the genuineness of the gift is of the Assessing Officer on due enquiry. It records the fact that no discrepancy in the documents submitted to the Assessing Officer was noticed by the CIT before directing a further enquiry by the Assessing Officer. Besides, it holds that the order of the CIT does not establish that the view of the Assessing Officer, is erroneous. It in fact, proceeds on the basis that another view is likely by directing the Assessing Officer to make enquiries with regard to gifts received during the two years under consideration and if the same were not found genuine, then to apply Section 68 of then Act. The impugned order holds that the order in Revision passed by the CIT did not point out how the orders of the Assessing Officer were erroneous and/or passed on incorrect assumption of facts or application of law, which resulted in loss of revenue. Thus holding that orders of the CIT under Section 263 of the Act are not sustainable.
5. Being aggrieved by the impugned order of the Tribunal, the Revenue is in Appeal. Mr. Ahuja, Counsel appearing for the Revenue in support of the Appeal submits that the impugned order calls for interference on account of the following:â
(a) The Assessment Orders dated 31st December, 2009 and 30th December, 2010 in respect of the Assessment Years 2007-08 and 2008-09 respectively do not reflect any examination/ consideration of the genuineness of the gifts received by the Respondent-Assessee during the two subject Assessment Years. This indicates non-enquiry, which would per se warrant exercise of powers under Section 263 of the Act by the CIT;
(b) The Assessing Officer has not examined the donor and in the absence of examining the donors, the order of the Assessment becomes erroneous and prejudicial to the interest of Revenue. Therefore, calling for exercise of power under Section 263 of the Act;
(c) No enquiry done by the Assessing Officer to find out whether the donor i.e. Mr Deepak Modi (father) had received money from M/s. Chang Jiang as claimed. Nor any enquiry done to find out whether the sister had earned amounts on account of Foreign Exchange Transactions as claimed. Thus, exercise of power under Section 263 of the Act by the CIT was called for; and
(d) Reliance was also placed upon the decision of the Supreme Court in CIT v. Amitabh Bachchan  384 ITR 200/69 taxmann.com 170 and the decision of the Delhi High Court in ITO v. DG Housing Projects Ltd.,  343 ITR 329/212 Taxman 132/20 taxmann.com 587 to contend that this appeal ought to be admitted.
6. It is a settled position in law that powers under Section 263 of the Act can be exercised by the CIT on satisfaction of twin conditions viz. the Assessment Order should be erroneous and prejudicial to the Revenue. By erroneous is meant contrary to law. Thus, this power cannot be exercised unless the CIT is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the Revenue. Thus where there are two possible views and the Assessing Officer has taken one of the possible views, no occasion to exercise powers of Revision, can arise. Nor can Revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry. This power of Revision can be exercised only where no inquiry as required under the law is done. It is not open to enquire in cases of inadequate inquiry.
7. Firstly, the Revenue contends that the exercise of powers under Section 263 of the Act is justified as in this case, as no inquiry in respect of the gifts received during the subject years was done by the Assessing Officer for the Assessment orders for Assessment Years 2007-08 and 2008-09. This according to the Revenue is evident from the Assessment Orders dated 31st December, 2009 and 30th December, 2010 which does not even make a mention of the gifts received much less discuss and/or deal with the same. This issue is no longer res integra as this Court in Idea Cellular Ltd. v. Dy. CIT  301 ITR 407 (Bom.) has held that if during Assessment proceedings queries were raised and the assessee responded to the same, then even if an Assessment order does not mention the same, it does not mean that the Assessing Officer has not applied his mind to the issues. It would be well-nigh impossible for an Assessing Officer to complete all assessments assigned to him under Section 143(3) of the Act if he is required to deal with all issues which arose during the Assessment Proceedings. Thus, the Assessment Order primarily deal with only those issues in respect of which the Assessee has not been able to satisfy him and give reasons for his conclusion. This would enable the Assessee to challenge the same, if aggrieved. In fact the Gujarat High Court in CIT v. Nirma Chemical Works Ltd.  309 ITR 67/182 Taxman 183 has observed that if an assessment order were to incorporate the reasons for upholding the claim made by an assessee, the result would be an epitome and not an assessment order. In this case, during the assessment proceedings for both the Assessment Years, the Assessing Officer issued a query memos to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent-Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the identities of the donors, the source from where these funds have come and also the creditworthiness/capacity of the donor. Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the Assessment Order passed thereon. Thus, this objection on the part of the Revenue, cannot be accepted.
8. It is next submitted that the donor had not been examined by the Assessing Officer. It is not in every case that every evidence produced has to be tested by cross examination of the person giving the evidence. It is only in cases where the evidence produced gives rise to suspicion about its veracity that further scrutiny is called for. If there is nothing on record to indicate that the evidence produced is not reliable and the Assessing Officer was satisfied with the same, then it is not open to the CIT to exercise his powers of Revision without the CIT recording how and why the order is erroneous due to not examining the donors. Thus, this objection to the impugned order by the Revenue is also not sustainable.
9. It was next submitted that no enquiry was done by the Assessing Officer to find out whether the donor Mr Deepak Modi (father) had received money from M/s. Chang Jiang as claimed. Nor any inquiry was done to find out whether the sister had in fact earned amounts on account of Foreign Exchange Transactions as claimed by her. We find that this enquiry of a source of source is not the requirement of law. Once the Assessing Officer is satisfied with the explanation offered on inquiry, it is not open to the CIT in exercise of his revsional powers direct that further enquiry has to be done. At the very highest, the case of the Revenue is that this is a case of inadequate inquiry and not of “no enquiry.” It is well settled that the jurisdiction under Section 263 of the Act can be exercised by the CIT only when it is a case of lack of enquiry and not one of inadequate enquiry. This view has been taken by this Court in the matter of CIT v. Shreepati Holdings & Finance (P.) Ltd. [ITA 1879 of 2013 dated 5th October, 2013], by the Delhi High Court in CIT v. Vikas Polymers  341 ITR 537/194 Taxman 57 and in D.G. Housing Projects (supra). In fact the Delhi High Court in D.G. Housing Projects (supra) while so holding placed reliance upon the decision of this Court in Gabriel (India) Ltd. (supra). It is very important to note that the CIT in his order under Section 263 of the Act has recorded the fact that there has been no adequate inquiry. Thus, this is not a case of no inquiry, warranting order under Section 263 of the Act. Thus, this objection on the part of the Revenue, is also not sustainable.
10. The Revenue placed reliance upon the decision of the Delhi High Court in D.G. Housing Projects Ltd., (supra) that as the Assessing Officer had not enquired into the source of the source of the gifts received by the Assessee, the Assessment Order is erroneous. The aforesaid decision holds that the power of Revision under Section 263 of the Act would normally be exercised in case of no enquiry and not in cases of inadequate enquiry. However, even in case of inadequate enquiry by the Assessing Officer, the order of the Assessing Officer could be erroneous in two classes of situation. The first class would be where orders passed by the Assessing Officer are ex facie erroneous i.e. a decision rendered ignoring a binding decision in favour of the Revenue or where enquiry is per se mandated on the basis of the record available before the Assessing Officer and that is not done. In the second class of cases, where the order is not ex facie erroneous, then the CIT must himself conduct an enquiry and determine it to be so. The Court held that it is not permissible to the CIT while exercising power under Section 263 of the Act to remit the issue to the Assessing Officer to re-examine the same and find out whether earlier order of Assessment is erroneous. It is the CIT who must hold that the order is erroneous, duly supported by reasons. In the present facts, the CIT in exercise of its powers under Section 263 of the Act has merely restored the Assessment to the Assessing Officer to decide whether the gifts were genuine and, if not, then the Assessment could be completed on application of Section 68 of the Act. In this case, the order passed by the Assessing Officer is not per se erroneous and further the CIT has not given any reasons to conclude that the order is erroneous. In fact, he directs the Assessing Officer to find out whether the order is erroneous by making further enquiry. This the decision of the Delhi High Court in D.G. Housing Projects Ltd. (supra), clearly negates. In the above view, the decision of Delhi High Curt in D.G. Housing Projects Ltd. (supra) would not assist the Revenue in the present facts.
11. Further, reliance is placed upon by the Revenue upon the decision of the Apex Court in Amitabh Bachchan (supra) to impugn the order of the Tribunal. In the facts of the Supreme Court decision, the Respondent-Assessee had filed a revised return, claiming additional expenses. During the Assessment Proceedings, the Assessing Officer called upon the Assessee to furnish the details with regard to the expenses claimed to be incurred. The Assessee therein pointed out that the payments for expenses had come out of cash balance available with him. When the Assessing Officer commenced enquiry in respect of the claim of expenditure out of cash balance available, seeking to invoke Section 69(C) of the Act and treat the expenditure claimed as unexplained expenditure, the Assessee therein withdrew his revised return of income. Once this was done, the Assessing Officer accepted the same and did not make any further enquiry. The CIT in exercise of its powers under Section 263 of the Act noticed that the Assessee had after having pressed his claim for expenditure in cash, withdrew the claim by withdrawing the revised return of income. This was done only after the enquiry had commenced. This withdrawal of revised income and consequent claim for cash expenditure was contrary to the stand of the Assessee himself. This change on the part of the Assessee on commencement of enquiry, made further enquiry into his claim for cash expenditure necessary. In the above facts, the CIT while exercising his powers under Section 263 of the Act found that the facts on record per se mandated an enquiry to be made into the claim of the Assessee and not doing the same resulted in the order being erroneous. Thus, the Bachchan’s case was a case where once the claim was withdrawn, then enquiry which was to be conducted, was aborted by the Assessing Officer. Therefore, a case of non-enquiry. It may have been different, if the Assessing Officer had enquired into the cash expenditure and its source as claimed, to come to his own conclusion and even accepted the stand of the Assessee. In such a case, even if the CIT would have taken a view that the satisfaction of the Assessing Officer is not correct, he would not have been able to exercise his powers of Revision under Section 263 of the Act.
12. In the present facts, the Assessing Officer was satisfied, consequent to making an enquiry and examining the evidence produced by the Assessing Officer, establishing the identity and creditworthiness of the donor as also the genuineness of the gift. The CIT in his order of Revision, does not indicate any doubts in respect of the genuineness of the evidence produced by the Assessee. The satisfaction of the Assessing Officer on the basis of the documents produced is not shown to be erroneous in the absence of making a further enquiry. It is made clear that our above observations should not be inferred to mean that it is open to the Assessing Officer to enquire into the source of source for the purpose of the present facts. This is a case where a view has been taken by the Assessing Officer on enquiry. Even if this view, in the opinion of the CIT is not correct, it would not permit him to exercise power under Section 263 of the Act. In fact, the Apex Court in Amitabh Bachchan (supra) has observed that there can be no doubt that where the view taken by the Assessing Officer is a possible view, interference under Section 263 of the Act, is not permissible.
13 In view of the above, the questions as framed stands concluded by the decision of this Court in Gabriel (India) Ltd. (supra). Thus no substantial questions of law arises for our consideration.
14. Accordingly, Appeals dismissed. No order as to costs.
[Citation : 390 ITR 292]