PARAS JAVERILAL JAIN,DHULE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

आदेश / ORDER PER ANIL CHATURVEDI, AM :

This appeal filed by the assessee is emanating out of the 1. order of Commissioner of Income Tax (A) – 1, Nashik dated 14.09.2015 for the assessment year 2011-12.

Assessee is an individual stated to be engaged in the business of wholesale trading of Guar Refined Dal and Trading in plots. Assessee electronically filed his return of income on

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14.09.2011 declaring total income of Rs.10,37,650/- and

agricultural income of Rs.1,47,709/-. The case was selected for

scrutiny and thereafter assessment was framed u/s 143(3) of the

vide order dated 26.03.2014 and the total income was determined

at Rs.18,30,421/-. Aggrieved by the order of AO, assessee carried

the matter before Ld.CIT(A), who vide order dated 14.09.2015 (in

appeal No.Nsk/CIT(A)-1/122/2014-15) granted partial relief to the

assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in

appeal and has raised the following grounds :

“1. On the facts and in the prevailing circumstances of the case and as per the provision of law, it may please be held that the learned CIT(A) has grossly erred In confirming the addition of Rs.6,50,000/- even-though, all the ingredients requires to prove the credits as per the provision of section 68 of the I T Act, have been full-filled by the appellant and also proved the genuineness of said gift. Therefore, finding of the A.O and CIT(A) may please be vacated and addition may please be deleted. 2. On the facts and in the circumstances prevailing in the case and as per the provision of law, it may please be held that the learned CIT(A) has grossly erred in confirming the addition of Rs.21,849/- even-though, provision of section 14A is not applicable to the facts of the case, as sufficient own funds were available with the appellant for making such investment and A.O has not proved any nexus of the said investment was made out of the borrowed fund. The CIT(A) violating the principles laid down in the decision of Jurisdictional High Court, and confirmed the addition. Therefore, finding of the AO and CIT(A) may please be vacated and addition may please be deleted. 3. On the facts and in the circumstances prevailing in the case and as per the provision of law, it may please be held that the learned CIT(A) has grossly erred in restricting the development expenses at Rs.2,00,000/-, as against claimed at Rs.5,89,000/- in the year 2009-10. Therefore, the said expenditure incurred in the earlier year and which was either allowed u/s 143(1) or 143(3), cannot be disallowed arbitrarily on assumption and presumption basis. Therefore, finding of the A.O and CIT(A) may please be vacated and addition may please be deleted.”

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68 of the Act.

3.1. During the course of assessment proceedings AO noticed

that assessee had received gift of Rs.6,50,000/- from Sushiladevi

Ramesh Jain (the donor) which was credited to his capital

account. The assessee was asked to explain the amount credited

in the capital account with supporting evidence and material.

Assessee furnished the copy of the acknowledgment of return of

income and computation of income of the donor. On perusing the

computation of income of the donor, AO noticed that donor had

declared total income of Rs.1,86,177/- which comprised on interest

from Bank (Rs.456/-), interest on FDRs (Rs.2,130/-) and interest

from parties (Rs.2,12,364/-). AO thereafter issued a letter to the

donor u/s 133(6) of the Act asking the details for PAN,

computation of income, ledger account etc. The donor furnished

her bank statement with SBI Branch, Bekaner, Jodhpur bearing

account No.61001363152. On analyzing the bank statement, AO

noticed that the donor has deposited cash of Rs.5,00,000/- on the

same day on which the gift was given by her to the assessee. He

further noticed that the bank statement reflected the transactions

involved in the small amount except one transaction of Rs.1.5 lacs

on 27.09.2010 which was again gift by her to the assessee. He

noticed that except for the gift related transactions of major

amounts, no transactions involving major amounts were noticed in

the bank account. He also noticed that that donor neither had

received nor had given any gift in the last four years except to the

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assessee. AO therefore concluded that there was nothing to show

that the donor has financial capacity and creditworthiness to give

gift to the assessee. AO therefore did not accept the credit of gift of

Rs.6,50,000/- to assessee. He accordingly treated the amount of

gift of Rs.6,50,000/- claimed by the assessee as income of the

assessee and made its addition u/s 68 of the Act. Aggrieved by the

order of AO, assessee carried the matter before Ld.CIT(A), who

upheld the order of AO by observing as under :

“6.6 From the discussion cited, supra, it emerges that the opinion of the AO is required to be formed objectively with reference to the material on record. Such opinion formed by the AO itself constitutes a prima facie evidence against the assessee i.e. the receipt of money and if the assessee fails to rebut the said evidence the same can be used against the assessee by holding that it was a receipt of income in nature. All issues are essentially in the realm of appreciation of facts.

6.7 In the present case, the AO after considering the material available on record and examining the facts produced has observed that the donor has deposited the cash on the same day on which the gift was given to the done. Therefore, the inference drawn By the AO that the gift is non genuine is not without any basis. The AO also found that the donor had no balance to give this gift. Just before giving gift it deposited cash and forwarded the same to the appellant. This shows that donor did not possess the creditworthiness to give the gift. Further, the appellant neither before the AO nor before me could produce any substantiating document to prove the genuineness of transactions. Merely proving the identity of the donor does not discharge the onus of the assessee if the capacity or creditworthiness of the donor is not proved. The assessee also has to prove the capacity to give gift of the donor. For example in Shankar Ghosh v ITO (1985) 23 TTJ (Cal.) 20 the assessee failed to prove the capacity of the person from whom he had allegedly taken loan. Further, the assessee could not explain the reason for the gift or what was the special occasion for which the gift was given. Therefore, the gift amount was rightly held as assessee's own undisclosed income. In view of this fact, through the appellant is able to establish the identity of the donor, it cannot be said that the assessee was able to prove the creditworthiness of the donor or the genuineness of transaction of the gift. A harmonious construction .of section 106 of the Indian Evidence Act and 68 of the IT Act will be that though apart from establishing the identity of the donor the assessee must establish the genuineness of the transaction as well as the creditworthiness of the donor. In view of this fact, through the appellant is able to establish the identity of the donor, it cannot be said that the assessee was able to prove the

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creditworthiness of the donor or the genuineness of transaction of the loan. Therefore, the AO had rightly added the sum of Rs.6,50,000/- to the appellant's income and held it to be subject to tax.

6.8 Human probability test is one of the important tests laid down by Supreme Court in order to check the genuineness of transaction entered into books of account of the assessee.

She thereafter after referring to the Human Probability Test as laid

down in Durga Prasad More reported in (1971) 82 ITR 540 (SC)

and the decision in the case of Sumati Dayal Vs. CIT (1995) 214

ITR 801 (SC) observed as under :

6.9.2. Thus, the court has laid down a test to analyses the genuineness as of the entry through the logical analysis. The Human Probability Test has been applied in plethora of cases for Hacienda Farms (P) Ltd., Vs. CIT (2011) 239 (Bom) 385, Major Metals Ltd. 2012 251 CTR (Bom) 385 etc. Applying the human probability test in my opinion the appellant is not able to prove the creditworthiness of the lender and the genuineness of the loan transaction.

6.9.3 Similarly, the assessee has placed reliance on number of other case laws in support of its contention that no addition on cash credits can be made. However, the assessee has not been able to depict similarity and equitability of facts from the case cited with his own case. Perusal of these decisions, however, shows that the judgments of Hon'ble Courts were based on the facts and the cases which are being decided and which are distinguishable from the facts in the case of assessee.

6.10 In view of the facts of the case and relevant judicial pronouncement, I hold that the Assessing Officer was right in rejecting the claim of appellant of gift of Rs.6,50,000/- as the bonafide of the same was not established. The contention of the appellant stands rejected.”

Aggrieved by the order of Ld.CIT(A), assessee is now in

appeal.

AO and Ld.CIT(A) and further pointed to the letter of the donor

which was addressed to the AO wherein the donor had confirmed

the gift made by her to the assessee. He submitted that the gift

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was through cheques. He also pointed to the computation of

income which is placed at page 126 of the paper book and from the

aforesaid computation, he submitted that the assessee had total

income of Rs.2.6 lakhs. He thereafter pointed to the declaration of

gift which is placed at page 179 of the paper book wherein the

donor has confirmed the giving of gift to the assessee. He further

submitted that the assessee was brother-in-law of the donor and

the gift was between close relatives. He submitted that assessee

has demonstrated the capacity and the genuineness of gift. He

further submitted that no query with respect to deposit of cash was

raised by the AO and the same was not confronted to the donor.

He thereafter placed reliance on the decision of Hon’ble Gujarat

High Court in the case of DCIT Vs. Rohini Builders reported in

256 ITR 360, decision of Hon’ble Gauhati High Court in the case of

Nemi Chand Kothari Vs. CIT and another and the decision of Pune

Tribunal in the case of ITO Vs. Smt. Indira Kamalakar Yeula (in

ITA No.021/PN/2012 order dt.27.11.2012). He also placed on

record the copy of the aforesaid decisions. He therefore submitted

that since the assessee has satisfied the three conditions stipulated

u/s 68 of the Act namely, the identity of the creditor, the

genuineness of the transaction and the creditworthiness of the

creditor no addition is called for and submitted that the addition be

deleted. Ld.D.R. on the other hand, took me through the findings

of AO and Ld.CIT(A) and further submitted that assessee has not

proved the capacity of the donor to the gift. He also pointed to the

findings of AO wherein he has noted that cash was deposited on

the same day on which the cheque was issued to the assessee. He

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also placed reliance on the decision of Hon’ble Calcutta High Court

in the case of CIT Vs. Precision Finance (P) Ltd., reported in (1994)

208 465 (Calcutta). He thus supported the order of AO and

Ld.CIT(A).

on record. The issue in the present ground is with respect to

addition u/s 68 of the Act. It is undisputed fact that assessee has

received a gift of Rs.6,50,000/- from Susheela Devi Jain, who is

stated to be related to the assessee. It is also an undisputed fact

that gift has been received through bank channels. However, I find

that AO after calling for the details u/s 133(6) of the Act and on

examination of the bank account of the donor has noted that the

donor (Susheela Devi Jain) had deposited cash of Rs.5,00,000/-

on the same date on which the gift was given by her to the

assessee. AO has also noted that the bank statement reflected

only the small transactions involving small amounts except for the

transaction of Rs.1.5 lacs on 27.09.2010 which was the gift to

assessee. AO has also noted that donor had neither received nor

given gift to any person in the last four years except to the assessee

and that the donor had declared total income of Rs.1,86,177/-.

The aforesaid findings of AO has not been controverted by Ld.A.R.

Further the onus u/s 68 of the Act can be said to have been

discharged only when the assessee proves identity and capacity of

the creditor along with the genuineness of transaction to the

satisfaction of the AO. All the three constituents are required to be

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cumulatively satisfied. If one or more of them is absent, then AO

can lawfully make addition.

DCIT Vs. Rohini Builders (supra) Nemi Chand Kothari Vs. CIT and

another (supra) and ITO Vs. Smt. Indira Kamalakar Yeula (supra).

It is a settled legal position that every case depends on its own

facts and even a slightest change in the factual scenario makes one

case distinguishable from another. I find that the facts in the

cases relied upon by Ld.A.R. are distinguishable and are not

applicable to the present set of facts because in none of the cases it

was a case where the AO had found that the donor had deposited

cash on the same day on which the gift was given by the donor

whereas in the present case, AO has observed that cash was

deposited before giving the gift to assessee and the bank account of

the donor did not reflect any major monetary transactions.

Considering the totality of the aforesaid facts, I find no reason to

interfere with the order of Ld.CIT(A) and thus, the ground of the

assessee is dismissed.

14A of the Act.

7.1. During the course of assessment proceedings, assessee had

received exempt income in the form of dividend from the companies

and exempt capital gains from shares apart from maturity

proceeds from LIC money back policy. Assessee was asked to

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explain as to why the provisions of Sec.14A of the Act were not

applicable. AO also noticed that assessee had debited the net

interest of Rs.8,68,012/-. AO noted that assessee has not proved

the nexus of investments with own funds. He was of the view that

the provisions of Sec.14A of the Act are applicable. He thereafter

worked out the disallowance u/s 14A of the Act at Rs.21,849/-

and made its disallowance. Aggrieved by the order of AO, assessee

carried the matter before Ld.CIT(A), who upheld the order of AO.

Aggrieved by the order of Ld.CIT(A), assessee is now in appeal.

AO and Ld.CIT(A) and further submitted that no proper satisfaction

was recorded by the AO before invoking the provisions of Sec.14A

of the Act. On the merits he pointing to the capital account of the

assessee which is placed at page 38 of the Paper Book submitted

that assessee’s capital account is in excess of Rs. 2.29 crores as

against the investments in shares of Rs.7.92 lacs. He thereafter

submitted that assessee has earned net interest income and it is

not a case of net interest payment and in support of the aforesaid

contention, he pointed to the profit and loss account which is

placed at page 34 of the Paper Book. He therefore relying on the

decision of Hon’ble Bombay High Court in the case of HDFC Bank

Limited Vs. DCIT reported in (2014) 366 ITR 505 (Bom) submitted

that in such a situation, no disallowance of interest under Rule

8D(2)(ii) is called for. He therefore submitted that no disallowance

is called for in the present case. As an alternative contention, he

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submitted that 50% of the disallowance may be upheld. Ld.D.R.

on the other hand, supported the order of AO and Ld.CIT(A).

on record. The issue in the present case is with respect to

disallowance of interest u/s 14A r.w.r 8D of the Income Tax Rules.

The copy of the Balance-Sheet as on 31.03.2011 which is placed

in the Paper Book reveals that assessee’s capital account is 2.29

crores as against the investments of Rs.7.92 lacs meaning thereby

that the availability of interest free funds are much more than the

investments. The Hon’ble Bombay High Court in the case of

HDFC Bank Limited (supra) has held that when the own funds are

more than investments then no disallowance of interest u/s 14A of

the Act is called for. The aforesaid ratio of Hon’ble Bombay High

Court has been followed in various decisions rendered by the Pune

Benches of the Tribunal. Before me, Revenue has not placed any

contrary binding decision in its support. Further the Profit and

Loss account which is placed at page 34 of the Paper Book also

shows that assessee has earned net interest income. Considering

the aforesaid facts and in the light of the aforesaid decision of

Hon’ble Bombay High Court in the case of HDFC Bank Ltd.,

(supra), I hold that no disallowance of interest under Rule 8D(2)(ii)

is called for in the present case. I therefore direct that the deletion

of addition to the extent of Rs.18,044/- made by the AO. As far as

disallowance u/s 14A r.w.r 8D(2)(iii) of administrative expenses of

Rs.3,805/- is concerned, I find no reason to interfere with the

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order of Ld.CIT(A). Thus, the ground of the assessee is partly

allowed.

expenses.

10.1. During the course of assessment proceedings AO noticed

that assessee has shown long term capital gains of Rs.7,61,373/-.

The assessee was asked to furnish evidence and material

supporting income from capital gains. On the basis of submissions

made by the assessee, AO noticed that assessee had purchased a

land for Rs.1,20,000/- in 2013 at Sy.No.88/1 of Dondaicha.

Assessee had further added cost of improvement incurred in the

year 1999-10 at Rs.5,89,540/-. The assessee was asked to

substantiate the cost of improvement of Rs.5,89,540/-. AO noticed

that assessee did not furnish any evidence with respect to the cost

of improvement. He accordingly denied the cost of improvement

and re-worked the capital gains at Rs.8,56,712/- and denied the

excess claim of Rs.95,312/-. Aggrieved by the order of AO,

assessee carried the matter before Ld.CIT(A), who granted partial

relief to the assessee by observing as under :

“7.3 I have carefully considered the facts of the case, the submission of the appellant and the order of the Assessing Officer material available on records. From the details submitted by the appellant it is observed that all the payments made for cost of improvement is made in cash. This cannot be substantiated by any corroborating evidence. Considering the entire facts and circumstances of the case, the cost of improvement is restricted to Rs.2,00,000/-. The AO is directed to re-compute the Capital Gain accordingly. Ground is allowed in part.”

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Aggrieved by the order of Ld.CIT(A), assessee is now in

appeal.

AO and Ld.CIT(A) and further submitted that the cost of

improvement was added to the fixed assets and is reflected in the

assessee’s Balance-Sheet for the period 31.03.2010 and in support

of which he pointed to the Fixed Asset Schedule placed at page 31

of the paper book. He further submitted that the additions made

in earlier years has been accepted by Revenue. He further

submitted that the addition has been made on estimate basis

without giving any reasons and therefore submitted that the

addition be deleted. As an alternative contention, he submitted

disallowance be restricted to a reasonable amount. Ld.D.R. on the

other hand, supported the order of AO.

on record. The issue in the present ground is with respect to the

disallowance of cost of improvement. I find that AO while

disallowing the claim has noted that assessee had not produced

any evidence to prove the genuineness of expenditure on

improvement to the assets. I further find that Ld.CIT(A) though

has noted that all the payments made towards the cost of

improvement was incurred in cash and was not substantiated by

any corroborative evidence but restricted the cost of improvement

to Rs.2 lacs. Considering the fact that the cost of improvement

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has been accepted by the Revenue in earlier years and Revenue

has not doubted the incurring of cost of improvement, I am of the view that the cost of improvement be allowed to the extent of Rs.3

lacs. I direct accordingly. Thus, the ground of the assessee is

partly allowed.

Order pronounced on the 11th day of January, 2019.

Sd/- (ANIL CHATURVEDI) लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 11th January, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER

// True Copy //

व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.