No Addition u/s 68 can be Made When No Fresh Receipt of Money During the Year under Consideration: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Mumbai Bench, has recently in an appeal filed before it, held that no addition u/s 68, can be made when there is no fresh receipt of money during the year under consideration.

The aforesaid observation was made by the Mumbai ITAT, when an appeal was preferred before it by the Revenue as against the order of the Commissioner of Income Tax (Appeals), Mumbai, in an appeal dated 16/08/2019, as against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961, dated 30/03/2016, by the Asst. Commissioner of Income Tax-16, Mumbai.

The ground raised by the Revenue in its appeal being the deletion of addition of Rs.1,67,10,442/- made u/s.68 of the Income Tax Act, the facts of the case were that the assessee had credited an amount of Rs.1,67,10,442/- on account of gifts received from Shri Anil Hingorani.

 During the course of assessment proceedings, the assessee was asked to explain and furnish the occasion for which the gift was received and the creditworthiness of the donor, bank statement of the donor etc, in response to which, it was submitted by the assessee that the gifts were received by him out of the natural love and affection from his brother.

It was further explained by the assessee that assessee had actually taken loans in earlier years from his brother which was converted as gift during the year under consideration, however, AO being not heed to the contentions of the assessee, thereby proceeded to add the same as unexplained cash credit u/s.68 of the Income Tax Act.

On appeal, the assessee before the CIT(A) explained that his brother was a non-resident and that the entire details called for by the AO could not be thus furnished at the time of assessment proceedings due to paucity of time. And accordingly, he requested for the admission of additional evidences containing bank statement, confirmation from brother confirming the gift, together with other details that were called for by the AO.

The CIT(A) having appreciated the contentions of the assessee, thereby admitted those additional evidences and forwarded the same to the AO, seeking for remand report.

The AO having submitted the remand report vide letter dated 24/07/2019, mentioning that the assessee had first transferred the loans from Shri Anil Hingorani which was appearing in the books of his proprietorship concern i.e. Savy Designs, to his capital account and correspondingly transferring the same as gift in his personal books of accounts, acknowledged the furnishing of the documents by the assessee,  and after necessary verification, admitted that the assessee had established the identity and creditworthiness of the donor.

However, the AO having acknowledged the fact that the amount of loan payable to Shri Anil Hingorani by Savy design, the proprietorship concern of the assesse, was converted into gift by crediting the amount to assessee’s capital account, he opinioned the same to be a colourable devise used by the assesse, to avoid the payment of tax.

And although the AO opinioned as above, the CIT(A), however, by appreciating the fact that the assessee had duly discharged its onus in terms of section 68 of the Income Tax Act and that no monies were received by the assessee during the year, granted relief to the assessee by deleting addition made u/s.68 of the Income Tax Act. And it is being aggrieved by the same, that the Revenue has preferred the instant appeal before the Mumbai ITAT.

Hearing to the opposing contentions of both the sides as presented by Shri Sanjay Parikh on the assessee’s behalf , and Shri Amit Pratap Singh on the Revenue’s behalf, the ITAT Bench consisting of Rahul Chaudhary, the Judicial Member, along with M.Balaganesh, the  Accountant Member observed as follows :

“It is not in dispute that the assessee‟s proprietorship concern Savy Designs had borrowed loan from Mr. Anil Hingorani in earlier years. At the time of receipt of loan, no addition has been made u/s.68 of the Act in the hands of the assessee. It is not in dispute that this loan lying in the proprietorship concern books of the assessee is converted as gift during the year under consideration. Thus, there was no fresh receipt of money during the year under consideration. Hence, on this count itself, the provisions of Section 68 of the Act could not come into operation at all.”

“When the provisions of Section 68 of the Income Tax Act per se could not be made applicable, as no receipt of money was available during the year under consideration and in view of the fact that gift has been received only from assessee’s own blood brother (which would be exempt from tax), the decision relied upon by the Revenue of the Hon’ble Supreme Court in the case of CIT vs.Durga Prasad as well as that in the case of Sumati Dayal reported, does not come to the rescue of the Revenue. The gift confirmation also says that the same is irrevocable.”, the ITAT Bench added.

Thus, dismissing the Revenue’s appeal, the Mumbai ITAT held:

“In view of the documents which remained uncontroverted before us and in view of the aforesaid observations, we have no hesitation in confirming the order of the ld. CIT(A) granting relief to the assessee in this regard.”

To Read the full text of the Order CLICK HERE

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