HARESH A. DHANANI, MUMBAI v. DCIT CEN CIR-32, MUMBAI

ITA 110/MUM/2009 | 2001-2002
Pronouncement Date: 09-07-2010 | Result: Allowed

Appeal Details

RSA Number 11019914 RSA 2009
Assessee PAN AADPD5374R
Bench Mumbai
Appeal Number ITA 110/MUM/2009
Duration Of Justice 1 year(s) 6 month(s) 3 day(s)
Appellant HARESH A. DHANANI, MUMBAI
Respondent DCIT CEN CIR-32, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted H
Tribunal Order Date 09-07-2010
Date Of Final Hearing 28-06-2010
Next Hearing Date 28-06-2010
Assessment Year 2001-2002
Appeal Filed On 06-01-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI BEFORE SHRI R V EASWAR PRESIDENT AND SHRI T R SOOD ACCOUNTANT MEMBER I T A NO: 110/MUM/2009 (ASSESSMENT YEAR: 2001-02) MR HARESH A DHANANI MUMBAI APPELLANT (PAN: AADPD5374R) VS DEPUTY COMMISSIONER OF INCOME TAX RESPONDENT CENTRAL CIRCLE 32 MUMBAI APPELLANT BY: SHRI AJAY R SINGH RESPONDENT BY: SHRI R K SAHU O R D E R R V EASWAR PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE RELATING TO THE ASSESSMENT YEAR 2001-02 AND IT ARISES OUT OF THE ASSESSMENT MA DE UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 READ WI TH SECTION 153A ON 26 TH DECEMBER 2007. THE ASSESSEE IS AN INDIVIDUAL. 2. WHILE EXAMINING THE CAPITAL ACCOUNT FILED WITH T HE RETURN OF INCOME THE ASSESSING OFFICER NOTICED THAT THE ASSE SSEE HAD RECEIVED GIFTS AGGREGATING TO RS.5 95 000/- FROM SH RI MANOHAR HARCHANDANI AND SHRI ASHOK THAWRANI. THE INDIVIDUA L AMOUNTS WERE RS.2 50 000/- AND RS.3 45 000/- RESPECTIVELY. THE AO CALLED UPON THE ASSESSEE TO SUBSTANTIATE THE GENUINENESS O F THE GIFTS AND ALSO TO SHOW CAUSE WHY THEY CANNOT BE CONSIDERED AS UNEXPLAINED CASH CREDITS UNDER SECTION 68 OF THE ACT. THE ASSE SSEE POINTED OUT THAT THE GIFTS ARE GENUINE AND THAT THEY WERE ACTUA LLY LOANS TAKEN ITA NO: 110/MUM/2009 2 FROM THE AFORESAID PERSONS WHICH WERE EITHER FULLY OR PARTLY CONVERTED AS GIFTS BY THE DONORS. THE AO WAS NOT S ATISFIED WITH THE ASSESSEES REPLY. HE HELD THAT THE DONORS WERE NOT RELATIVES OF THE ASSESSEE AND THE ASSESSEE COULD NOT ESTABLISH THAT THE GIFTS WERE MADE OUT OF NATURAL LOVE AND AFFECTION. THE ASSESS EE COULD NOT ALSO PROVE THAT HE HAD CLOSE RELATIONSHIP OR FRIEND SHIP WITH THE DONORS. ACCORDINGLY THE AMOUNTS WERE ADDED AS THE UNEXPLAINED CASH CREDITS UNDER SECTION 68 OF THE ACT. 3. ON APPEAL BEFORE THE CIT(A) THE ASSESSEE CONTEN DED THAT THERE WAS A GIFT DEED FROM SHRI ASHOK THAWRANI DATE D 6 TH JANUARY 2001. HOWEVER THERE WAS NO GIFT DEED FROM SHRI MA NOHAR HARCHANDANI. THE CIT(A) CONSIDERED THE GIFT DEED T O BE INSUFFICIENT TO PROVE THE IDENTITY AND CREDITWORTHI NESS OF THE DONORS. HE NOTED THAT THE ASSESSEE COULD NOT PRODUCE ANY EV IDENCE TO SHOW THAT THE DONORS WERE CREDITWORTHY. SHRI ASHOK THAWRANI WAS SEEN TO BE THE BROTHER-IN-LAW OF THE ASSESSEES FAT HER AND SHRI MANOHAR HARCHANDANI WAS THE COUSIN OF THE ASSESSEE S FATHER. THE GIFT DEED OF SHRI ASHOK THAWRANI DID NOT MENTIO N THAT IT WAS BEING MADE ON ACCOUNT OF LOVE AND AFFECTION. HAVIN G NOTICED THESE ASPECTS OF THE CASE THE CIT(A) FOLLOWING HIS PRED ECESSORS ORDER FOR THE ASSESSMENT YEAR 2002-03 IN WHICH YEAR THE GIFT OF RS.2 50 000/- MADE BY MEANS OF A JOURNAL ENTRY IN F AVOUR OF THE ASSESSEE WAS HELD TO BE NON-GENUINE HELD THAT SINC E THE FACTS ARE THE SAME FOR THE YEAR UNDER APPEAL THE ADDITIONS W ERE RIGHTLY MADE AND THUS DISMISSED THE APPEAL. ITA NO: 110/MUM/2009 3 4. THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. WE HAVE HEARD THE RIVAL CONTENTIONS AND EXAMINED THE FACTS. AS P ER THE COPY OF THE LEDGER ACCOUNT OF SHRI MANOHAR HARCHANDANI WHICH IS AT PAGE 13 OF THE PAPER BOOK THE AMOUNT OF RS.2 50 000/- WAS REC EIVED BY WAY OF A LOAN ON 19 TH OCTOBER 1994. IT CONTINUED SUBSEQUENTLY AS OUTSTANDING LOAN AND ON 11 TH MAY 2000 THE AMOUNT WAS TRANSFERRED TO THE CAPITAL ACCOUNT OF THE ASSESSEE BY A JOURNAL ENTRY WITH THE NARRATION BEING AMOUNT TRANSFERRED TO GIFT ACCOUNT . THE ACCOUNT OF SHRI MANOHAR HARCHANDANI WAS THUS CLOSED. THE COPY OF THE LEDGER ACCOUNT OF SHRI ASHOK THAWRANI IS AT PAGE 14 OF THE PAPER BOOK. THE ACCOUNT STARTED ON 17 TH JUNE 1996 WITH RECEIPT OF RS.2 00 000/- AS LOAN WHICH CONTINUED AND GOT INCRE ASED TO RS.7 45 000/- BY 20 TH AUGUST 1999. ON 9 TH JUNE 2000 THE ASSESSEE PAID RS.4 00 000/- TO SHRI ASHOK THAWRANI BY CHEQUE ON BANK OF BARODA WHICH LEFT A BALANCE OF RS.3 45 000/- IN TH E ACCOUNT. ON 6 TH JANUARY 2001 THIS AMOUNT WAS TRANSFERRED BY A JOURN AL ENTRY TO THE ASSESSEES CAPITAL ACCOUNT WITH THE NARRATION BEIN G GIFT RECEIVED TOWARDS MARRIAGE ANNIVERSARY FROM ASHOK THAWRANI. A PERUSAL OF THESE FACTS SHOWS THAT SO FAR AS SHRI MANOHAR HARCH ANDANI IS CONCERNED THE LOAN WAS OUTSTANDING FOR A LITTLE LE SS THAN SIX YEARS AND THE SAME WAS TRANSFERRED TO THE ASSESSEES CAPI TAL ACCOUNT BY A JOURNAL ENTRY DEBITING SHRI MANOHAR HARCHANDANIS ACCOUNT AND CREDITING THE ASSESSEES CAPITAL ACCOUNT. SIMILARL Y AFTER PART PAYMENT OF THE LOAN TAKEN FROM SHRI ASHOK THAWRANI THE BALANCE WAS TRANSFERRED BY JOURNAL ENTRY DEBITING SHRI ASHO K THAWRANIS ACCOUNT AND CREDITING THE ASSESSEES CAPITAL ACCOUN T. SECTION 68 ITA NO: 110/MUM/2009 4 APPLIES ONLY WHEN THE AO FINDS ANY SUM CREDITED IN THE ACCOUNT OF ANY PERSON IN THE ASSESSEES BOOKS. THE AMOUNTS OF RS.2 50 000/- AND RS.3 45 000/- FIRST OF ALL HAVE NOT BEEN CREDIT ED IN THE RELEVANT ACCOUNTING YEAR TO THE ACCOUNTS OF SHRI MANOHAR HAR CHANDANI AND SHRI ASHOK THAWRANI IN THE ASSESSEES BOOKS. THEY ARE ACTUALLY DEBITED IN THE ACCOUNTS OF THESE TWO PERSONS BY JOU RNAL ENTRIES. THE AMOUNTS WERE ACTUALLY RECEIVED FROM THESE PERSO NS IN EARLIER YEARS ON 19 TH OCTOBER 1994 FROM SHRI MANOHAR HARCHANDANI AND PRIOR TO 1 ST JUNE 2000 IN THE CASE OF SHRI ASHOK THAWRANI. THE RE BEING NO CREDITS IN THE ACCOUNTS OF THESE PERSONS I N THE RELEVANT ACCOUNTING YEAR THEY CANNOT BE ADDED UNDER SECTION 68 OF THE ACT. THIS IS WHAT HAS BEEN HELD BY THE TRIBUNAL IN ITS O RDER DATED 22 ND MAY 2009 IN ITA NO: 5850/MUM/2008 FOR THE ASSESSMEN T YEAR 2002-03 IN THE ASSESSEES OWN CASE. THERE IT WAS F OUND THAT THE AMOUNT OF GIFT VIZ. RS.2 50 000/- WAS ENTERED AS A CREDIT ENTRY AS LOAN IN THE ACCOUNT OF SHRI ASHOK THAWRANI ON 31 ST MARCH 2001 AND IT WAS NOT A FRESH CREDIT IN THE ACCOUNTING PERIOD 01.04.2001 TO 31.03.2002. IT WAS THEREFORE HELD THAT SECTION 68 WAS NOT APPLICABLE AND IT IS MERELY A CASE OF CONVERSION OF LOAN INTO CAPITAL. IF THE SAME REASONING IS APPLIED TO THE PRESENT YEA R FOLLOWING WITH RESPECT THE ORDER OF THE TRIBUNAL CITED ABOVE THE SAME RESULT SHOULD FOLLOW BECAUSE THERE ARE NO CREDITS IN THE A CCOUNTS OF THE TWO CREDITORS IN THE PERIOD 01.04.2000 TO 31.03.200 1. 5. THE THEORY OF GIFTS HAS NOT BEEN ACCEPTED BY THE INCOME TAX AUTHORITIES ALSO ON THE GROUND THAT THERE IS NO ADE QUATE CASH BALANCE AND UNLESS THAT IS SHOWN TO EXIST THE THEO RY OF GIFT CANNOT ITA NO: 110/MUM/2009 5 BE ACCEPTED. THE CIT(A) WHO TOOK THIS VIEW HAS REL IED ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS . DR R S GUPTA (1987) 165 ITR 36 (SC). HOWEVER THE FACTS IN THAT CASE SHOW THAT THREE PARTIES WERE INVOLVED. DR R S GUPTA MAINTAIN ED AN ACCOUNT IN THE BOOKS OF A COMPANY IN WHICH THERE WAS CREDIT BALANCE IN HIS FAVOUR. HE REQUESTED THE COMPANY TO TRANSFER CERTA IN SUMS TO FOUR PERSONS FROM THE ACCOUNT AS GIFTS ON ACCOUNT OF NAT URAL LOVE AND AFFECTION. THE SUPREME COURT HELD THAT IN ORDER TO CONSTITUTE A VALID GIFT THERE MUST BE AN EXISTING PROPERTY AND WHERE T HE DONOR MAKES A GIFT OF AN AMOUNT BY TRANSFER ENTRIES FROM THE CR EDIT OF AN ACCOUNT WHICH HE HAS WITH A FIRM OR A COMPANY OR A HUF THE RE SHOULD BE CASH ON HAND AVAILABLE WITH THE FIRM THE COMPANY O R THE HUF SO THAT THERE COULD BE A VALID GIFT BY BOOK ENTRIES. IN THAT CASE IT WAS FOUND THAT THE COMPANY HAD NO CASH BALANCE ON THE D ATE OF THE GIFT TO COVER THE FOUR GIFTS DIRECTED TO BE GIVEN BY DR R S GUPTA. IT WAS IN THESE CIRCUMSTANCES HELD THAT THE MERE FACT THAT THE DONEES HAVE ACCEPTED THE GIFT WAS NOT SUFFICIENT TO VALIDATE TH E GIFTS. THE FACTS OF THE PRESENT CASE ARE DIFFERENT IN THE SENSE THAT HE RE ONLY TWO PARTIES ARE INVOLVED AND IT IS A CASE WHERE THE DON OR WHO ALREADY HAD LOAN ACCOUNTS WITH THE ASSESSEE HAS MERELY STA TED THAT EITHER THE FULL AMOUNT OF THE LOAN OR A PART AMOUNT THEREO F NEED NOT BE REPAID BY THE ASSESSEE. IT IS NOT A CASE WHERE AS IN THE CASE OF DR R S GUPTA (SUPRA) THE ASSESSEE HAD DIRECTED THE PE RSON WITH WHOM HE HAD AN ACCOUNT TO TRANSFER SOME AMOUNTS TO A THIRD PARTY AS GIFTS. IN THE PRESENT CASE THE DONORS HAVE MER ELY ASKED THE ITA NO: 110/MUM/2009 6 ASSESSEE NOT TO REPAY EITHER FULLY OR PARTLY THE LO ANS AND THAT IS THE SUBSTANCE OF THE MATTER. 6. THE LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE S UBMITTED THAT THE CASE IS COVERED BY SECTION 41(1) OF THE AC T. THIS IS A NEW POINT WHICH CANNOT BE ENTERTAINED AT THIS STAGE WHE N THE RELEVANT FACTS ARE NOT ALREADY ON RECORD. EVEN OTHERWISE I F WE GO BY THE FACTS ON RECORD IT IS NOT A CASE WHERE THE AMOUNTS WERE ALLOWED AS DEDUCTION IN AN EARLIER ASSESSMENT YEAR AND THE ASS ESSEE HAS OBTAINED A BENEFIT IN CASH OR IN ANY OTHER MANNER I N RESPECT OF THE DEDUCTION. IT IS NOT A CASE OF A TRADING LIABILITY OF THE ASSESSEE WHICH HAS BEEN REMITTED OR HAS CEASED. IT WAS ORIG INALLY A LOAN AND THAT WAS ON CAPITAL ACCOUNT AND WHEN IT IS GIVEN AW AY EITHER FULLY OR PARTLY AS A GIFT IT BECOMES A CAPITAL RECEIPT. TH E CONDITIONS OF SECTION 41(1)(A) ARE NOT SATISFIED. THEREFORE EVE N ON MERITS THIS PROVISION DOES NOT APPLY. 7. FOR THE FOREGOING REASONS WE DELETE THE ADDITION OF RS.5 95 000/- MADE UNDER SECTION 68 OF THE ACT AND ALLOW THE ASSESSEES APPEAL WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JULY 2010. SD/- SD/- (T R SOOD) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI DATED 9 TH JULY 2010 SALDANHA ITA NO: 110/MUM/2009 7 COPY TO: 1. MR HARESH A DHANANI 407 GATEWAY PLAZA HIRANANDANI GARDENS POWAI MUMBAI 400 076 2. DCIT CENTRAL CIRCLE 32 3. CIT-CENTRAL III 4. CIT(A)-CENTRAL VIII 5. DR H BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI