Mumbai bench of Income Tax Appellate Tribunal (ITAT) has recently held that a receipt of gift cannot be taxed under section 56(2)(vi) merely on conjecture or surmises. The bench, while granting relief to an individual, assessee, clarified that in such cases, the AO has to prove beyond doubt that a particular receipt is taxable as income.
Merely because the person who paid the amount does not initiate any action for recovery of money is not sufficient for making addition, the bench said.
Assessee in the present case is an individual filed his return of income declared the total income as nil for the relevant assessment year.
During the course of assessment proceedings the Assessing Officer (AO) has noticed that the assessee engaged in the business of construction and development through other four concerns. And he received a large sum of Rs.43.50 crores from one of the concerns. After detailed examinations and further investigation the AO found that the aforementioned sum was shown by the assessee in his balance sheet under the head creditors and the same was deposited with his bank account. Accordingly, he made an addition of the said amount under section56 (2)(vi) of the Income Tax Act 1961.
The assessee contended that the said amount was received by him from a concern as advance for the purpose of procurement of a land and which deposited in the bank only for a temporary period and still the liability for the repayment to the creditor exists in the hands of the assessee and also produced all the documents and proofs related to the transaction.
On appeal the CIT (A) passed an order in favor of the asseseee finding that the AO was incorrect in treating advance received from the concern as amount received without any consideration as per the provisions of section 56(2)(vi) in light of the necessary details of the money received from the concern furnished by the assessee himself.
The assessee contended that he had received money from a concern under agreement for procurement of lands for the company and also submitted that he had entered into an agreement with the concern wherein terms and conditions of procurement of land has been specific and accepted by both the parties. It was stated that during the investigation, the Company has filed copies of agreement along with board resolution copies for approving the payment of advance to the assessee for procurement of land but he rejected all the documents and information.
After hearing the submissions of both the parties the Mumbai tribunal bench comprising of Judicial Member D.T. Garasia and Accountant Member G. Manjunatha has objected the addition made by the AO. The AO has made addition towards amount received from SPCL u/s 56(2)(vi) on the ground amount has been received without any consideration.
The division bench further stated that To tax a particular receipt as his income, it should be in the nature of income referred to under the provisions of section 56(2) or 68 or 28(iv) of the Act as discussed by the AO. The AO has taxed impugned amount on conjecture ad surmise, despite furnishing of evidences to prove that the impugned amount is merely an advance received and there is no element of income in such advances. It was also held that the AO was incorrect in bringing to tax the amount under the provisions of section 56(2)(vi) of the Income Tax Act.
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