Transaction relating to gift considered in regular assessment and nothing found during search or in post-search probe – transaction cannot be treated as undisclosed nor income from this transaction to be treated as undisclosed : ITAT
NEW DELHI, NOV 10, 2007 : THE assessee’s cross objection to a Revenue appeal read as,
“That the order of CIT(A) upholding the validity of proceedings inso far as they relate to gifts, Commission on gifts and Rental Income, are bad in law being beyond the scope of Chapter XIVB of the Income Tax Act 1961 and also contrary to the ratio of judgements reported.”
(1) The assessee received gift of Rs. 10 lakhs by Cheque No.365503 dated 24.3.1994 from Dr. Parwal.
(2) The cheque was deposited on 24.3.1994 and credit for the same was given by the bank on 13.4.1994. This is proved from the copy ofbank statement.
(3) The assessee got the FDR of Rs. 10 lakhs prepared out of the amount of gift. FDR was made on 29.4.1994. This is also proved from the same bank statement.
(4) The assessee had received interest on FDR which is also indicated in the bank statement.
The AO while making assessment order for Assessment Year 1995-96 asked the assessee to explain the credit entry of Rs.10 lakhs dated 13.4.1994 in his bank statement. In response to this the assessee had explained the entire facts including the amount of gift and the name of donor etc.
The assessee has filed documentary evidence to show that the amountof cheque was credited in the bank account on 13/4/1994 and thus the transaction of gift and interest income earned from FDR of Rs.10,00,000/ -which was prepared out of the amount of gift was duly disclosed to the department. It was shown that the assessee has filed copy of bank account.
The gift of Rs.10lakh was accepted as genuine in the assessment order made for Assessment Year 1995-96. The assessee has also filed computation of income for Assessment Year 1994-95. In this computation interest on FDR has been shown at Rs.6615/-. The assessee has also filed acknowledgement for filing return for Assessment Year 1994-95 which was filed on 28.8.1995. The computation of income filed with the return for Assessment Year 1995-96 also shows interest on FDR.
In view of the above it is clear that the assessee had disclosed the amount of gift and interest income thereon while filing income-tax return for Assessment Years 1994-95 and 1995-96 and this interest income has been duly assessed to tax in the course of regular assessment made under section 143(3) in these two assessment years. Therefore, it cannot be said that the transaction of gift or interest thereon was undisclosed transaction.
As observed by the Assessing Officer the notice under section 158BD of the Income-tax Act was issued to the assessee for initiating proceedings against him on 17.4.2001 and in response to this notice the assessee filed a return of block period showing ‘Nil’ undisclosed income on 1.6.2001. The assessment for assessment year 1995-96, wherein the gift of the assessee was accepted, was made on 18.3.1998 i.e. long before the initiation of proceedings under section 158BD against the assessee. It may further be noted that while filing the return, the assessee has put a remark which is as under:-
“This return is filed under protest as the assessee has no undisclosed income. However, the return is being filed in compliance to notice issued by ACIT, Circle 20(2) N. Delhi vide letter dt.
The assessee had taken objection to the initiation of the proceedings right from the very beginning. In his letter dated 28.4.2003 the assessee brought this fact to the notice of the
Assessing Officer that the gift from Dr. Parwal has already been accepted in the case of the assessee in assessment year 1995-96.
Before the Commissioner of Income-tax (Appeals) also the assessee had raised this objection by making submission in his letter dated 16.4.2003.
Despite the specific submission neither the A.O. nor the Commissioner of Income-tax (Appeals) examined the relevant matter to come to the conclusion that the amount of gift and interest thereon was undisclosed income of the assessee for taking action against him.
Referring to several decided cases and analysing the issue, the ITAT summarised as
(1) No search was conducted in the case of the present assessee. This is evident from the fact that assessment in the case of the present assessee has been made under section 158BD and not under section 158BC.
(2) During the course of search no adverse or incriminating material relating to the gifts was found. The documents found during the course of search only affirmed the making of gift by Dr. Parwal to the assessee in a sum of Rs.10 lakhs. There was no material or evidence to suggest that the gift was bogus or that it was purchased by the assessee or that the donor had taken any amount in consideration of the gift.
(3) There was no evidence of any premium having been paid by the assessee for taking the gift. The documents found during the course of search related to the transaction of gift and not to any transaction of paying any consideration for obtaining the gift. Even during post search inquiry or during assessment proceedings, no evidence was found to hold that the gift was obtained by the ssessee by making any payment.
(4) There is no material on record to draw the conclusion that the assessee had invested his own undisclosed income for purchasing the gift.
And the Tribunal held, In view of the above, since the transaction relating to gift stood disclosed and was considered in the regular assessment and no incriminating material was found during search or during post search inquiries, this transaction cannot be treated as undisclosed nor income from this transaction can be treated as undisclosed. In view of the provisions contained under section 158B of the I.T. Act, therefore, the action of the department in initiating proceedings under section 158BD in relation to the gift cannot be justified in law.
Regarding rental income, the contention of the assessee was that the same was disclosed to the department. In this regard before the Commissioner of Income-tax (Appeals) following plea was taken by the assessee:-
“The issue as to the ownership of the property and the rental income being shown in the hands of Smt. K. Jolly and interest income being shown by the assessee HUF are all relevant facts for regular assessment. There is no incriminating material found on search to support the Revenue’s case for taking action u/s 158BD of the I.T.Act Proceedings u/s 158BD are not to be based on any assumptions, surmises or conjectures. In the absence of there being any tangible evidence or material to show that the property in question belonged to the HUF and not to Smt. K. Jolly who is the real and beneficial owner, the proceedings u/s 158BD regarding that property also has to be dropped in the interest of justice and fair play. The assessee’s case is also supported by the finding given by the learned Commissioner of Income-tax (Appeals) in the case of Smt. K. Jolly as stated above.”
The Commissioner of Income-tax (Appeals) has not given any finding on this plea of the assessee. Since the details of rental income were disclosed by Smt. Krishna Jolly to the department and further since this rental income was subjected to regular assessment in her hands, this income can also not be treated as undisclosed income of the assessee and cannot be brought to tax by invoking section 158BD. It may also be pointed out that during the course of search no incriminating material indicating that the house belonged to the assessee HUF was found and therefore, the rental income shown in the hands of the assessee by taking recourse to section 158BD is also not justified.
So the tribunal finally held,
In view of the above, the block assessment order made in the case of the assessee under section 158BD cannot be legally upheld and consequently the additions made by the Assessing Officer against the assessee in the block assessment order dated 30.4.2003 on account of alleged gift at Rs.10 lakhs plus Rs.1lakh totalling Rs.11 lakhs and on account of income from house property at Rs.9,500/- + Rs.80,705/- + Rs.47,500/- cannot be sustained. Thus total undisclosed income worked out by the Assessing Officer under section 158 BD for the assessment years covered under the block period at Rs.12,37,705/ – is to be deleted because in view of our finding recorded above, the block assessment order cannot be upheld as there was no undisclosed income which was to be computed in the hands of the assessee on the facts and in the circumstances of the case.
The Revenue lost by going in appeal.