|CORAM:||D. T. Garasia (JM), G. Manjunatha (AM)|
|CATCH WORDS:||gifts from relatives, unexplained gifts|
|COUNSEL:||Dr. K. Shivram, Rahul Hakani|
|DATE:||November 17, 2017 (Date of pronouncement)|
|DATE:||December 2, 2017 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Taxability of Gifts u/s 56(2)(vi): A receipt cannot be taxed u/s 56(2)(vi) merely on conjecture or surmises. The AO has to prove beyond doubt that a particular receipt is taxable as income. Merely because the person who paid the amount does not initiate any action for recovery of money is not sufficient for making addition|
(i) The AOs case is that the assessee has received money without any consideration which is taxable under the provisions of section 56(2)(vi) of the Act. The AO has brought out number of reasons to come to the conclusion that money is taxable u/s 56(2)(vi) of the Act. The sum and substance of the findings of the AO in his order is that the assessee is not capable of doing business as stated in his statement and also does not have relevant experience in dealing in the business for which he suppose to have paid by SPCL. Though the assessee as well as the creditor has accepted that money is received towards advance for procurement of land, conduct of the assessee as well as the company goes to prove undoubted fact that this amount is received without any consideration. The AO brought out the conduct of the assessee after receipt of the money to state that the assessee has procured various properties in his personal name out of money received from the company. The AO further stated that the company has failed to take any action for recovery of money even after lapse of three years. Therefore, he came to the conclusion that the purported transaction between the assessee and the company give rise to various doubts and hence opined that the impugned amount is taxable u/s 56(2)(vi) of the Act.
(ii) The provisions of section 56(2)(vi) deals with cases where any sum of money, the aggregate value of which exceeds Rs.50,000 is received without any consideration by an individual or hindu undivided family, in any previous year from any person or persons on a specified date, then the whole of the aggregate value of such sum will be treated as income of the assessee. As a general rule, certain transactions are brought to tax when the provisions of section 56(2)(vi) like gift received from individuals and receipt of properties for inadequate consideration between the parties. Therefore, to decide whether a particular receipt is taxable under the provisions of section 56(2)(vi), the facts of the case have to be examined in the light of the provisions and its intended purpose. In this case, the AO has treated amount received by the assessee from SPCL on the ground that the transactions give rise to suspicion because of the conduct of both the parties. Except this, the AO has not brought out any cogent materials to treat the particular receipt as income of the assessee which is taxable u/s 56(2)(vi) of the Act. To tax a particular receipt u/s 56(2)(vi), which should be in the nature of income as referred under the said provisions. A receipt cannot be taxed merely on conjecture or surmises. The AO needs to bring on record evidence which proves that the particular receipt is taxable under the provisions of the Act. No doubt, the assessee has received advances from the company which has been treated as sundry creditors in its balance sheet for the relevant financial year. The assessee, right from day one has stated that he has received money from the company for procurement of land. This fact has been further supported by the statement of the company which also categorically stated that it has paid amount to the assessee for procurement of land in its project in Raigad district. The company also filed various details including agreement entered into with the assessee, copies of board resolutions, bank statements and its financial statement to prove that the same has been treated as advance in its books of account. Therefore, we are of the considered opinion that merely because the assessee has not acted upon as per the terms and conditions of the agreement with SPCL and also the fact that the assessee has purchased properties in his personal name cannot be a sound reason for addition towards money received from SPCL; despite, both the parties have proved with necessary evidence that the impugned amount is mere advance payment for procurement of land. The AO necessarily has to examine the issue in the light of the provisions to bring to tax a particular receipt which has to be taxed. Merely on assumptions and presumptions, addition cannot be made. In this case, the assessee as well as the creditor has filed enough materials to prove that it is advance amount and the same has been treated as advance in their respective books of account; hence, we are of the considered view that the AO was incorrect in bringing to tax the amount under the provisions of section 56(2)(vi) of the Act.
(iii) Coming to the other observations of the AO. The AO has observed in his assessment order that SPCL has not taken any action for recovery of the amount, even after lapse of three years from the date of payment. The AO further observed that though the assessee has procured various immovable properties in his personal name, the company has failed to initiate necessary proceedings to get the land procured in their name or return the money given to the assessee. No interest has been charged on money paid to the assessee. All these facts goes to prove undisputed fact that the transactions are not genuine, therefore, the AO opined that impugned amount is taxable under the provisions of section 56(2)(vi) of the Act. We do not find any merit in the findings of the A.O. for the reason that merely because the person, who paid the amount does not initiate any action for recovery of money should not be not a reason for making addition towards amount received as assessee’s income. The AO has to prove beyond doubt a particular receipt is taxable in the given circumstances within the meaning of the said provision. In this case, the assessee has filed all details which prove that the company is in continuous contact with the assessee for procurement of land. We further notice that the company also filed a petition before Bombay High Court vide suit No.2576 of 2011 for recovery of money advanced to the assessee. The Hon’ble Bombay High Court on 19th October, 2011 has passed a decree decreeing the suit on the basis of the consent terms filed by the parties and on the terms and conditions stated in the decree. As per the petition before the Hon’ble Bombay High Court, both the parties agreed to settle the dispute as per which the assessee has agreed to refund the money along with interest which is evident from the order of decree passed by Hon’ble Bombay High Court. We further notice that SPCL has filed an execution petition before Raigad Court for recovery of dues from the assessee. All these facts go to prove an undisputed fact that SPCL has paid advance to the assessee for procurement of land on certain terms and conditions. Therefore, we are of the considered view that the AO was erred in bringing to tax the impugned advance received from SPCL under the provisions of section 56(2)(vi). The CIT(A), without appreciating the fact has reiterated the findings of the AO to confirm the addition made by the AO. Therefore, we set aside the order passed by the CIT(A) and direct the AO to delete the addition made towards advance received from SPCL u/s 56|(2)(vi) of the Act.
(iv) Coming to the alternative findings of the AO in his assessment order. The AO has discussed the issue under the provisions of section 68 and 28(iv) of the Act. The AO observed that without prejudice to the finding under the provisions of section 56(2)(vi), if at all in appellate proceedings if the assessee taken a plea that the impugned amount received by the assessee is an advance , then the money received by the assessee represents loan which raises serious doubts about the genuineness of the transactions and section 68 of the Act come into operation. We do not find any merits in the observation of the AO for the reason that to make addition towards a particular receipt under the provisions of section 68, the AO has to examine three ingredients, i.e. identity, genuineness of transaction, and creditworthiness of the parties. In this case, the assessee has proved the identity of the parties, genuineness of transaction and creditworthiness of the parties which is evident from the fact that SPCL has filed all evidences to prove impugned amount is an advance paid for procurement of land. We further notice that SPCL has filed its financial statement wherein the money paid to the assessee has been disclosed as business advances. This fact has been further supported by the findings of ITAT, in the case of SPCL in their appeal in ITA No.5766 & 5767/Mum/2013 for the assessment years 2008-09 and 2009-10, wherein the co-ordinate bench has given a categorical finding that the impugned amount paid to the assessee is business advance and hence, the AO was incorrect in disallowing proportionate interest u/s 36(1)(iii) of the Act. Though the findings of the co-ordinate bench is under different aspect, the amount involved is the same which is paid to the assessee, therefore, once a particular finding has been reached by the Tribunal on facts, a different conclusion cannot be reached at this stage.