Occasion not necessary to receive gifts , Sec 68 addition deleted by ITAT

ORDER

1. These are bunch of seven appeals filed by the assessee pertaining to Assessment Year 2004-05 to 2010-11 directed against separate orders of Ld. Commissioner of Income-tax (Appeals (In short CIT(A)]Ujjain dated 04.01.2017 which is arising out of the orders u/s 153C r.w. section 143(3) of the Income Tax Act framed by the ITO-2(1), Ujjain dated 22.03.2013.

As the issues raised in all these seven appeals are mostly common and relates to the same assessee, these were heard together and are being disposed of by this common order for the sake of convenience and brevity.

2. Briefly stated facts as culled out from the records are that search and seizure operation u/s 132 of the Act was conducted on 20.11.2009 at the residence of Shri I.C. Dubey which was the part of the search and seizure operation in HBN group. Various documents annexurized as pages 1 to 84 were found and seized from the residence of Mr. I.C. Dubey. Subsequently, declaration was filed by the assessee i.e. Smt. Geeta Dubey that all the documents/diaries/loose papers/CDs/Hard Disks etc. belongs to her and the same has nothing to do with Mr. I.C. Dubey.

3. Based on the above statement of Geeta Dubey documents were handed over to the jurisdiction Assessing officer. Ld. Assessing officer of the assessee after making proper satisfaction initiated the action u/s 153C of the Act and accordingly served notice u/s 153C of the Act dated 19.03.2012 upon the assessee on 20th March 2012 for all assessment years i.e. A.Ys. 2004-05 to 2009-10 as well as A.Y. 2010-11. Necessary details were filed and return of income for all these seven assessment years were submitted. Following income was declared and assessed:

The assessment were completed for all these seven assessment years after making various additions relating to unexplained gifts, wrong claim of interest u/s 24(B) of the Act, low house withdrawals and disallowance out of vehicle running, maintenance & insurance expenses.

4. Aggrieved with the additions and disallowance, appeal was preferred before the Ld. CIT(A) but assessee could partly succeed.

Now the assessee is in appeal before the Tribunal for all these seven assessment years.

5. First common issue raised by the assessee contending that the impugned assessment order passed u/s 153C r.w.s. 143(3) of the Act is barred by the limitation and same deserves to be annulled.

6. The Ld. counsel for the assessee referring to the written submissions filed before the Ld. CIT(A) submitted that the case of assessee falls under second proviso to section 153B of the Act as the search was conducted between 1st April 2004 to 31st March 2010 and therefore, the assessment u/s 153C of the Act was to be concluded within a period of 21 months from the end of the financial year in which the last of the authorization for search u/s 132 or for acquisition u/s 132A of the Act was executed or nine months from the end of the financial year in which the books of accounts or seized documents or handed over to the Assessing Officer, which date is later. He also submitted that as per the above referred provisions the assessments ought to have been completed before 31st December 2012 whereas the impugned assessment orders have been passed on 22nd March 2013 and thus the assessment framed was beyond the time allowed in the Act and are thus bad in law.

7. Per contra Ld. DR vehemently argued and supporting the order of Ld. CIT(A) who dismissed the assessee’s contention by observing as follows:

“Through this ground of appeal the appellant has challenged the passing of the order u/s 153C r.w.s. 143(3) of the I.T. Act. The search was conducted on 20.11.2009. The appellant had been assessed as ‘other person’ u/s 153C. The notice u/s 153C was issued on 19.03.2012 and served on 20.03.2012. The assessment proceedings were then carried out and order was passed on 22.03.2013. During the course of assessment proceedings the appellant has not made any such type of objection. Therefore, the appeal on this ground is dismissed.”

8. We have heard the rival contentions and perused the material available on record before us. Through this common ground Nos.1 & 1.1 of assessee has challenged the validity of all the assessment orders framed u/s 153C r.w.s. 143(3) of the Act.

The ld. counsel for the assessee argued on length submitting that the case of the assessee falls under second proviso of section 153B of the Act which relates to time limit for completing of assessment u/s 153A of the Act and as contemplated by the Ld. counsel for the assessee that the time limit for framing the assessment in the case of assessee was getting time barred on 31st December 2012 whereas the assessment have been framed on 22.03.2013. The basis of the above contention is to show that second proviso to section 153B of the Act is applicable to the assesse as the search has been conducted between 1st April 2004 to 31st March 2010 as the date of search is 20.11.2009.

We, however find that under the Income tax act assessment of income of any other person where the search has been conducted u/s 132 of the Act is to be framed as the provisions of section 153C of the Act. For adjudication of this issue under this appeal, we find necessary to reproduce the provisions of section 153C(1) of the Act along with the proviso:

“Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that:

a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned, shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if that Assessing Officer is satisfied that the books of account or documents or assets, seized or requisitioned, have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A.

Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person.”;

(b) after sub-section (1) as so numbered, the following sub-section shall be inserted and shall be deemed to have been inserted, namely:—

“(2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year—

before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.”‘

9. From the perusal of proviso to section 153C(1) of the Act which provides that the date on which the jurisdictional Assessing Officer of the person to be assessed u/s 153C of the Act, receives the books of account or documents or assets seized by the Assessing officer having the jurisdiction of the person who was searched then such date should be construed as a reference to the date of initiation of search u/s 132 or making for requisition u/s 132A in the second proviso sub-section(1) of section 153A (1) of the Act. This means that the actual date of search which in the instant appeal is 20.11.2009, is not relevant for the purpose of second proviso to section 153B of the Act. Rather, the relevant date is the date on which seized documents are handed over to the jurisdictional Assessing Officer of the person to be assessed u/s 153C of the Act.

10. Examining the facts of the instant case, we observe that it was F.Y. 2011-12 during which the Assessing officer of the assessee was handed over the seized documents by the Assessing Officer of Mr. I.C. Dubey (husband of the assessee Geeta Dubey) and as the relevant date of handing over these seized documents falls after 1st April 2010 the second proviso to section 153B sub section (1) of the Act will have no application and the time limit for framing the assessment would be two years from the end of the financial year in which the documents were handed over and in the instant appeal these two years will end on 31st March 2014 i.e. two years from the end of A.Y. 2011-12 and the impugned assessment have been completed on 22.03.2013 which are well within the time limit provided in the Act.

We, therefore, in the given facts and circumstances of the case, are of the considered view that impugned assessment framed u/s 153C r.w.s. 143(3) of the Act are not barred by limitation and are thus valid. We, therefore, find no reason to make interference in the finding of Ld. CIT(A) and accordingly dismiss this common issue raised in all the seven assessment years in ground nos. 1 & 1.1 by the assessee.

11. Next common issue for A.Ys. 2004-05, 2005-06 & 2006-07 relates to the upholding the addition of Ld. CIT(A) towards the addition made by the AO by treating gifts from relative as unexplained.

12. Ld. counsel for the assessee relied on the submissions made before the Ld. CIT(A). Ld. DR supported the finding of Ld. CIT(A).

13. We have heard the rival contentions and perused the material available on record before us. The issue relates to gift of Rs.50,000/- received from father of the assessee for A.Ys. 2004-05, 2005-06 & 2006-07 and gift of Rs.50,000/- from sister-in-law during A.Y. 2005-06. There is no dispute at the end of revenue that the alleged gifts have been received through banking channel and the identity of the donors is well established. It is also an undisputed fact that both the donors i.e. the father and sister-in-law, falls under the category of relatives provided in explanation (e) of section 56 of section (2) of the Act. The gifts have been treated as unexplained only for the reason that the assessee was unable to quote the occasion for which she had received the gifts. The action of the Ld. AO have been confirmed by the Ld. CIT(A) also.

14. From perusal of section 56 sub-section (2) as well as explanation (e), we find that sections 56(2)(v), 56(2)(vi) & 56(2)(vii) which provides a cap of sum received without consideration by an individual as Hindu Undivided family to be taxed as income from other sources, if amount exceeding the cap provided in these sub-sections is received by the assessee. However, the above sub-sections 56(2)(v), 56(2)(vi) & 56(2)(vii) shall not be applicable if any sum is received from any relative ( as defined in explanation (e) to section 56). There is no mention about the occasion to be a necessary condition for receiving any sum from any relative. In the instant case, the alleged gifts of Rs.50,000/-, Rs.1,00,000/- and Rs.50,000/- for A.Ys. 2004-05, 2005-06 & 2006-07 have been received from relatives of the assessee i.e. father and sister-in-law through account payee cheques/demand draft. Therefore, the same cannot be included in the income of the assessee by any cannon of law. We, therefore, set aside the finding of the lower authorities and delete the addition made on account of unexplained gifts for all the three assessment years and allow the ground no.3 raised for all these three assessment years. This common ground for three assessment years i.e. A.Y. 2004-05, 2005-06 & 2006-07 is allowed.

15. Next common issue for all these seven assessment years is regarding the upholding the addition towards disallowance of expenses of vehicle expenses and vehicle insurance.

16. We have heard the rival contentions and perused the material available on record before us. We find that the ld. AO made disallowance of Rs. 20% of the vehicle expenses and vehicle insurance on account of personal element of expenditure embedded therein. The ld. CIT(A) partly deleted the disallowance and sustained to the extent of Rs.10% of the alleged expenditure. The assessee has challenged the finding of the ld. CIT(A). We find that the expenditure in the nature of vehicle expenses and vehicle insurance have been incurred by the assessee in the course of business of earning commission. There is no suo motto disallowance on the part of any assessee nor has any amount been shown specifically under the household drawing. We, therefore, in the given facts and circumstances of the case, find no inconsistency in the finding of the ld. CIT(A) sustaining the disallowance of 10% of vehicle expenses and vehicle insurance. We, therefore, dismiss the relevant ground for all seven assessment years.

17. Now, we take up for Ground No.3 for A.Y. 2007-08, through which the assessee has challenged the finding of Ld. CIT(A) for upholding the addition of Rs. 1,07,759/- on account of alleged loan repayment out of undisclosed sources.

18. We have heard the rival contentions and perused the material available on record before us. We observe that during the course of assessment proceedings Ld. AO while examining the details of loan payment to ICICI Bank by the assessee, came to a conclusion that the assessee has only reduced the portion of principal amount of Rs.35,593/- but has not disclosed the portion of interest on loan of Rs.1,07,759/-. This addition was confirmed by the Ld. CIT(A) also.

19. From perusal of records as well as balance sheet and capital account placed in the paper book we find that in the balance sheet under the head loan taken from ICICI, Bank, assessee has reduced the portion of principal loan amount of Rs.35,593/- whereas the interest on loan of Rs.1,07,759/- have been reflected in the capital account placed at page 15 of the paper book and this interest amount is shown as a part of the withdrawal of Rs.1,34,760/-.

We, therefore, find merit in the contention of the Ld. counsel for the assessee and are of the view that the assessee has duly disclosed the interest expenditure of Rs.1,07,759/-. 20. Both the lower authorities erred in sustaining the addition for unexplained expenditure. We, accordingly delete the addition of Rs.1,07,579/- and allow ground no.3 of the assessee for A.Y. 2007-08.

20-21. Next common issue relating to A.Ys. 2008-09, 2009-10 & 2010-11 has been raised in ground No.3 towards disallowance of assessee’s claim of interest on loan claimed as on deduction under the head income from house property.

22. We have heard the rival contentions and perused the material available on record before us. We find that the assessee claimed deduction under the head income from house property for interest on loan at Rs.1,34,519/-, Rs.1,40,294/- and Rs. 1,04,568/- for A.Ys. 2008-09, 2009-10 & 2010-11. During the course of assessment proceedings it was accepted by the assessee that the alleged interest payment is not for the loan taken for purchase of residential house property and the alleged interest have been wrongly claimed under the head income from house property. It was pleaded by the Ld. counsel for the assessee that the alleged interest is against the loan taken for purchase of land at Ujjain and as the asset is purchased for business purpose, the interest needs to be allowed as on business expenditure.

23. From perusal of records, we find that the assesses’s source of income is from commission. The assessee is not into the business of purchase and sale of land. The alleged annual property for which the loan has been taken is shown under the fixed asset. We fail to understood that how the interest paid on purchase of the land can be allowed as a business expenditure when the land is not used for business purpose nor the assessee has succeeded at any point of time to prove the use of land for business purpose. Even if it is for a project for future, the alleged interest amounts needs to be capitalized along with cost of land. In our view there is no room available to claim the alleged interest amount as business expenditure. The contentions of the Ld. Counsel for the assessee are brushed aside and no interference is called for in the finding of Ld. CIT(A) upholding the addition and common ground for A.Ys. 2008-09, 2009-10 & 2010-11 are dismissed and addition of Rs.1,34,519/-, Rs.1,40,294/-and Rs. 1,04,568/- is confirmed.

24. Through ground No.4 for A.Y. 2008-09, the assessee has challenged the finding of the Ld. CIT(A) upholding the addition of Rs.23,100/- on account of alleged difference in cost of land.

25. We have heard the rival contentions and perused the material available on record before us. We observe that the assessee’s owns agricultural land at village- Suvakhedi. This land was purchased on 06.09.2004 at Rs.3,51,240/-during the year under appeal i.e. A.Y. 2008-09. The assessee received an advance of Rs.2,31,000/- for sale of this agricultural land. For some reason this deal could not be completed. The assessee forfeited 10% of the advance amount and paid back the remaining amount of Rs.2,07,900/- to the proposed buyer. Sum of Rs.23,100/-being 10% of the advance amount was reduced from the total cost of land of Rs.3,51,240/- and the remaining amount of Rs.3,28,140/- has been shown in the balance sheet as on 31st March 2008. Both the lower authorities has considered the amount of Rs.23,100/- as income of the assessee. In our view, as the assessee has reduced the forfeited amount from the cost of land as the deal could not materialized, the cost of land has been reduced by Rs.23,100/- and the lower authorities erred in confirming the addition of Rs.23,100/-. We accordingly delete the same. Ground no.4 of assessee appeal for A.Y. 2008-09 is allowed.

26. Apropos Ground No.5 for A.Y. 2010-11, the assessee has challenged the upholding of the addition of Rs.12,346/- for disallowance of deduction u/s 80C for the repayment of house loan.

27. We have heard the rival contentions and perused the material available on record before us. We observe that Ld. Assessing Officer after noticing that the assessee had made a false claim for interest paid for housing loan further observed that the assessee has also claimed deduction u/s 80C of the Act for payment of principal amount of housing loan of Rs. 12,346/-. Ld. AO denied this claim.

28. From perusal of the submissions made by the assessee, we find that total investment eligible for section 80C was Rs.1,10,191/- which included the repayment of housing loan of Rs.12,346/-. However the amount was restricted to Rs.1,00,000/- as per the provision of section 80C of the Act. The ld. AO while framing assessment have denied the deduction of Rs.12,346/-, thereby allowing deduction u/s 80C at Rs. 87,654/- only.

29. We find force in the contention for the Ld. counsel for the assessee and are of the view that out of eligible deduction claimed by the assessee at Rs.1,10,191/-, the Ld. AO should have first reduced this amount by Rs.12,346/- which results into a figure of Rs. 97,845/-. This sum of Rs.97,845/- is eligible for deduction u/s 80C of the Act and the same should have been allowed to the assessee and therefore, the disallowance should have only been to the extent of Rs. 2,155/- and not Rs.12346/-. The assessee gets partial relief and disallowance for deduction u/s 80C is restricted to Rs.2,155/- only. Ground No.5 for A.Y. 2010-11 is partly allowed. Other grounds are general in nature needs no adjudication.

30. In the result the appeals of the assessee are partly allowed.

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