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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
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.
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
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.”
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.”
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”.
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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.
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