NATHMAL SHARMA, MUMBAI V. ITO 24(2)(1), MUMBAI

ITA 7047/MUM/2011

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9571 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-10-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 18-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Unexplained cash credit; Unexplained investment; Gift
• Section: 68; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI P K BANSAL, VICE PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.7047 /MUM/2011 (ASSESSMENT YEAR: 2008-09) SHRI NATHMAL SHARMA VS. INCOME TAX OFFICER - 24(2)(1) FLAT NO. D - 203/204 VEENA NAGAR, S.V. ROAD MALAD (W), MUMBAI 400064 MUMBAI PAN ALRPS7680L APPELLANT RESPONDENT APPELLANT BY: NONE RESPONDENT BY: SHRI SUMAN KUMAR DATE OF HEARING: 13.09.2017 DATE OF PRONOUNCEMENT: 13.09.2017 O R D E R PER P.K. BANSAL, VICE PRESIDENT THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-34, MUMBAI DATED 17.08.2011 FOR A.Y. 2008-09 BY TAKING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL: - 1. ADDITIONS U/S. 68 AND 69 - AS ALLEGED UNEXPLAINE D CREDIT AND UNEXPLAINED INVESTMENTS RS.11,41,300/- A) THE LD. CIT(A) ERRED IN DISMISSING THE APPEAL A ND CONFIRMING THE ALLEGED ADDITION MADE BY THE ASSESSING OFFICER WITH OUT APPRECIATING TO THE FACT THAT THE MERE RECTIFICATIO N ENTRIES OF THE DECLARED TRANSACTIONS IN THE HANDS OF THE APPELLANT BY EFFECTING TRANSFER FROM HUF ACCOUNT DOES NOT RESULT INTO DIVE RSION OF ALLEGED INCOME OR CREATION OF NEW INCOME TO MAKE IT LIABLE TO TAX. THEREFORE, RECTIFICATION CAUSING TRANSFERS FROM HUF ACCOUNT INTO INDIVIDUAL ACCOUNT CANNOT JUSTIFIABLY BE TREATED AS UNEXPLAINED CREDIT U/S. 68 AND UNEXPLAINED INVESTMENTS U/S. 69 IN RESPECT OF FOLLOWING THREE TRANSACTIONS WHICH HAD ALREADY BEEN DECLARED AND ACCEPTED BY THE REVENUE. - RECTIFICATION ON ACCOUNT OF SALE OF AGRICULTURAL LAND - RS. 7,00,000/- - RECTIFICATION ON ACCOUNT OF RESIDENTIAL HOUSE FROM HUF TO INDIVIDUAL ACCOUNT - RS. 3,49,300/- ITA NO. 7047/MUM/2011 SHRI NATHMAL SHARMA 2 - RECTIFICATION ON ACCOUNT OF AGRICULTURAL LAND FROM HUF ACCOUNT TO INDIVIDUAL ACCOUNT - RS. 9 2.000/- THEREFORE, WE PRAY FOR THE DELETION OF DEEMED ADDIT IONS MADE U/S. 68 AND 69. 2. ADDITION ON ACCOUNT OF ALLEGED UNEXPLAINED INCOM E - RS. 28,500/- THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E ASSESSING OFFICER TO TREAT THE AGRICULTURAL INCOME DECLARED BY THE APPEL LANT AS UNEXPLAINED INCOME. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE EVEN THOUGH NOTICE WAS SENT THROUGH REGISTERED AD. THIS APPEAL HAS BEEN FI LED IN 2012 AND HAS BEEN FIXED FOR HEARING FROM TIME TO TIME BUT IN MOS T OF THE OCCASION NONE APPEARED ON BEHALF OF THE ASSESSEE. WE, THEREFORE, DECIDED TO DISPOSE OFF THE APPEAL AFTER HEARING THE LEARNED D.R. 3. SO FAR GROUND NO. 1 IS CONCERNED THIS RELATES TO T HE ADDITION MADE BY THE AO UNDER SECTIONS 68 & 69 IN RESPECT OF A SU M OF ` 7,00,000/-, ` 3,49,300/- AND ` 92,000/- AND SUSTAINED BY THE CIT(A). THE FACTS REL ATING TO THE ADDITION ARE THAT THE AO DURING THE COURSE O F ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS CREDITED TH E FOLLOWING AMOUNTS TO THE CAPITAL ACCOUNT FOR THE FIRST TIME: - (I) SALE PROCEEDS OF AGRICULTURAL LAND BELONGING TO N.M. SHARMA, INDIVIDUAL WRONGLY CREDITED TO HUF ` 7,00,000/ - (II) RESIDENTIAL HOUSE AT 3352, K.R. ROAD, TRANSFERRED FROM N.M. SHARMA, HUF AS PER DECLARATIN ` 3,49,300 / - (III) AGRICULTURE LAND BELONGING TO N.M. SHARMA, INDIVIDUAL ERRONEOUSLY ENTERED IN N.M. SHARMA, HUF NOW REVERSED ` 92,000/ - THE ASSESSEE HAS ALSO SHOWN RESIDENTIAL HOUSE AT ` 3,49,300/- AND AGRICULTURAL LAND AT ` 92,000/- IN THE BALANCE SHEET UNDER THE HAD FIXED ASSETS. WHEN ENQUIRED BY THE AO THE ASSESSEES REP RESENTATIVE, VIDE HIS LETTER DATED 18.08.2010, EXPLAINED AS UNDER: - 1. I HAVE INSTRUCTIONS TO STATE THAT SHRI NATHMAN SHARMA IS A SENIOR CITIZEN, AGED 78 YEARS, AND NOW LEADING A RETIRED L IFE. DURING HIS ACTIVE DAYS, HE HAD ESTABLISHED A TRANSPORT BUSINES S UNDER THE NAME AND STYLE OF GLOBE TRANSPORT CORPORATION, A PA RTNERSHIP ITA NO. 7047/MUM/2011 SHRI NATHMAL SHARMA 3 FIRM WHEREIN SHRI N.M.SHARMA, HIS SONS SHRI R.S.SHA RMA, SHRI J. P. SHARMA AND SHRI E.C.SHARMA WERE PARTNERS. LATER ON, SON OF SHRI R.S.SHARMA, NAMELY, SHRI H.K.SHARMA WAS ALSO A DMITTED TO THE FIRM. 2. MR.NATHMAL SHARMA'S ELDEST SON, SHRI R.S.SHARMA, USED TO MAINTAIN ACCOUNTS OF THE BUSINESS AND HE ALSO USED TO PREPARE THE INCOME-TAX RETURNS OF ALL THE MEMBERS OF THE FA MILY OF SHRI N.M.SHARMA; SINGLE HANDEDLY, SINCE BEGINNING. 3. MR.NATHMAL SHARMA AND ALL OTHER MEMBERS TRUSTED SHR I R.S.SHARMA, IN GOOD FAITH AND THEY USED TO SIGN WHA TEVER PAPERS WERE PREPARED BY SHRI R.S.SHARMA. EVEN THE C HEQUE BOOKS OF FAMILY MEMBERS, DULY SIGNED IN BLANK, WERE KEPT IN THE CUSTODY OF SHRI R.S.SHARMA. 4. THE DIFFERENCES IN FAMILY OVER FINANCIAL MISMANAGEM ENT ON PART OF SHRI R.S.SHARMA, STARTED BUILDING UP SOME TIME A ROUND THE YEAR 2000, OR SO, AND IT WAS DISCOVERED THAT SHRI R .S.SHARMA HAD MADE A MAJOR GOOF UP OF THE ACCOUNTS OF SHRI N. M.SHARMA BY, INTERALIA, SHOWING THE SELF ACQUIRED ASSETS OF SHRI N.M.SHARMA AS THE ASSETS BELONGING TO M/S.N.M.SHARM A HUF, WITHOUT ANY PERMISSION OF OR CONCURRENCE OF SHRI N. M.SHARMA. 5. AS A RESULT THEREOF, SHRI N.M.SHARMA AND SHRI J. P. SHARMA RETIRED FROM THE PARTNERSHIP FIRM ON 22.10.2002. HOWEVER, T ERMS OF THE RETIREMENT WERE NOT ACTED UPON BY THE CONTINUING PA RTNERS AND THEREFORE THE RETIRING PARTNERS HAVE MOVED THE HON' BLE BANGLORE COURT FOR DECLARING THE RETIREMENT DEED AS NULL AND VOID. THE SUIT IS PENDING IN THE HON'BLE COURT AT BANGALORE. PARAS 1 TO 5) THE AO WAS NOT SATISFIED BY THE EXPLANATION OF THE ASSESSEE AND WAS OF THE VIEW THAT SINCE THE ASSESSEE IS KARTA OF N.M. SHARM A, HUF IT IS THE DUTY AND RESPONSIBILITY OF THE ASSESSEE TO SEE THE ITEMS AND THEREFORE COULD NOT CLAIM RELIEF ON THE GROUND OF FRAUD AND HE SHOULD H AVE SEEN WHETHER THE INDIVIDUAL PROPERTY WAS ACCOUNTED IN INDIVIDUAL RET URNS AND HUF PROPERTY IS ACCOUNTED IN HUF BOOKS. THE AO DID NOT BELIEVE T HAT THESE ITEMS ARE SHOWN IN HUF ACCOUNT SINCE LAST 10 YEARS. FOR THE S UM OF ` 7,00,000/- IT WAS STATED THAT THE SALE PROCEEDS OF THE AGRICULTUR AL LAND WHICH WAS PURCHASED BY SHRI N.M. SHAMRA ON 31.01.1958 FOR ` 2,500/- FROM MR. HARCHAND WAS SOLD ON 26.06.1992 TO MS. RESHMA DEVI AND MR. BALBIR RELATE TO INDIVIDUAL AND WAS WRONGLY SHOWN AS SALE PROCEEDS OF AGRICULTURAL LAND BELONGING TO THE HUF. THE ASSESSEE HAS SUBMITT ED IN THIS REGARD COPY OF THE PURCHASE DEED AS WELL AS SALES DEED BUT THE AO DID NOT ACCEPT THE VERSION OF THE ASSESSEE AND TREATED THE SAID AMOUNT AS INCOME OF THE ITA NO. 7047/MUM/2011 SHRI NATHMAL SHARMA 4 ASSESSEE AS THE NATURE AND SOURCE OF THE CREDIT IS NOT EXPLAINED. WHEN THE MATTER WENT BEFORE THE CIT(A) THE CIT(A) CONFIRMED THE ORDER OF THE AO. 4. WE HAVE HEARD THE LEARNED D.R. AND ALSO GONE THROU GH THE PAPER BOOKS OF THE ASSESSEE ESPECIALLY COPY OF THE PURCHA SE DEED DATED 31.05.1958 AS WELL AS COPIES OF TWO SALES DEEDS DAT ED 26.09.1998 AND 26.06.1992 IN RESPECT OF PURCHASE AND SALE OF AGRIC ULTURAL LAND. FROM THE COPIES OF THESE DEEDS IT IS APPARENT THAT THE AGRIC ULTURAL LAND HAS BEEN DULY PURCHASED AND SOLD BY THE ASSESSEE AND THE PRO CEEDS OF ` 7,00,000/- REPRESENTING SALE PROCEEDS OF AGRICULTURAL LAND REL ATES TO THE ASSESSEE AS IN INDIVIDUAL. THE ASSESSEE HAS SIMPLY MADE A TRANSFER ENTRY BY TRANSFERRING THE SAID AMOUNT FROM HUF ACCOUNT TO THE INDIVIDUAL ACCOUNT. THIS IS NOT A CASE WHERE IT CAN BE SAID THAT THE NATURE AND SOURC E OF ` 7,00,000/- IS NOT PROVED. WE ALSO NOTED FROM THE COPY OF THE CAPITAL ACCOUNT IN THE BOOKS OF HUF FOR THE YEAR ENDED 31 ST MARCH, 1993 THAT THE SAME PROCEEDINGS OF AGRICULTURAL LAND AMOUNTING TO ` 7,00,000/- HAS BEEN ADDED IN THE CAPITAL ACCOUNT OF THE HUF (PAGE 5 OF THE PAPER BOOK). THE ASSESSEE HAS NOW PASSING A CORRECTIVE ENTRY BY TRANSFERRING THE SAID AMOUNT OF ` 7,00,000/- TO THE INDIVIDUAL CAPITAL ACCOUNT. IN OUR OPINION, NEITHER THE AO NOR THE CIT(A) COULD HAVE TAKEN THE PAIN TO UNDERSTAND THE FACTS CORRECTLY BUT MADE AND SUSTAINED THE ADDITION JUST FOR THE SAKE O F MAKING THE ADDITION. WE, THEREFORE, DELETE THE ADDITION OF ` 7,00,000/-. 5. SO FAR AS THE SUM OF ` 3,49,300/- IS CONCERNED THIS ALSO REPRESENTS A RECTIFICATION ENTRY BY WAY OF TRANSFER FROM THE HUF ACCOUNT TO THE INDIVIDUAL ACCOUNT. THE FACTS RELATING TO THESE ARE THAT THE AO NOTED THAT THE ASSESSEE HAS SHOWN IN THE BALANCE SHEET UNDER T HE HEAD FIXED ASSETS A SUM OF ` 3,49,300/- BEING THE RESIDENTIAL HOUSE AT 3352, K.R . ROAD. WHEN ENQUIRED OF THE ASSESSEE SUBMITTED THAT THIS R EPRESENTED THE TRANSFER ENTRY FROM HUF ACCOUNT TO INDIVIDUAL ACCOU NT AS THE ASSESSEE HAS BUILT UP THE HOUSE IN 1978 IN HIS INDIVIDUAL CAPACI TY. THE AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE BUT MADE THE ADDITION IN THE INCOME OF THE ASSESSEE IN THE IMPUGNED ASSESSMENT Y EAR. WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) CONFIRMED THE SA ID ADDITION. ITA NO. 7047/MUM/2011 SHRI NATHMAL SHARMA 5 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY C ONSIDERED THE SAME. WE NOTED THAT THE ASSESSEE HAS FURNISHED COPY OF THE DECLARATION DATED 22.10.2002 WHICH IS AVAILABLE AT PAGE 15 AND 16 OF THE PAPER BOOK. FROM THIS COPY OF DECLARATION IT IS APPARENT THAT T HIS PROPERTY HAS BEEN DECLARED SO FAR AS HUF PROPERTY BUT THE SAID PROPER TY IS SELF ACQUIRED PROPERTY AND BELONGS TO THE ASSESSEE INDIVIDUAL. WE ALSO NOTED THAT THE SAID PROPERTY HAS BEEN SHOWN BY THE ASSESSEE IN HIS STATEMENT OF AFFAIRS OF THE HUF ON 31 ST MARCH, 2992 AT ` 3,49,300/- COPY OF WHICH IS AVAILABLE AT PAGE 4 OF THE PAPER BOOK. SUBSEQUENTLY THE ASSESSEE HAS TRANSFERRED THIS PROPERTY TO THE INDIVIDUAL ACCOUNT. IT IS NOT A CAS E WHERE THE ASSESSEE HAS MADE AN INVESTMENT DURING THE IMPUGNED ASSESSMENT Y EAR OUTSIDE THE BOOKS OF ACCOUNT SO THAT THE ADDITION CAN BE MADE A S AN UNEXPLAINED INVESTMENT IN THE IMPUGNED ASSESSMENT YEAR. THIS ME RELY REPRESENTS TRANSFER OF PROPERTY FROM THE INDIVIDUAL ACCOUNT TO THE HUF ACCOUNT. AT THE MOST THE DECLARATION CAN BE REGARDED TO BE A GIFT I N FAVOUR OF THE ASSESSEE INDIVIDUAL BUT IT CANNOT BE REGARDED IN A.Y. 2003-0 4 AS AN UNEXPLAINED INVESTMENT AS THE PROPERTY WAS IN EXISTENCE PRIOR T O 31 ST MARCH, 2002. IN VIEW OF THIS FACT WE DELETE THE ADDITION OF ` 3,49,300/-. 7. NOW COMING TO THE SUM OF ` 92,000/- IN RESPECT OF TRANSFER OF AGRICULTURAL LAND FROM HUF ACCOUNT TO THE INDIVIDUA L ACCOUNT, AFTER HEARING THE STATEMENT MADE BY THE LEARNED D.R. AND GOING THROUGH THE ORDERS OF THE TAX AUTHORITIES BELOW WE NOTED THAT T HE ASSESSEE HAS CREDITED A SUM OF ` 92,000/- TO HIS INDIVIDUAL CAPITAL ACCOUNT BEING TH E AGRICULTURAL LAND BELONGING TO HIM WHICH WAS ERRONEOUSLY ENTERED IN THE EARLIER YEARS AS THE AGRICULTURAL LAND BELONGING TO N.M. SHARMA, HUF. WE NOTED FROM THE BALANCE SHEET OF THE HUF THAT THIS PROPERTY WAS DULY SHOWN AS AGRICULTURAL LAND AS ON 31 ST MARCH, 1993 (PAGE 4 OF THE PAPER BOOK) AND THE ASSESSEE HAS TRANSFERRED THE SAID AGRICULTURAL LAND TO HIS INDIVIDUAL ACCOUNT BY PASSING A RECTIFICATION ENTRY. THIS IS N OT A CASE WHERE IT CAN BE SAID THAT THE ASSESSEE HAS PURCHASED THE SAID AGRIC ULTURAL LAND DURING THE IMPUGNED ASSESSMENT YEAR SO THAT IT CAN BE TREATED AS UNEXPLAINED INVESTMENT. THE SOURCE OF THE SAID CREDIT IN THE CA PITAL ACCOUNT IS COMING ITA NO. 7047/MUM/2011 SHRI NATHMAL SHARMA 6 OUT OF THE BALANCE SHEET OF THE HUF. IN VIEW OF THI S FACT WE DELETE THE SAID ADDITION. THUS, THIS GROUND STANDS ALLOWED. 8. GROUND NO. 2 RELATES TO SUSTAINING OF THE ADDITION OF ` 28,500/- WHICH HAS BEEN SHOWN BY THE ASSESSEE AS ITS AGRICUL TURAL INCOME BUT THE AO TREATED AS UNEXPLAINED INVESTMENT IN AGRICULTURA L LAND. WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) CONFIRMED THE SAID ADDITION. 9. WE HAVE HEARD THE LEARNED D.R. WHO VEHEMENTLY RELIE D ON THE ORDER OF THE AO. WE HAVE ALSO GONE THROUGH THE COMPUTATIO N STATEMENT OF INCOME WHICH IS AVAILABLE ON PAGE 3 OF THE PAPER BO OK FROM WHICH WE NOTED THAT THE ASSESSEE HAS SHOWN AGRICULTURAL INCO ME AT ` 28,500/-. SINCE WE HAVE DELETED THE ADDITION IN RESPECT OF AGRICULT URAL LAND AMOUNTING TO ` 92,000/- AND TREATED THE SAME AS INDIVIDUAL AGRICUL TURAL LAND WHILE DISPOSING OFF THE EARLIER GROUND, THEREFORE, IT CAN NOT BE SAID THAT THE INCOME DERIVED BY THE ASSESSEE IS AN UNEXPLAINED ON E. THE AO JUST TREATED THE SAID INCOME AS UNEXPLAINED INCOME WITHOUT ANY R EASON AS TO WHY THE SAID INCOME IS NOT AGRICULTURAL INCOME. THE LEARNED D.R. EVEN THOUGH RELIED ON THE ORDER OF THE AO BUT COULD NOT ADDUCE ANY EVIDENCE OR MATERIAL BEFORE US WHICH MAY PROVE THAT THE SAID IN COME IS NOT AGRICULTURAL INCOME BUT IS AN UNEXPLAINED INCOME OF THE ASSESSEE. WE NOTED FROM THE COMPUTATION STATEMENT, AS ARE AVAILA BLE ON PAGES 91 TO 105, THAT THE AGRICULTURAL INCOME HAS BEEN SHOWN BY THE ASSESSEE SINCE 1971-72 ONWARDS. THE LEARNED D.R. DID NOT DISPUTE T HIS FACT. IN VIEW OF THIS WE DIRECT THE AO TO DELETE THE SAID ADDITION A S UNEXPLAINED INCOME BUT TO TREAT THE SAME AS AGRICULTURAL INCOME AS DECLARE D BY THE ASSESSEE. THUS, GROUND NO. 2 STANDS ALLOWED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STA NDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH SEPTEMBER, 2017. SD/ - SD/ - (PAWAN SINGH) (P.K. BANSAL) JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED: 15 TH SEPTEMBER, 2017 ITA NO. 7047/MUM/2011 SHRI NATHMAL SHARMA 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -34, MUMBAI 4. THE CIT - 24, MUMBAI 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.