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Income Tax Appellate Tribunal, “D”, BENCH MUMBAI
Before: SHRI B.R.BASKARAN, AM & SHRI PAWAN SINGH, JM Shri Rakesh Kumar Garodia,
PER PAWAN SINGH, JM:
The present appeal filed by the Revenue against the order of CIT(A)-34, Mumbai dated 05.03.2013 for Assessment Year (AY)-2006-07. The Revenue has raised the following Grounds of appeal: "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim and holding that the reopening proceedings u/s.147 of the Act initiated by the AO was bad 'in law and based on Change of opinion despite the truth that neither AO raised query on non- applicability of section 56(2)(v) not assessee gave any clarification during original assessment proceedings, hence no application of mind; 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the reopening u/s.147 bad in law, ignoring that the reopening is done within 4 years from the end of relevant assessment year; 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in adjudicating the appeal in favour of assessee when the gift received from HUF cannot be treated as exempt as HUF does not comprise in the definition of close relative as per the provisions of section 56(2)(v) of the Act and thus Ld.CIT(A) not believing unambiguous language of aforesaid section." The appellant prays that the order of the CIT(A) on the grounds be set aside and matter may be decided according to law. The appellant craves leave to amend or alter any ground or add new ground which may be necessary.”
Brief facts of the case are that the assessee filed return of income for relevant AY on 24.07.2006. The return of income was selected for scrutiny. After issuing notice u/s. 143(2) and 142(1) and considering the reply thereof, the assessment was completed u/s 143(3) of the Act on 14.11.2008. Subsequently, the case was re-opened u/s. 147 of the Act, vide notice u/s. 148 was issued on 24.03.2011. The
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assessee appeared before the Assessing Officer (AO) and sought reasons of re- opening which was supplied along with noticed dated 28.07.2011. The following reasons were supplied to the assessee. “During the year under consideration, the assessee received gift of Rs. 82 lakh from Sh Rakesh N Garidia HUF, of which the assessee is Karta. Perusal of details of income revealed that assessee has claimed this gift received of Rs. 82 lakhs as accepted under section 10(42). As per the provisions of section 56(2)(v) of the Act, the Karta or C0-oparcenar of the HUF is not prescribed in the definition of relative, hence the amount of Rs.82 lakhs received by the Karta from HUF and claimed as gift is not a “gift”. Therefore, the undersigned has reason to believe that the income to that extent has a escaped assessment. In order to tax the said amount, the notice under section 148 is been issued to reopen the assessment under section 147.”
The assessee vide his reply dated 04.09.2011 submitted that the return filed earlier on 24.07.2006 be treated as return against the notice u/s. 148. During the reassessment proceeding, the Gift of Rs. 82 lacs claimed exempted u/s. 56(2)(v) from HUF was disallowed holding that gift received by the assessee from HUF is not covered as per Explanation attached to Section 56(2)(v) of the Act. Resultantly, the gift received by assessee was treated under the head “Income from Other Sources”, in the assessment order passed u/s. 143(3) r.w.s. 147 of the Act. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A), wherein the reassessment was held as bad-in-law. Aggrieved by the impugned order of CIT (A), the Revenue has filed the present appeal before us.
We have heard Departmental Representative (DR) for Revenue and Authorized Representative (AR) of assessee. The DR for Revenue argued that CIT(A) wrongly held that re-opening was bad-in-law or the same was based on the change of opinion. During the original assessment proceeding, there was no application of mind with regard to the gift received from HUF. Ld DR further supported the order of AO u/s. 143(3) r.w.s.147 of the Act. On the other hand, AR of the assessee argued that during the original assessment proceeding, the AO issued notice u/s. 142(1) dated 31.10.2008 along with the detailed questionary and vide Question No. 12, the AO required the details of gift received by assessee. The assessee submitted the reply on all queries including gift received from Rakesh Garodia (HUF) along with the Declaration of Gift which was duly accepted by the AO while passing the assessment order u/s. 143(3) dated 14.11.2008. Ld AR of the assessee further relied upon the decision of ITAT
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Hyderabad in ITA No. 47/Hyd/13 titled as ITO vs. Dr. M. Shobha Ravhuveera and on the decision of jurisdictional High Court in German Remedies Ltd Vs DCIT(2006) 285 ITR 26 (Bom).
We have considered the rival contention of the parties and perused the material available on record. During the original assessment proceeding, notice u/s. 142(1) was issued along with the detailed queries. And particularly while query no.12, the AO seek the details of gift received by the assessee. The assessee furnished its reply along with the documentary evidence in the form of declaration of gift received by assessee from HUF. After seeking explanation, the AO passed assessment order dated 14.11.2008. The assessment was re-opened by the AO vide notice dated 24.03.2011 i.e. within 4 years of completion of original assessment. The assessee filed the reply to the notice of re-opening vide reply dated 09.06.2011. Along with reply, the assessee sought for the reasons recorded for re- opening. The reasons for re-opening was supplied to the assessee vide letter dated 28.07.2011, thereafter, assessee submitted vide his letter dated 04.09.2011 that original return was filed by assessee on 24.07.2006 be treated as a return filed in compliance of notice u/s. 148. Again the AO issued notice u/s. 143(2). The assessee submitted its reply and contended that during the original assessment proceeding, the AO specifically asked for the details of the gifts received during the accounting year which was furnished by the assessee. The assessee further contended that the notice issued u/s. 148 r.w.s. 147 is void ab-initio and be quashed. We have perused the notice u/s 142(1) dated 31/10/2008 and the detailed questionary including Question No 12 “ Details of Gift given and received”. The assessee submitted the reply of all question and the details of gift and submitted the document ie “Declaration of Gift” dated 19/09/2005. The contention of the assessee was not accepted and AO concluded as per Explanation to Sec. 56(2)(v) of the Act, the gift received from the person mention therein is exempt. The HUF is not mentioned in the list of relative, and treated the gift as “Income from Other Sources”. However, the CIT(A) while dealing with the grounds of validity of re- opening observed that during the assessment, the details along with gift-deed were furnished to AO. The perusal of documents/gift-deed clearly indicates that assessee in his capacity as ‘Karta’ of HUF given a gift of Rs. 82 lacs to the individual. The gift was given by way of cheque which was duly accepted by the AO, thus the issue of notice u/s. 148 is based on reappraisal the same material which amounts to change of opinion and thus the same is bad in law. However,
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after considering the merit of the case, the appeal of the assessee was allowed. In German Remedies Ltd. Vs. DCIT reported vide (2006) 285 ITR 26 (Bom), the jurisdictional High Court held as under: “Though the power conferred under section 147 of the Income-tax Act, 1961, for reopening a concluded assessment is very wide, it cannot be exercised mechanically or arbitrarily. The expression “reason to believe that any income chargeable to tax has escaped assessment” means entertaining a reasonable belief that a particular income went unnoticed by the Assessing Officer and hence escaped assessment. Even after the introduction of the concept of deemed escapement of income by Explanation 2 to section 147 of the Act with effect from April 1,1989, the belief that the income has escaped assessment entertained by the Assessing Officer must be a prudent belief and not mere change of opinion. The assessment order passed after detailed discussion cannot be reopened within a period of four years from the end of the relevant assessment year, unless the Assessing Officer has reason to believe that due to some inherent defect in the assessment, income chargeable to tax has been underassessed or assessed at too low a rate or excessive relief has been granted or excessive loss or depreciation allowance or any other allowance under the Act has been computed”.
In CIT vs. Dr. M. Shobha Ravhuveera (supra) the Co-ordinate Bench of Hyderabad Tribunal while considering the identical ground and relying on the decision of Ahmadabad Bench in Harshabhai Dahyalal Vaidhya (HUF) V/s. ITO (155 TTJ (Ahd) 71) hold that HUF is nothing but the group of relative. Merely because it has given a legal status as a HUF, the individual do not lose their identity as relative and such group of relative, who are member of HUF clearly falls within the definition of term ‘relative’ as prescribed in the Explanation to Clause-5 of sub-section 2 of section 56. The Co-ordinate Bench of Hyderabad Tribunal referred the ratio of Harshabhai Dahyalal Vaidhya (HUF) V/s. ITO (supra) as under: “7.1 For the year under consideration, i.e. AY 2005-06 the definition of "relative" was in respect of the relationship by an individual donee with close- relatives as defined therein. However, it is very pertinent to note that the operative section i.e. section 56(2)(v) was in respect of (i) individual, and (ii) Hindu Undivided Family (HUF). Meaning thereby the legislature has clear intention to include both the statuses i.e. Individual as well as HUF within its scope; as well as; within its operation. Thus, the Section is applicable in respect of money exceeding Rs.25,000/- received without consideration either by an "individual" or by a "HUF". Now we read the proviso annexed to sub- section (v) that the charging clause shall not apply to any sum of money received from any relative. Meaning thereby the proviso is applicable to both of them i.e. "individual" as well as "HUF". The donor–relative can be either relative of "Individual" or "HUF"; as the case may be. In other words, if an amount exceeding Rs.25,000/- is received as a gift either by "individual" or by "HUF", then such an amount is chargeable to income under the head "Income from other sources" but an exception is provided in the first proviso that the said clause of charging the amount to tax should not apply to an amount received from any relative. We hereby thus interpret that the proviso prescribes that the charging of the gifted amount shall not apply to any sum of
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money received as a gift from a "relative" either by an "individual" or by "HUF". Naturally, the proviso annexed to clause (v) of section 56(2) do not restrict to an "individual" but it governs "individual" as well as a "HUF". With this ITA No.47/Hyd/2013 Dr. M.Shobha Ravhuveera, Hyderabad 5 understanding/interpretation of the main provisions, we have to examine the definition of "relative" given in Explanation annexed to this section. The position shall be absolutely clear that even in case of HUF if a sum of money is received from any relative and that relative is as defined in Explanation, then also fall within the exception as prescribed in this section. 7.2. On our study, we have pondered upon the commentary of Sampath Iyengar "Law of Income Tax" 10th Edition – page 4611 and the comments are reproduced below:- "Explanation to clause (v) The Explanation to clause (v), which defines a relative, is wide enough to include spouse, brother or sister, their spouses, brother or sister of either parents of the individual and lineal ascendant or descendant of both the individual and his/her spouse and the spouse of any of the persons mentioned herein before. Hence, the definition covers only relatives of the individuals, so that the explanation seems to have overlooked the provision in the main section sparing liability for Hindu Undivided Family (HUF) in respect of gifts from relatives. Even the other exemption as for occasion on the marriage of individuals or inheritance could have not application to the HUF. In the case of HUF, since the joint family refers to a group of persons, it either means that the exemption is available for gifts received by the HUF from any person related to the karta or any other family member or it may mean that since HUF cannot have relatives, all the gifts received by the HUF will be taxable. This inference does not obviously fall in line with the intent, because the provision does contemplate exemption of the gifts received by HUF, but has not indicated the relationship that is necessary for the purposes of HUF, because the definition of ‘relative’ in the Explanation refers to the relatives of the individual and not HUF, with the result that the exemption of gift from relatives is alive only to the extent of possible exemption for gifts by will or in contemplation of death." 7.3. Our above view gets support from an order of Respected Rajkot Bench pronounced in the case of Vineetkumar Raghavjibhai Bhalodia vs. ITO reported at (2011) 140 TTJ (Rajkot) 58. In that cited decision, an individual has received a gift from HUF. The AO was of the view that the HUF being not covered within the definition of "relative", therefore the gift received by the individual from the HUF was taxable. The Respected Bench has commented that as per the definition of "person" defined in section 2(31) includes "HUF". Therefore a HUF is distinctly assessable to tax as a person under the IT Act. The Bench has observed that, quote "Therefore, the expression "HUF" must be construed in the sense in which it is understood under the Hindu law as has been in the case of Surjit Lal Chhabda vs. CIT 1976 CTR (SC) 140: (1975) 101 ITR 776 (SC). Actually an "HUF" constitutes all persons lineally descended from a common ancestor and includes their mothers, wives or widows and unmarried daughters. All these persons fall in the definition of "relative" as provided in Explanation to cl.(vi) of s. 56(2) of the Act. The observation of the CIT(A) that HUF is as good as ‘a BOI’ and cannot be termed as "relative" is not acceptable. Rather, an HUF is ‘a group of relatives’. Now having found that an HUF is ‘a group of relatives’, the question now arises as to whether would only the gift given by the individual relative from the HUF be exempt from taxation and would, if a gift collectively given by the ITA No.47/Hyd/2013 Dr. M.Shobha Ravhuveera, Hyderabad 6 ‘group of relatives’ from the HUF not exempt from taxation." Unquote.
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7.4. The Respected Co-ordinate Bench has also examined the intention of the legislature and thereupon made an observation that, quote "11.2. Further, from a plain reading of s. 56(2)(vi) along with the Explanation to that section and on understanding the intention of the legislature from the section, we find that a gift received from "relative", irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax under the provisions of s.56(2) (vi) of the Act as a group of relatives also falls within the Explanation to s.56(2)(vi) of the Act. It is not expressly defined in the Explanation that the word "relative" represents a single person. And it is not always necessary that singular remains singular. Sometimes a singular can mean more than one, as in the case before us. In the case before us the assessee received gift from his HUF. The word "HUF", though sounds singular unit in its form and assessed as such for incometax purposes, finally at the end a "HUF" is made up of "a group of relatives". Unquote. The above observation has buttressed our view, however, in addition to the above observation of a Coordinate Bench, we have also noted that at some later stage, the legislature became conscious of the problem, therefore while drafting the analogous provisions of section 56(2)(vii), it was added in the definition of "relative" (ii) in case of a Hindu Undivided Family, any member thereof. This section is inserted by Finance (No.2) Act of 2009 w.e.f. 1/10/2009 which prescribes that where an individual or HUF receives in any previous year on or after 1st day of October- 2009 any sum of money without consideration exceeding Rs.50,000/- the whole of the aggregate value of such sum shall be chargeable to income-tax. Provided that the charging clause shall not to apply to any sum of money received from any relative. As per this newly inserted clauses, (a) "relative" means in case of HUF any "member thereof". Although this subsequent change in the Act do not apply for the year under consideration being incorporated by Finance Act, 2009 but it appears that by insertion of these words Hon’ble Legislatures have visualized the difficulty, hence streamlined the provisions by removing the doubt. We therefore hold that since the assessee-HUF has undisputedly received a gift of Rs.7 lacs from a relative who is an uncle of the Karta of this HUF, i.e.; as per Explanation to sub-clause(iv); "brother or sister of either of the parents of the individual", hence fall within the category of the "Relative" prescribed in the Act, therefore not chargeable to tax in the hands of the assessee. Thus the Grounds raised are hereby allowed.”
Now coming to the fact of the present case, in the present case the re-opening was merely based on change of opinion. During the original assessment proceeding, the AO seek the clarification with regard to the gift received from the HUF the same was furnished before the AO, AO passed the order after considering the material available before him, thus keeping in view the decision of Bombay High Court in German Remedies Ltd. (supra), the re-opening was based on mere change of opinion and thus in our considered opinion, the same is invalid. Now coming to the merit of the case, the Co-ordinate Bench of Hyderabad Tribunal in the case of Dr. M. Shobha Ravhuveera (supra) and Ahmadabad Tribunal in Harshabhai Dahyalal Vaidhya (HUF) (supra) held that HUF is nothing but a group of relatives. The status as “HUF”, do not lose their identity as the relatives as provided in the explanation attached to Clause-5 of sub-section 2 of section 56 of Income-tax Act,
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thus respectfully following the decision of coordinate bench we confirm the findings of ld CIT(A). We order accordingly. 6. In the result, appeal of the Revenue is dismissed. Order pronounced in the open court on this 20/07/2016.
Sd/- Sd/- (B.R.BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated : 20/07/2016 SK, PS Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A), Mumbai. 4. आयकर आयु�त / CIT आदेशानुसार/ BY ORDER, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. उप/सहायक पंजीकार //True Copy/ (Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai