In a recent Judgement, the Raipur bench of the Income Tax Appellate Tribunal ( ITAT) ruled that tax implications arise only when the asset is actually sold or transferred, no additions can be made based solely on accounting entries anticipating future benefits.
The respondent/ assessee, Inder Jaggi, an individual, filed their Return of Income (ROI) for the Assessment Year (AY) 2017-18 electronically on 07.11.2017, declaring a total taxable income of ₹8, 90,050. During the year under consideration, the assessee operated through three proprietorship firms: Siddhi Vinayak Baxi Motors, Siddhi Vinayak Purti Gas, and Taxi Owners United Transport Company. The case was selected for limited scrutiny under the Computer Aided Scrutiny Selection (CASS) system. Statutory notices under sections 143(2) and 142(1), along with a questionnaire, were issued. The assessee complied with these notices as required.
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During the assessment proceedings, the Assessing Officer (AO) observed that there was a need for an addition on account of unexplained income under section 68 of the Income Tax Act. The AO noted that the assessee had increased their capital by ₹80, 33,600 in their books of accounts, a figure deemed unsubstantiated and unexplained.
Mr. Satya Prakash Sharma, representing the revenue, contested the decision of the Commissioner of Income Tax (Appeals) [CIT (A)], who had deleted the addition made by the AO under section 68. Further argued that the CIT (A) had unjustifiably ignored evidence suggesting that the assessee manipulated their books of accounts. Sharma cited the case of Rameshwar Prasad Bagla (68 ITR), emphasizing that the totality of circumstances must be considered in cases involving circumstantial evidence.
The revenue contended that the AO’s addition was justified as the assessee had claimed a cost of acquisition of ₹80, 33,600 for the property, which was anticipated to be sold in the future. The revenue argued that such a claimed value should be acknowledged as the cost of acquisition, as recorded in the audited books of accounts.
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The AO noted that, in the absence of an option chosen by the assessee, the cost of acquisition for the property was treated as NIL. Since the property was recorded in the assessee’s books at ₹8, 33,600, the AO increased the capital by that amount, treating it as unexplained cash credit. The AO dismissed the assessee’s claim that provisions of section 55(2) r.w.s. 49(1) were applicable, stating that these provisions pertain to the year of sale or transfer, not the year in which the asset was received as a gift.
The tribunal, comprising Judicial Member Ravish Sood and Accountant Member Arun Khodpia, reviewed the rival submissions and evidence on record. They observed that the assessee had received the property as a gift from his father on 30.11.2016, with the fair market value determined at ₹80,33, 600. The property had traversed through various hands before being gifted to the assessee.
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The tribunal noted that the CIT (A) had correctly found that the tax implications of the gift would arise only when the asset is actually sold or transferred. The cost of acquisition should be determined based on applicable provisions at that time, not based on notional entries in the books of accounts.
The tribunal upheld the CIT (A)’s decision to delete the addition, concluding that the AO’s anticipatory assumptions regarding future tax benefits from the recorded value in the books were misplaced. The tribunal found no merit in the revenue’s arguments based on hypothetical future events. Consequently, the appeal filed by the revenue was dismissed.
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