Tax on sale of property belonging to father is not leviable on son

Gurbinder Singh Mahal Vs ITO (ITAT Amritsar)

ITAT Amritsar held that the assessee is not liable for payment of tax related to sale of property which belong to his father. Accordingly, addition liable to be quashed.

Facts- The addition was made by AO for depositing of cash total in two bank accounts of the assessee. The addition of Rs.1,95,47,959/- was confirmed and the assessment was completed u/s 144 of the Act.

The assessee prayed that the entire amount of deposit was not properly reconciled by the AO. The withdraw of cash was also not considered in the assessment order. Further, the source of the cash deposit was from sale of the immovable properties, loan from the father of the assessee. The assessee ispower of attorney holder of the property (land) which was owned by his father. So, the entire amount related to sale of land would not be taxed in the hands of the assessee.

Aggrieved assessee filed an appeal before CIT(A). CIT(A) upheld the order of the ld. AO. Being aggrieved assessee filed the present appeal.

Conclusion- We fully respectfully relied on the order of the apex court and the assessee is not liable for payment of tax related to sale of property which belong to his father. The source of cash deposited in bank accounts is well explained considering the cash trial of the assessee. The ld. AO had only considered the cash deposit. The deposit of cash was duly explained during the remand before the ld. AO. Entire issue was explained before both the lower authorities by the assessee. The ld. DR has not submitted any contrary fact or any judgment against the submission of the ld. AR. So, the addition made by the ld. AO amount to Rs.1,95,47,959/- is quashed.

FULL TEXT OF THE ORDER OF ITAT AMRITSAR

The instant appeal of the assessee was filed against the order of the ld. Commissioner of Income Tax (Appeals), NFAC, Delhi,[in brevity the ‘CIT (A)’] order passed u/s 250of the Income Tax Act 1961, for A.Y. 2014-15.The impugned order was emanated from the order of the Income Tax Officer Ward -4(2), Amritsar order passed u/s 144of the Act date of order 27.12.2016.

The assessee has taken the following grounds:-

“1. That the Ld. CIT(A) has erred in dismissing the appeal by passing an ex-parte order u/s 250(6) and sustaining the addition made by the AO.

2. That the ex-parte order passed u/s 250(6) of the Income Tax Act, is bad in law as the same has been disposed off without examining the merits of the case. That the order passed by the CIT(A) is bad in law as the same has been made without taking into account the remand report submitted by the jurisdictional assessing officer to the CIT(A) dated 08.10.2018. That the order u/s 250(6) has been passed in summary manner without considering the submissions made by the assessee during appellate proceedings.

3. That the CIT(A) has erred in confirming the addition of Rs. 19547959/- on account of cash to the tune of Rs. 7490000/- deposited in Punjab & Sind Bank and Rs. 12368499/-deposited in HDFC Bank without giving the benefit of agriculture income earned by the assessee, rotation of funds and funds credited in the bank account on account of sale of property made on behalf of the father through registered POA dated 17.02.2012.

4. That the CIT(A) has erred in confirming the addition of Rs. 19547959/- on account of cash deposited ignoring the fact that the assessee’s father was the owner of agriculture land and the said cash was deposited partly out proceeds from sale of agriculture land belonging to father. That the order has been passed without taking into consideration the affidavits filed by the father of the assessee before the CIT(A).

5. That the CIT(A) has erred in confirming the addition of Rs. 19547959/- on account of cash deposited ignoring the fact that all the saving bank accounts are joint bank accounts and as such, the cash deposited cannot be limited to the 1st account holder.

6. That the CIT(A) has ignored the fact that the assessee had regularly been filing return of income and showing business income and as such, both, the Ld. AO and the Ld. CIT(A) were duty bound to carry further investigation [u/s section 250(4)] through banks instead of disposing off the appeal for non-appearance without adjudicating on merits.

7. The appellant craves leave to add, amend, or alter any of the grounds of appeal.”

2. The case was called for hearing, first, the ld. DR filed an adjournment petition before the bench. But after the detailed discussion the ld. DR is ready for the hearing and withdraw the application. Both the parties Mr. Rohit Kapoor, CA for the assessee and Smt. Rajinder Kaur, CIT-DR for the respondent argued before the bench. The matter is taken for adjudication.

3. The ld. AR of the assessee filed a written submission which are kept in the record. In argument placed that the addition was made by the ld. AO for depositing of cash total amount of Rs.1,98,58,499/- in two bank accounts of the assessee. As per observation of the ld. AO amount to Rs.74,90,000/- was deposited in Punjab & Sind Bank and Rs.1,23,68,499/- cash was deposited in HDFC Bank. Considering the disclosed business income Rs.3,10,540/-, the addition was confirmed amount to Rs.1,95,47,959/- and the assessment was completed u/s 144 of the Act. The assessee prayed that the entire amount of deposit was not properly reconciled by the AO. The withdraw of cash was also not considered in the assessment order. Further, the source of the cash deposit was from sale of the immovable properties, loan from the father of the assessee. The assessee ispower of attorney holder of the property (land) which was owned by his father. So, the entire amount related to sale of land would not be taxed in the hands of the assessee. Aggrieved assessee filed an appeal before the ld. CIT(A). The ld. CIT(A) upheld the order of the ld. AO. Being aggrieved assessee filed an appeal before us.

4. The ld. AR first placed that the assessment order was passed u/s 144 of the Act. The assessee submitted all the relevant documents with application under Rule 46A of Income tax Rule,1962 for filing the additional evidence before the appellate authority. The detail of submission before the appellate authority is extracted as below:

“6. That the appellant filed an appeal before the Hon’ble CIT(A) on 10.03.2017 against the said order of AO. The appellant has made submission before the CIT(A) explaining the source of cash deposited in bank and it was also highlighted that the total cash deposited was to the tune of Rs. 14842999/- and not Rs. 19858499/- as per the AO. It was explained that the cash was deposited out of sale proceeds of property belonging to father and also furnished all the sale deeds belonging to father along with the affidavit of father Sh. Harjit Singh and copy of power of attorney. The summary of documents submitted by way of additional evidence before the CIT(A) is as under: –

(Emphasis supplied)

5. The remand report was called for from the AO. The remand report of the AO is duly annexed in APB page no. 11 which is reproduced as below:

6. The ld. AR placed that all the payments are received from the persons related to sale of land and the details of the relevant instruments are annexed before the bench in APB page 174 to 223. The ld. AR further argued that the property belongs to father of the assessee, Mr. Harjit Singh and the father of the assessee placed an affidavit before the ld. AO on 06.02.2018 duly filed before the AO with additional evidence and ld. CIT(A) APB page nos. 17 to 19.

6.1 In the affidavit the father accepted that the said amount was related with him and he is ready to pay the tax on the said amount. The PAN and Aadhaar was also submitted before the revenue authorities.

6.2 The ld. AR’s submission in details placed before the bench that the ld. AO only had taken the amount for depositing cash in bank but not consider the withdraw of cash during assessment proceeding. So, the assessment order is itself perverse. The cash flow statement is duly annexed in APB pages 2 to 4. In the submission the ld. AR placed that:

“d) The only legal issue pending is whether the capital gains in respect of property sold by a power of attorney holder can be taxed in the hands of POA holder. It is a settled law that no capital gains can be taxed in the hands of POA holder and the same point has been discussed in subsequent paragraphs. It is very much necessary to identify the quantum of cash/ cheque deposit made on behalf of father Sh. Harjit Singh vis a vis sale deeds. In this regard, the copy of cash flow is enclosed at page no 224-234 for your ready reference. The summary of cash deposits in bank explaining the source of cash deposit is as under: –

–

d) That the Ld. AO and the CIT(A) has failed to provide the benefit of agriculture income realized in cash against the cash deposit. The Ld. AO while making the addition has not provided the agriculture income of Rs. 248150/- separately. From the above, your honor will find that the appellant was having ample cash in hand and the source of cash deposit duly stands explained out of funds received from father, rotation of funds in the form of cash withdrawal and returned income of the appellant. The summary of cash available after taking into account all the incomes and receipts from father is as under: –

e) Alternatively, that the assessing officer has failed to provide benefit of cash withdrawal made by the appellant during the year. That the amount deposited in bank was partly out of cash withdrawn from the bank and partly out of amount received on behalf of father as stated above. In this regard we are enclosing herewith affidavit from father placed at page no 20-23 of paper book. If the benefit of same is given, then there is no peak or negative cash. In this regard, the reliance is being placed on the following case laws in which it has been held that the benefit of cash withdrawals can’t be denied to the assessee. It is a matter of record that the appellant has withdrawn a sum of Rs. 11074900/- in cash from bank account and the said cash was withdrawn out of opening bank balance available with the appellant. It is a matter of record that the total cash deposit was to the tune of Rs. 1482889/- as confirmed in remand report by the AO placed at page no 10-12 and not Rs. 19547959/- as confirmed by the AO in assessment order.”

6.3 In the remand report the AO consider that the assessee is a ‘deemed owner’ in relation to sale of property of his father. But in the hearing the ld. AR explained that as per the section 159 of the Act, the assessee is not considered as deemed assessee. The details are submitted in the Submission which is extracted as below:

“c) Therefore, it is very much important to understand where the assessee is deemed an assessee as per the provisions of income tax act. The definition of assessee is given under section 2(7) of the income tax act which is being reproduced hereunder: –

7. During hearing, the ld. AR respectfully relied on the order of the Hon’ble Jurisdictional High Court and the order of the Tribunal the details are as follows:

7.1) ShivcharanDassvs. CIT 126 ITR 263 [1980] (Punj. & Har.)

“Income from undisclosed sources—Unexplained investment—Amount disclosed by HUF under Voluntary Disclosure Scheme—

Thereafter kept lying in assessee’s house with his wife till her death— ITO questioning its source after the same had subsequently been deposited with a bank in the names of assessee’s then major daughters—In the absence of any evidence to the effect that the said sum was utilized by the assessee in any other manner, the Department was not justified in unreasonably rejecting a good explanation and adding the amount as income from undisclosed sources.”

7.2) Late Sh. Parveen Kochhar, Legalheir Kamini Choudhary vs ITO, Wd-5 (4), Amritsar.2022 (9) TMI 924 – Itat Amritsar

“Unexplained Cash withdrawn out of bank account – Gap between withdrawal and deposit of the cash – withdrawn and deposit of cash with a gap of 70 days – HELD THAT:- The withdrawn and deposit of cash with a gap of 70 days which was considered by the ld. AO as seven months. The ld. Counsel clearly stated that the sufficient cash was withdrawn in same bank account and after part utilization of the same; the amount was deposited in same HDFC Bank account. Appellate authority without considering the proper fact and submission of the assessee had passed the order ex parte. CIT(A) was failed to dispose the appeal on merits and has not contended the explanation of the assessee.

As stated in the submission that the assessee was not able to present before the CIT(A) due to the fact that the appellant expired on 23.10.2020 thereafter her husband also expired on 03.11.2020. The copy of the death-certificate of the assessee and her husband are being enclosed – In these circumstances here the genuine cause for non-appearance before the CIT(A). We are in opinion that the assessee has sufficient cause during the depositing of cash in her bank account.

The hefty amount was withdrawn 70 days ago for utilising the same for the business of her son. Unused amount was deposited in the same bank account of the assessee. The source of deposit of cash was well explained before the revenue authorities by the assessee. Therefore, AO was indeed in error in adopting a wrong fact in his order. The grievance raised by the ld. Sr. Dr. in this appeal, is, therefore, devoid of any legally sustainable merits. We reject the addition amount of made by the ld. AO..”

7.3) Principal CIT, Belagavi vs Basetteppa B Badami, [2018] 93 taxmann.com 66 (Karnataka)

“Section 69A of the Income-tax Act, 1961 – Unexplained money (Cash deposits) – Assessment years 2006-07, 2008-09, 2010-11 and 2011-12 – For preceding assessment year, sufficient amount of cash in hand to be brought forward had reached finality – During current year, on basis of cash deposits in assessee’s bank accounts, Assessing Authority made addition of unexplained money – Whether since brought forward cash in hand of preceding assessment year was sufficient, addition on account of unexplained cash deposit in bank account of assessee was unjustified ”

7.4) J’Jaspal Singh Sehgal v. ITO WD 21(2)(1), Mumbai, [2017] 83 taxmann.com 246 (Mumbai – Trib.)

“Section 68 of the Income-tax Act, 1961 – Cash credit (Cash) – Assessment year 2009-10 – Where assessee submitted detailed cash summary showing inflow and outflow of cash for relevant year, in absence of any materials to show that cash withdrawn was utilized elsewhere by assessee, benefit of cash withdrawn by assessee from bank account against amount of cashdeposit into bank should be given”

7.5) IN THE HIGH COURT OF DELHI ITA NO 315/2005 JAYA  AGGARWAL VS ITO

“Addition u/s 68 for cash withdrawn and cash deposited – Assessee withdrew Rs.2 lakhs to buy immovable property in cash from bank account and re-deposited cash of Rs. 1,60,000/- from the amount withdrawn after more than 7 months as the deal could not be finalized. HC held that addition u/s 68 of amount re-deposited was unjustified, noting that one should not consider and reject an explanation as concocted and contrived by applying the prudent man’s behavior test; Principle of preponderance of probability as a test is to be applied and is sufficient to discharge the onus. Probability here means likelihood of anything to be true.”

7.6) CIT vsVeena Awasthi, TS-10298-ITAT-2018(LUCKNOW)

“ITAT: there is no law in the country which prevents citizens from frequently withdrawing and depositing his own money – ITAT dismisses revenue’s appeal, notes that entire transaction of withdrawals and deposits are duly reflected in the assessee’s bank account and even documentary evidences furnished before the Revenue clearly clarify that on each occasion at the time of deposit in her bank account, assessee had sufficient availability of cash, which is also not disputed by the Revenue; ITAT upholds Ld. CIT(A)’s order that the AO was not justified in treating the deposits as unexplained deposits, and the AO’s addition is unjustified and contrary to the provisions of the IT Act and was liable to be deleted.”

8. The ld. DR vehemently argued and placed that all the issues had not agitated before the ld. CIT(A). The ld. DR fully relied on the order of the revenue authorities.

8.1 In argument the ld. AR invited our attention in APB pages14 to 15related to the assessee’s submission which were placed before the ld. CIT(A) and copy of the forwarding letter is annexed herewith.

9. We heard the rival submission and considered the documents available on the record. From the above discussion, it is very clear that the assessee filed the return for the impugned assessment year and the cash deposited from the well explained source for selling of the property of his father. The assessee is a power of attorney holder of his father for selling the land, copy of the power of attorney dated 17.02.2012 along with English Translation are duly annexed in APB page nos. 48 to 54. The documents are duly filed before both the authorities. After considering the factual matrix the assessee cannot be deemed assessee as mentioned by the ld. AO in the remand report. In remand report the ld. AO accepted the fact that the properties are not related with the assessee and the cash was originated from the sale of property and the assessee’s own source which is explained in cash account of assessee. Finally, the concept of the deemed assessee cannot be sustained as per the explanation of section 159 and 160 r.w.s 2(7) of the Act. We fully respectfully relied on the order of the apex court and the assessee is not liable for payment of tax related to sale of property which belong to his father. The source of cash deposited in bank accounts is well explained considering the cash trial of the assessee. The ld. AO had only considered the cash deposit. The deposit of cash was duly explained during the remand before the ld. AO. Entire issue was explained before both the lower authorities by the assessee. The ld. DR has not submitted any contrary fact or any judgment against the submission of the ld. AR. So, the addition made by the ld. AO amount to Rs.1,95,47,959/- is quashed.

10. In the result, the appeal of the assessee bearing ITA No. 22/Asr/2023 is allowed.

Order pronounced in the open court on 24.04.2023