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Income Tax Appellate Tribunal, ‘SMC’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy
order : November 8, 2017 ORDER These two appeals by the assessee are directed against the order of the ld. Commissioner of Income Tax (Appeals)-14, (hereinafter the ‘ld. CIT(A)’), dated 30.11.2016 and 30.03.2017 passed u/s 143(3) of the Income Tax Act, 1961 (the ‘Act’) for the assessment year 2011-12 and 2012-13 respectively: 2. The grounds of appeal
in read as follows: “1. That on the facts and in the circumstances of the case, ld. CIT(A) having admitted that loans received from Wife, Mother & Brother in earlier year and conversion of such loan into capital A/c in the present year although does not attract to provisions of section 41(1) of Income Tax Act, 1961 tantamounts to profit & gain from business within the meaning of section 28(iv) of Income Tax Act, 1961.
2. That on the facts and in the circumstances of the case, ld. CIT(A) has erred in directing the Assessing Officer to consider the action of the appellant to convert the loan into capital A/c amounting to Rs.25,70,000/- as income u/s 28(iv) of I.T. Act instead of u/s 41(1) of I.T Act, 1961.
3. That on the facts and in the circumstances of the case, ld. CIT(A) is wrong and unjustified in dismissing the assessee’s appeal.
2 Debashish Chatterejee & 1280/KOL/2017 Assessment Year: 2011-12 & 2012-13 respectively 4. That the appellant craves leave to add, alter, adduce or amend any ground or grounds on or before the date of hearing of the appeal.”
After hearing rival contentions, I held as follows: The assessee has received the loans during F.Y 2009-10 relevant to A.Y 2010-11 from the following persons: Smt. Jui Chatterjee (wife): Rs.1,82,000/- Smt. Hena Chatterjee(mother): Rs.9,40,000/- Sri Dhiman Chatterjee (brother): Rs.6,63,000/- Sri Kalyan Chatterjee(brother): Rs.2,85,000/- SBPS: Rs.5,00,000/- Rs.25,70,000/- Total: During the current A.Y 2011-12, the assessee converted these loans into capital. The AO made an addition u/s 41(1) of the Income Tax Act, 1961. On appeal to the ld. CIT(A), the ld. CIT(A) upheld the contention of the assessee that section 41(1) of the Act is not attracted under the circumstances of the case. He brought this amount to tax u/s 28(iv) of the Act. Section 28(iv) reads as follows: “the value of any benefit or perquisite whether convertible into money or not, arising from business or the exercise of profession…” The ld. CIT(A) at Page 6 held as follows: “In the present case, the fact is undeniable that the appellant has been the recipient of a “gain” or “benefit” that is fully convertible into money.” Section 28(iv) cannot be applied to any benefit received in cash/money. Hon’ble Mumbai High Court in the case of Mahindra & Mahindra vs. CIT, 206 ITR 50(Mum) held that “Section 28(iv) does not apply to benefits received in cash or money.”
3 Debashish Chatterejee & 1280/KOL/2017 Assessment Year: 2011-12 & 2012-13 respectively The Mumbai Bench of the Hon’ble Tribunal in the case DCIT vs. Manish M. Chheda in ITA No.2703/Mum/07 dated 29.01.2009 held as follows: “17. As can be seen from the above, one of the condition necessary for applicability of section 28(iv) is the benefit or perquisite sought to be taxed must be arising in the course of business carried on. In the case Chetnaben B. Seth 203 ITR 24(Guj), Hon’ble Gujarat High Court has held that amount received by an assessee partner of a firm towards valuation of goodwill and assets of a firm at the time of retirement from the firm does not attract provisions of section 28 (iv) of the Act, since, the same cannot be said to be a perquisite arising from the business and that even otherwise it would not partake the character of income. Besides the above, we are of the view that the increase in capital of partner as a result of revaluation of assets of the firm has no nexus with the business of the firm and therefore cannot be brought within the ambit of section 28(iv) of the Act. We therefore hold that provisions of section 28 (iv) cannot be applied to bring the sum in question to tax in the hands of the partners of the firm.”
Applying the proposition of law as laid down in these laws to the facts of this case, I delete this addition on the ground that, what has received is money and perquisite sought to be taxed has not arising in the course of business carried on by the assessee and as the benefit received in cash.
In the result, this appeal of the assessee is allowed.
The Grounds of appeal
In ITA No.1280/Kol/2017 A.Y 2012-13 reads as follows: “1. That on the facts and in the circumstances of the case, Ld. C.l.T.(A) has proceeded on erroneous belief and misconception of law in considering cash flow statement of the appellant as not reliable and thereby confirming the action of A.O. who considered transfer of cash of Rs. 18,30,200/- from proprietary concern M/s. T. M. Agency to the capital A/c of another proprietary concern i.e. Chatterjee Fish Firm as unexplained U/s 69A of Income Tax Act, 1961.
2. That on the facts and in the circumstances of the case, Ld. C.l.T(A) is wrong and unjustified in accepting only profit element of Rs. 1,49,3OO/- from total out of book sales of Rs. 5,84,572/- and thereby sustaining addition of Rs. 4,35,272/- as unexplained capital introduction in Chatterjee Fish Firm U/s 69A of Income Tax Act, 1961.
3. That on the facts and in the circumstances of the case, Ld. C.l.T. (A) is wrong and unjustified in confirming the action of A.O. who considered capital introduction of Rs. 5,17,800/- in M/s. T. M. Agency as unexplained U/s 69A of income Tax Act, 1961.
4. That on the facts and in the circumstances of the case, Ld. C.l.T. (A) is wrong and unjustified in confirming the disallowance out of packing material and polythene purchases at an aggregate figure of Rs. 42,038/- on ad-hoc basis @ 3O%.
5. That on the facts and in the circumstances of the case, Ld. C.l.T. (A) is wrong and unjustified in upholding the action of A.O. who disallowed salary payment on ad-hoc basis @ 10%.
6. That the appellant craves leave to add, alter, adduce or amend any ground or grounds on or before the date of hearing of the appeal.”