Gift from aunt shown as credits to capital account cannot be added as unexplained credits

Amit Prabhudas Patel Vs DCIT (ITAT Ahmedabad)

ITAT Ahmedabad held that addition as unexplained credits to capital account unsustainable as gift from assessee’s aunt shown as credits to capital account.

Facts- The assessee is a practicing Doctor and proprietor of Sarvoday Hospital, Balasinor and also the proprietor of Sarvoday Pharmacy-Medical Store. He has filed his return of income on 06.11.2014 for the year under consideration declaring total income at 93,27,510/-. The assessment u/s. 143(3) of the Act was finalized on 13.12.2016 determining total income at Rs.1,14,48,386/- upon making additions inter alia Rs. 13,69,371/- as credits to capital account shown as gift from appellant’s aunt as unexplained credits to capital account, Rs.6,67,492/- on account of income from house property etc., the same was further confirmed by the First Appellate Authority. Hence, the instant appeal before us.

Conclusion- We have considered the orders passed by the authorities below and find that it is a fact that said Smt. Sushilaben Patel was staying along with assessee and these FDRs were made long back during her life time not in the year under consideration. Further that, as the assessee was made a joint holder in those FDRs by her aunt, we do not find any reason to record the same in the books of account of the assessee. Further that, once family tree has been filed by the assessee showing relationship between the assessee and said Smt. Sushilaben Patel, which is definitely come under the purview of the definition of relatives as envisaged under Section 56 of the Act, we do not find any merit in rejecting the claim of the assessee. We also note that the assessee has declared total income of Rs.93,27,5 10/- and we do not find any reason or any apprehension in evading tax on the credits of capital account of Rs. 13,69,371/- as gift from his aunt.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The instant appeal filed by the assessee is directed against the order dated 24.08.2020 passed by the Ld. Commissioner of Income Tax (Appeals)- 4, Vadodara arising out of the order dated 13.12.2016 passed by the DCIT, Panchmahal Circle, Godhra under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 20 14-15.

2. We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record.

3. The brief facts leading to the case is this that the assessee is a practicing Doctor and proprietor of Sarvoday Hospital, Balasinor and also the proprietor of Sarvoday Pharmacy-Medical Store. He has filed his return of income on 06.11.2014 for the year under consideration declaring total income at 93,27,510/-. The assessment under Section 143(3) of the Act was finalized on 13.12.2016 determining total income at Rs.1,14,48,386/- upon making additions inter alia Rs. 13,69,371/- as credits to capital account shown as gift from appellant’s aunt as unexplained credits to capital account, Rs.6,67,492/- on account of income from house property etc., the same was further confirmed by the First Appellate Authority. Hence, the instant appeal before us.

4. During the course of assessment proceeding, it was found that capital of Rs. 13,69,371/- was brought in the capital account during the year under consideration. The assessee was asked to explain the same with documentary evidences whereupon it was submitted by the assessee that the assessee is holding a joint FDRs along with his aunt Smt. Sushilaben Patel and the said amount was received after her death. In support of the contention made by the assessee, the assessee submitted FDRs. Certain documents being the certificate of death of aunt, source of principal amount of FD recorded in the books of accounts of the assessee as the FDRs were made in the joint names with the assessee etc. was directed to be submitted. The assessee was also directed to furnish two certificates of FDRs which were not submitted and to reconcile with documentary evidence as the maturity value credited in the ledger account does not match with the amount reflected in the FDRs. As the FDRs were made by the aunt from her own sources, the same was not recorded in the books of account of the assessee as of the contention of the assessee in response to the direction as above. It was further submitted that these were old FDRs which were matured subsequently and upon demise of the aunt was credited in the account of the assessee being the joint holder of the same. Such contention made by the assessee was not found suitable and the assessee was further directed to provide the proof of blood relation with said Late Smt. Shushilaben Patel who was stated to be the aunt of the assessee, from whose accounts, FDRs were transferred to the assessee’s account. The assessee further submitted that the amount of FDRs. credited after her death and the same was not chargeable to tax in view of the fact that the amount in dispute was received from relative as defined under Section 56 of the Act. By and under submission dated 07.12.2016, the copy of the gift confirmation letter from Shri Ashokkumar T. Patel being the son of the assessee’s aunt along with identity proof of said Shri Ashokkumar T. Patel was duly submitted before the Department. Further information that once he arrives India in Januray 2017, the documentary evidences could be submitted thereafter, as presence of legal heir is required to obtain the document was also made. However, contentions made by the assessee was found to be not acceptable and credit to the bank account of the matured value of FDRs to the tune of Rs. 13,69,371/- treated as unexplained and added to the total income of the assessee which was further confirmed by the First Appellate Authority.

5. During the appellate proceeding, in order to substantiate the claim of the assessee, a family tree of Late Shri Purshottamdas Naranbhai Patel has been placed on record to justify that the appellant was the relative of Shusilaben, whereupon a remand report was called for. On 27.07 .2020, with the following comments, a remand report was forwarded to Ld. CIT(A) :

“Kindly refer to letter no. VAD/CIT(A)-4/RR/APP/1 054 7/2019-20 dated 06.07.2020 received from your kind office.

During the appellate proceedings, the assesses has submitted the additional evidences on the following issues, the point wise reply is as under:-

(i) Addition on account of Capital Introduction :-

During the assessment proceedings, the Ld. AO has made the addition on account of capital introduction on the following grounds :-

(i) The relationship of the assessee with the Aunt has not been proved as per section 56 of the Income Tax Act, 1961.

(ii) The source of the FDRs has not been explained by the assessee.

(iii) Further, the signature of legal heirs were different in gift deed and passport.

As the assessee has claimed exemption u/s. 56 of the Act regarding amount received of FDRs but the the blood relationship with Sml. Sushilaben Patel has been proved in view of the definition of relation under the Income Tax Act which is reproduced as under:-

“relative” means :-

(i) In case of an individual

(a) Spouse of the individual.

(b) Brother or sister of the spouse of the individual.

(c) Brother or sister of the spouse of the individual.

(d) Brother or sister of either of the parents of the individual.

(e) Any lineal ascendant or descendant of the individual.

(f) Any lineal ascendant or descendant of the spouse of the individual.

(g) Spouse of the person referred to in items (B) to (F).

The relationship of the assessee with his Aunt has been proved in view of the above section. But, the assessee has not submitted the source of the FDRs which was not recorded in the books of accounts of the assessee. The same has not been submitted in the additional evidences provided by the assessee.

During the course of assessment proceedings, the assessee has submitted the confirmation of gift received and copy of passport of Shri Ashokkumar T. Patel (son of the assessee) who was abroad at this time. On carefully perusal of the same, it is seen that the signature of Ashok R. Patel is different as compared to passport copy. Hence, it is pertinent to mention here that the legal heir’s of Smt. Sushilaben Patel there, how did assessee credit to his bank account the maturity value of FDRs. Also, the assessee has not submitted any clarification about the same in the additional evidences.”

6. The assessee further filed rejoinder to the remand report, which was received by the Department on 11.08.2020, which is reproduced hereinbelow:

“The appellant craves liberty to place the following facts in respect to the Remand Report of Dy. Commissioner of Income Tax, Panchmahal Circle, u/s 143(3) of the I. T, Act, 1961.

1. Capital Introduction Rs. 13,69,371/-.

The aunt of the appellant Smt. Sushilaben Paiel had Fixed Deposit with Bank wherein the appellant was made a joint holder as aunt had no other relative in India. The lady was staying with the appellant at Balasinor and appellant was looking after her Sushilaben expired on 24- 01-2014 at the age of 93. Upon death of Sushilaben the appellant had received the amount of F.D. as he was the joint holder. The said amount was credited to his capital account in the books of the appellant.

The AO has stated as follows: –

a. The principal amount has not been recorded in the books of the appellant.

b. The signature of Ashok Patel is difference in passport and confirmation.

c. When deceased’s legal heirs are, there, how did assessee credit to his bank account the maturity value of FDR’s.

In this connection it is respectfully submitted that since the appellant had not made the FD’s the same was not recorded in his books of account. This point was mentioned to AO in the course of assessment.

As regards to the observation of the AO as mentioned above in para c it is submitted that if an individual wants to give any amount to any person the legal heirs cannot object to the same. However the eldest son Ashokbhai has confirmed that his mother had mentioned the name of appellant as joint holder, as he was looking after her in India.

In view of the fact that Shushilaben was aunt of the appellant and as per section 56(2)(vil). amount received without consideration from relative is exempt.

As regards the signature of Ashok Patel, it is submitted that a person can have different signatures for different purposes and hence the same cannot be a ground of making disallowance.

In view of the above narrated facts the addition made is not justified and hence the same may kindly be deleted. “

7. Finally, the contention made by the assessee was not found to be acceptable to this effect that the source of principal amount of FDRs remained unexplained, neither the assessee could establish the relationship with his aunt from whom the disputed amount was received through FDRs. The signatures of legal heirs was also found to be different in gift deed and passport. With the aforesaid observation, the Ld. CIT(A) confirmed the addition.

8. We have considered the orders passed by the authorities below and find that it is a fact that said Smt. Sushilaben Patel was staying along with assessee and these FDRs were made long back during her life time not in the year under consideration. Further that, as the assessee was made a joint holder in those FDRs by her aunt, we do not find any reason to record the same in the books of account of the assessee. Further that, once family tree has been filed by the assessee showing relationship between the assessee and said Smt. Sushilaben Patel, which is definitely come under the purview of the definition of relatives as envisaged under Section 56 of the Act, we do not find any merit in rejecting the claim of the assessee. We also note that the assessee has declared total income of Rs.93,27,5 10/- and we do not find any reason or any apprehension in evading tax on the credits of capital account of Rs. 13,69,371/- as gift from his aunt. Considering the entire aspect of the matter, particularly, the constant effort made by the assessee to justify his stand that the credit is from maturity of old FDRs made by his aunt who was taken care of by the assessee only in the absence of her relative staying abroad which fact was also confirmed by other relatives of the assessee with supporting evidences as we have already discussed hereinabove, we find that the impugned addition made by the Department is of no basis and thus, deleted.

9. Next ground of appeal is addition of Rs.6,67,492/- on account of income from house property.

10. We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record.

11. Perusal of scheduled of investment reveals that the assessee had four residential houses as under:

12. The Ld. AO invoked the provision of Section 23(4) of the Act and assessed annual let out value of three houses out of the aforesaid four houses. He further estimated fair rent @15% of total investment amounting to Rs.9,53,560/-. He allowed deduction @ 30% and assessed income from house property at Rs.6,67,492/-. It was the case of the assessee that none of those houses was actually let out during the year under consideration and if properties are considered to be deemed to let out, then vacancy allowance should be allowed, which will render house property income as Nil. Before the First Appellate Authority, the assessee filed written submission with the following details:

“The appellant is a neurologist and is practicing in Balasinor and Baroda. He has a MRI centre under the name of Makarpura Diagnostic Centre, at Makarpura Baroda.

In the Balance Sheet of the appellant the following four houses have been shown under the head Investments;

1. Residential House- Rs. 5,95,000/-

This house is staff quarter for MRI staff at Baroda.

2. Flat at Baroda – Rs. 88,75,000/-

This flat was purchased for his personal stay at Baroda when he used to run OPD at Baroda. The AO has considered this as Self Occupied Property, and hence no addition on account of notional income has been made as regards this house property

3. Residential house at Ahmedabad- Rs. 57,18,850/-

The doctor himself is a patient of unstable Angina. He had undergone angioplast 14 years back. The house at Ahmedabad was purchased to meet the needs of medical facilities at Ahmedabad. Balasinor, where the doctor stays for five days, is much nearer to Ahmedabad rather than Baroda. The house was let out during the year under consideration.

4. Residence house (old) Rs.43,215/-

This house is ancestral house situated village Karamsad the native place of the appellant. The house is very old and uninhabitable. Even otherwise, the said House, as per law, belongs to appellant’s HUF and hence the same cannot be considered as his Residential House in Individual Capacity

The AO has estimated notional rent income @ 15% of the total value of aforesaid properties (excluding Flat at Baroda) i.e. Rs.9,53,560/-, and after allowing Standard Deduction a 30% determined the Income from House Property (deemed let out) at Rs 6,67,492/-.”

13. We have considered the submission made by the assessee before the First Appellate Authority, which was reproduced above. So far as the residential house of Baroda is concerned, it is used as staff quarter for MRI Staff at Baroda, we do not find any reason to disbelieve the same.

14. The property purchased by the assessee at Baroda where he is running OPD being a self-occupied property, no addition on account of notional income is called for. The residential house being ancestral house situated at Village Karamsad which is old and uninhabitable condition belongs to appellant’s HUF. In our considered opinion, it cannot be said to be a residential house in individual capacity. However, the house purchased by the assessee at Ahmedabad to meet the needs of medical facilities at Ahmedabad Balasinor, where assessee stays for five days, as much nearer to Ahmedabad rather than Baroda, though, the same has been claimed not let out during the year under consideration cannot be accepted by us as the assessee failed to show that he has tried his best for letting out this property and ultimately becomes unsuccessful. We, thus, direct the Ld. AO to estimate the fair rent @15% of the value of this particular property and to pass order accordingly. This ground of appeal is, therefore, partly allowed.

15. In the result, assessee ’ s appeal is partly allowed.

This Order pronounced on 31/05/2023