HARSHADRAI CHATURDAS PATEL,KOLHAPUR vs. INCOME-TAX OFFICER, WARD - 2 (2), KOLHAPUR

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ITA 1781/PUN/2017Status: DisposedITAT Pune21 August 2018AY 2010-114 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the amount received was a genuine interest-free loan, which is repayable and not a receipt without consideration. Therefore, Section 56(2)(v) was not applicable.

What were the facts?

The assessee received an interest-free unsecured loan of Rs. 2,43,768/- from a friend residing abroad. The Assessing Officer (AO) treated this loan as income under Section 56(2)(v) of the Income Tax Act, considering it a receipt without consideration.

What were the issues?

Whether an interest-free loan, which is repayable, constitutes a receipt without consideration attracting Section 56(2)(v) of the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 56(2)(v)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE

Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM

For Respondent: Shri Rajesh Gawli
Hearing: 20.08.2018Pronounced: 21.08.2018

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

This is the appeal filed by the assessee against the order of CIT(A)-2, Kolhapur, dated 02-06-2017 for the Assessment Year 2010-11.

2.

Before us, there is none to represent the assessee despite successful service of notice on the assessee. However, considering the smallness of the addition and also availability of the assistance of Ld. DR for the Revenue for explaining the facts relating to the issues, we proceed to adjudicate the same on the basis of material available on record. We further noticed that there is service of defect notice with regard to furnishing of assessment order in the appeal memo. The assessee corrected the same by sending the required pages through the post.

2 ITA No.1781/PUN/2017 Harshadrai Chaturdas Patel

3.

Grounds raised by the assessee are extracted here as under :

“1. The Ld.CIT(A) erred in considering the transfer of loan to capital account as gift. 2. The Ld.CIT(A) erred in confirming the addition of Rs.2,43,768/-. 3. The Ld.CIT(A) erred in not considering the fact that the loan had already been returned and was not a gift. 4. Any other ground that may allowed to be raised at the time of hearing.”

4.

Briefly stated relevant facts of the case include that the assessee is

an individual and filed the return of income on 24-09-2010 declaring total

income of Rs.9,43,920/-. During the assessment proceedings, AO noticed

a credit of Rs.2,43,768/- in the accounts. Enquiries revealed that the said

amount is given by a creditor named Mr. Rinki Sombhai Patel. He is said

to be a distant relative and close friend who resides abroad (USA).

Assessee furnished copies of e-mail from Mr. Rinki Sombhai Patel, who

gave said interest free unsecured loan to assessee through the banking

channels. However, the AO invoked provisions of section 56(2)(v) of the

Act and taxed the same as per the discussion given in Para Nos. 5.1 and

5.2 of the assessment order. AO determined the assessed income at

Rs.11,87,690/-.

During the First Appellate proceedings, the assessee made elaborate

written submissions. After considering the same, as per the discussion

given in Para No.5.1, the CIT(A) dismissed the appeal of the assessee for

the year under consideration. For the sake of convenience, relevant

operational lines are reproduced here as under :

“5.1.......................... ............................To my mind, this argument of the appellant is misconceived and misinterprets the words ‘without consideration’ in sec.56(2)(v). The appellant also produced before me a set of email

3 ITA No.1781/PUN/2017 Harshadrai Chaturdas Patel

correspondence between Vikalp Patel, S/o. the appellant and Mr. Rinki Patel dated Feb & March 2016 wherein once again Mr. Patel of USA has confirmed having given the money to the appellant and also requested him to pay the same to some other person in India. (It is to be noted that the figure of loan mentioned in this email is Rs.2,00,000/- only). To my mind this evidence is irrelevant for the controversy at hand. The loan has been appropriated by the appellant as his capital in the A.Y. 20100-11 on the basis of instructions from the loan creditor himself. Thus at that point of time, the same has changed nature from a loan to a receipt gratis, i.e. without consideration. It therefore falls within the mischief of sec.56(2)(v) as it satisfies all ingredients of the section. It is also not the case of the appellant that he has the protection of the proviso to sec.56(2)(v). The subsequent payment of the money to someone else on behalf of Rinki Patel is merely application of income of the appellant. I am unable to agree with the appellant on this issue and therefore uphold the action of the AO in assessing Rs.2,43,768/- as income u/s.56(2)(v). Accordingly appeal for AY 2010-11 is dismissed.”

5.

We heard the Ld. DR for the Revenue and perused the material

available on record. On perusing the facts of the case, we find this is

a case where assessee received unsecured loan from Mr. Rinki

Sombhai Patel, who resides in USA. In principle, the loan is

confirmed by Mr. Rinki Sombhai Patel, the loan creditor. Therefore,

there is no dispute about the identity of the person. The payment is

received by the assessee through banking channels from the person

staying abroad. It is not the case of the AO that the genuineness of

the transaction or credit worthiness of the transaction is suspicious.

Therefore, we are of the opinion that, in principle, the loan constitute

a genuine one and the addition made by the AO is unsustainable as

such.

5.1 Now coming to the applicability of the provisions of section

56(2)(v) of the Act, it is the case of the Revenue that the provisions of

said section attract such credits. In our view, this view of AO/CIT(A)

is unsustainable for the reason that the said clause (v) deals with a

situation where the amount is received “without consideration”.

4 ITA No.1781/PUN/2017 Harshadrai Chaturdas Patel

However, the transaction in the present case is that it is an interest

free loan and the same is repayable to the creditor at the convenience

of the assessee. It does not mean the creditor forfeited the loan.

Therefore, such language mentioned in the said email copy cannot be

equated with payment received by the assessee “without

consideration”. The amount repayable by the assessee cannot be

considered as “a receipt without consideration”. Therefore, this line

of approach of the AO/CIT(A) is unsustainable in law. Accordingly,

the grounds raised by the assessee are allowed.

6.

In the result, the appeal of the assessee is allowed.

Order pronounced on 21st day of August, 2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य

पुणे Pune; �दनांक Dated : 21st August, 2018 सतीश आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत

अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-2, Kolhapur 4. The Pr.CIT-2, Kolhapur िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “SMC Bench” 5. Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार आदेशानुसार

स�यािपत �ित //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

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