Case Law Details
ITAT, MUMBAI BENCHES `C’
Chandrakant H. Shah Vs. ITO Appeal No. ITA NO. 3966/MUM/2008 Dated: 12.01.2008
RELEVANT PARAGRAPHS :
11. We have considered the submissions made by both the parties, material on record and orders of the authorities below. It is noted that the assessee is an individual and aged about 50 years. The assessee has income from salary and other sources both aggregating to Rs. 2.62 lakhs. It is also noted that the assessee was received salary from M/s Nav Bharat Education Society where he is working as a senior clerk. It is also noted that he has received a sum of Rs. 92,950 as consultation charges from Nirmal Developers to whom he has rendered consultancy services as Site Supervisor. It is also not in dispute that 4 concerns from whom the assessee has taken the loan are the sister/connected concerns and these are engaged in the real estate development & construction activities. It is also not in dispute that such loan has been utilized for purchase of residential flat, constructed by the concern wherein such lenders have direct or indirect interests. It is also noted that the Assessing Officer, vide its Notice under section 142(1) dated 6-11-2006 required the assessee to furnish the copy of the Agreement for Purchase of Flat along with the sources thereof which was not complied with, hence, the Assessing Officer issued another Notice on 24-1-2007. The assessee, vide it’s letter dated 13-2-2007, submitted copy of the Agreement for purchase of flat and also stated that the possession of the said flat was taken in the Financial Year 2006-07. It was also stated that payment for purchase of flat was made out of loans so received and for which confirmatory letters were also submitted. The Assessing Officer vide its letter dated 23-5-2007 made further enquiries in respect of the loans taken by the assessee from M/s Nirmal Lifestyle and M/s Utkanth Trading Corporation which was submitted by the assessee vide its Letter dated 28-6-2006. The assessee vides its Letter dated 9-8-2007 also explained to the Assessing Officer regarding the nature of extra payment to the builder against the sale consideration of Flat. Thereafter, the Assessing Officer has not issued any other notice, as is evident from the 1st paragraph of the assessment order. Thus, the above chronological evidences show that at no stage, the assessee was made aware of the intention of the Assessing Officer to make the impugned addition so that the assessee could have made legal submissions. In our opinion, if such an opportunity should have been granted by the Assessing Officer, then, loans to the extent of Rs. 27,70,000 would not have been added at all under section 56(2)(v) of the Act as income of the assessee as these were received prior to 1-9-2004 (as evident from the loan confirmations and bank transactions details submitted to the Assessing Officer as such provisions have been made applicable with effect from the above mentioned date. Further to this manner of completion of the assessment proceedings, the Ld. Commissioner (Appeals) has also ignored the relevant contentions of the assessee by holding that these were not raised before the Assessing Officer, whereas he could have examined the assessment records to verify claim of the assessee that no opportunity was given by the Assessing Officer to make these submissions. Thus, in our opinion, the Ld. Commissioner (Appeals) is not justified in not deleting the addition to the extent of Rs. 27,70,000. It is also noted that all these loans have been shown in the Balance Sheet submitted along with the Return of income as loans and the lenders have also confirmed the same as such. Thus, in our opinion, apparently, it is a case of loan transactions and not a case of gift as held by the Assessing Officer. It is also noted that loan taken from M/s Utkanth Trading Pvt. Ltd. has been repaid on 27-3-2004, itself i.e., before passing of the assessment order which is also a material fact so as to rebut the presumption of the Assessing Officer that assessee was not under any obligation to repay the loans and this fact also proves the assessee’s claim that no opportunity was granted by the Assessing Officer to the assessee before making such addition. We are also of the view that it can not be a case of assessee’s on accounted or undisclosed income being brought into the hands of the assessee as loans because even according to Revenue Authorities the assessee is not a person of sound financial status. We also find that the Assessing Officer has not made any enquiries from the lenders to ascertain the true nature of the transactions and to find out as to why these sums were given without interest. It is also noted that the Assessing Officer has held that the assessee was not under an obligation to repay the loan and the ld. Commissioner (Appeals) has also confirmed the addition for this reason as well as for the reason that the assessee had no assets/business plans to repay the loan. We are, however, unable to find any material being brought on record by the revenue to support these findings, hence, the orders of Revenue authorities appear to be passed on assumptions and presumptions and, particularly, when apparently, there exist no provision in the section 56(2)(v) to treat loans, which may not be repaid, as income of the assessee. In this regard, we consider it pertinent to refer to provisions of 4(1)(b) of the erstwhile Gift Tax Act, 1958 which provided for deemed gift in case consideration for a transfer was not paid or not intended to be paid and also to provisions of section 4(1)(c) of that Act which provided for deeming a gift made by the person who was responsible for the release, discharge, surrender, forfeiture or abandonment of any debt, contract or actionable claim or of any interest in property by any person without bonafide reasons to the extent of value of such release, discharge, surrender, forfeiture or abandonment. No such kind of situations have been prescribed under section 56(2)(v) of the Act, hence, if this view of Revenue Authorities is accepted, then, it would amount to re-writing of provisions of this section and which is not in the domain of executive or judicial forum. Hence, in view of above discussion, we are of the prima facie opinion that this addition is not correct in law.
11.1 Having stated so, this addition also puzzles us as to what would happen in the case of genuine loans given and taken in the normal course of commercial practice or on account of social considerations. To put it in other words, if a interest free loan cannot be added under section 68, then, such loan should be added as income of the recipient under section 56(2)(v) of the Act which also means that there would not be any difference between capital receipt liability and revenue liability/ receipt. This type of addition also leads to a situation of having two provision for charging one type of income i.e., the Legislature has provided two charging Sections i.e., Section 68 and 56(2)(v) which can not be so as in that case the legislation would have made the provisions of 56(2)(v) either of overriding nature by stating that “not-withstanding anything contained in Section 68” or by providing for applicability of provisions of Section 56(2)(v) in any other manner, in case provisions of Section 68 could not be invoked. In this regard, we are further of the opinion that when a specific provision exist in law for particular thing, then, that thing is liable to be examined there under only and if that item cannot be taxed under that provision, then, that thing cannot be charged to tax under other provisions of the Act. For example, if an item falls under the head “profits and gains of business or profession” but if the same cannot be taxed there-under for any reason, then, that cannot be taxed under any other head. Surprisingly, in present case, it is not that provisions of 68 were not applicable at all, hence, the Assessing Officer invoked the provisions of section 56(2)(v). On the contrary, the Assessing Officer has made necessary enquiries in that regard and the Assessing Officer has not made addition under section 68 for the reason that all the requirements of that section i.e., identity; creditworthiness and genuineness of transactions have been proved. Hence, in our view, a loan transaction has to be treated as a loan transaction only and it should be examined in the light of provisions of Section 68 and not under provisions of Section 56(2)(v) of the Act and for this reason alone, this addition is liable to be deleted.
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