M/s Ashwani Verma, Ropar V. ACIT, Chandigarh

ITA 371/CHANDI/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5082 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 08-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P KHUTAN
• Assessee Lawyers: B M KHANNA
• Keywords: Gift; Set aside
• Section: 143(3); 56(2); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 371/CHD/2010 ASSESSMENT YEAR: 2006-07 M/S ASHWANI VERMA, VS. ACIT, CIRCLE 2(1), ROPAR CHANDIGARH PAN NO. AAIPV2797B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.M.KHANNA RESPONDENT BY: SHRI S.P. KHUTAN ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A), CHANDIGARH DATED 11.3.2010 RELATING TO ASSESSMENT Y EAR 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL: THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIRMING ADDITION OF RS. 3 LAKHS U/S 56(2)(V) OF THE I.T. ACT, 1961. THE APPELLANT HAD REFUNDED THE LOAN AND THE CIT(A) IS WRONG IN CONCLUDING THAT THE LOAN STILL E XISTS AS ON DATE. THE STATEMENT OF THE LOANEE RECORDED BY THE A SSESSING OFFICER CLARIFIES THAT THE AMOUNT WAS A LOAN AND NO T A GIFT AND NOT HIT BY THE PROVISIONS OF SECTION 56(2)(V) O F THE I.T. ACT, 1961. 3. THE LD. AR FOR THE ASSESSEE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE IN THE PRESENT APPEAL IS COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF DCIT VS. SHRI PRATAP HOON AND THE PROVISIONS OF SECTION 56(2) OF THE ACT ARE NOT APPLICABLE. THE LEARNED AR FURTHER SUBMITTED THAT THE STATEMENT OF THE LENDER WAS RECO RDED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND IT WAS POINTED OUT TH AT THE CIT(A) HAS 2 ERRED IN HOLDING THAT THE LOAN HAS NOT BEEN PROVED. THE LEARNED DR PLACED RELIANCE ON THE ORDER OF THE CIT(A). 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ONLY ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE ADDITION OF RS. 3 LAC U/S 56(2) OF THE ACT. DURING THE YEAR UNDER CONSID ERATION, THE ASSESSEE HAD RECEIVED LOAN OF RS. 7 LACS ON 25.5.2005 VIDE C HEQUE NO. 934062, FREE OF INTEREST FROM SHRI MAKHAN LAL, HIS UNCLE. OUT OF THE SAID LOAN, A SUM OF RS. 4 LACS WAS REPAID BY THE ASSESSEE VIDE D EMAND DRAFT DRAWN ON STATE BANK OF INDIA ON 19.10.2005. BALANCE OF RS. 3 LACS WAS OUTSTANDING AT THE CLOSE OF THE YEAR. THE ASSESSIN G OFFICER REQUISITIONED THE ASSESSEE TO PRODUCE DETAILS WITH REGARD TO THE LOAN TRANSACTIONS OF RS. 3 LACS. THE PLEA OF THE ASSESSEE WAS THAT THE PRO VISIONS OF SECTION 56(2) OF THE ACT WAS NOT APPLICABLE AS THE LENDER WAS HIS UNCLE FALLING WITHIN THE DEFINITION OF THE TERM RELATIVE AS PROVIDED UNDER EXPLANATION 6 TO SECTION 56(2)(V) OF THE ACT. BEFORE THE ASSESSING OFFICER THE LENDER SHRI MAKHAN LAL APPEARED AND HIS STATEMENT WAS RECORDED. THE STATEMENT OF THE LENDER IS INCORPORATED AT PAGE 2 OF THE ASSESSM ENT ORDER. IN THE SAID STATEMENT THE LENDER IN REPLY TO QUESTION NO.5 ADMI TTED TO HAVE ADVANCED LOAN TO SHRI ASHWANI VERMA, I.E THE ASSESSEE BEFORE US, ON 31.5.2005 ON WHICH NO INTEREST WAS PAID BY THE ASSESSEE. THE PR OVISIONS OF SECTION 56(2) OF THE ACT WERE INVOKED AND ADDITION OF RS. 3 LAC WAS MADE. THE CIT(A) WAS OF THE VIEW THAT THERE WAS NOTHING TO SU BSTANTIATE THAT THIS WAS AN INTEREST FREE LOAN EXCEPT A MERE STATEMENT. FURTHER OBSERVATION OF THE CIT(A) WAS THAT THE SAID AMOUNT WAS NOT REFUNDE D WITHIN THE LAST ALMOST FIVE YEARS AND HENCE THE ADDITION OF RS. 3 L ACS WAS CONFIRMED AS INCOME FROM OTHER SOURCES IN THE HANDS OF THE ASSES SEE. 3 5. THE ASSESSEE HAD RECEIVED TOTAL LOAN OF RS. 7 LA KHS, OUT OF WHICH RS. 4 LACS WAS RETURNED ON 19.10.2005. NO ADDITIO N ON ACCOUNT OF RS. 4 LACS RETURNED HAS BEEN MADE AND ADDITION OF RS. 3 L ACS HAS BEEN CONFIRMED, WHICH IS THE OUTSTANDING AMOUNT AT THE C LOSE OF THE YEAR. THE ASSESSEE WAS ASKED TO PRODUCE SHRI MAKHAN LAL I.E. THE LENDER IN ORDER TO VERIFY THE CLAIM. THE STATEMENT OF SHRI MAKHAN LAL WAS RECORDED DURING THE ASSESSMENT PROCEEDINGS IN WHICH HE EXPLAINED TO HAVE ADVANCED LOAN TO SHRI ASHWANI KUMAR ON WHICH NO INTEREST WAS RECE IVED BY HIM. THE ASSESSING OFFICER CONFIRMED THE CLAIM OF THE ASSESS EE I.E. RELATIONSHIP WITH THE LENDER FELL WITHIN THE DEFINITION OF SECTI ON 56(2) (V) OF THE ACT WAS FOUND TO BE INCORRECT AND HENCE THE SAME WAS RE JECTED. HOWEVER, THE NATURE AND SOURCE OF THE UNSECURED LOAN RAISED BY T HE ASSESSEE HAS BEEN ESTABLISHED. THE LOAN BEING ADVANCED INTEREST FREE BY THE LENDER TO THE ASSESSEE DOES NOT JUSTIFY IT BEING INCOME OF THE AS SESSEE U/S 56(2)(V) OF THE INCOME TAX ACT. 6. WE FIND THAT SIMILAR ISSUE OF ADVANCEMENT OF INT EREST FREE LOAN AND ITS TREATMENT U/S 56(2)(V) OF THE ACT WAS CONSIDERE D BY THE CHANDIGARH BENCH OF THE TRIBUNAL IN ACIT VS. SHRI SARANPAL SIN GH HUF (ITA NO. 697/CHD/2009- ASSESSMENT YEAR 2006-07) AND THE TRIB UNAL VIDE ORDER DATED 9.9.2009, IN TURN FOLLOWING THE RATIO LAID DO WN BY MUMBAI BENCH OF TRIBUNAL IN CHANDERKANT H.SHAH [19 DTR 241 (MUM)] H ELD THAT .. IN OUR CONSIDERED OPINION, THE FACTUM OF THE ASSESS EE BEING LIABLE TO REPAY THE IMPUGNED UNSECURED LOAN, IMPLIE S THE SAME WITH CHARACTERISTICS OF A LIABILITY . M ERELY BECAUSE THE AMOUNT OF LOAN HAS BEEN RAISED WITHOUT INVOLVING PAYMENT OF INTEREST, CANNO T BE SEEN TO HAVE VESTED THE IMPUGNED AMOUNT WITH CHARACTERISTICS OF AN INCOME, WITHIN THE MEANING OF SECTION 56(2)(V) OF THE ACT. THE EXISTEN CE OF EXPRESSION 4 WITHOUT CONSIDERATION IN SECTION 56(2)(V) CANNOT DISTRACT FROM THE FACT THAT IN THE IMPUGNED CASE, THE SUM OF MONEY RECEIVE D IN QUESTION CARRIED A LIABILITY OF ITS REPAYMENT AND THE SAME WAS NOT R ECEIVED BY THE ASSESSEE WITH AN ABSOLUTE UNFETTERED RIGHT OF POSSESSION. TH EREFORE, IN THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE FIND NO JUSTIFICATION TO UPHOLD THE STAND OF THE ASSESSING OFFICER AND THE C IT(A) WAS JUSTIFIED IN DELETING THE IMPUGNED ADDITION. ACCORDINGLY, THE C ONCLUSION OF THE CIT(A) IS CONFIRMED. 7. SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN DCIT VS. SHRI PRATAP HOON (ITA NO. 728/CHANDI/2009 RELATING TO ASSESSMEN T YEAR 2006-07) WHEREIN VIDE ORDER DATED 30.9.2009, IT WAS HELD TH AT MERELY BECAUSE THE SAID LOAN HAD BEEN RAISED INTEREST FREE FROM THE SA ID PARITIES, DOES NOT JUSTIFY INVOKING THE PROVISIONS OF SECTION 56(2)(V) OF THE ACT. FINDING SUPPORT FROM THE ABOVE SAID DECISIONS OF COORDINATE BENCHES OF THE TRIBUNAL, WE SET ASIDE THE ORDER OF CIT(A) AND DIRE CT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 3 LACS MADE U/S 56(2)(V) OF THE ACT. THUS, THE GROUND OF APPEAL RAISED BY THE ASSESSEE I S ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF MAY, 2010. SD/- SD/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12 TH MAY, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 5