G.S. Sawhney (HUF), Mohali v. DCIT, Mohali

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI N. BARATHVAJA SANKAR VICE PRESIDENT AND MS SUSHMA CHOWLA JUDICIAL MEMBER ITA NO.1109/CHD/2010 ASSESSMENT YEAR: 2007-08 SHRI G.S.SAWHNEY (HUF) VS. THE DCIT CIRCLE 6(1) MOHALI MOHALI PAN NO. AABHG5058B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.C.TIWARI & SHRI A.K. SOOD RESPONDENT BY: SMT.JAISHREE SHARMA ORDER PER SUSHMA CHOWLA JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) CHANDIGARH DATED 31.5.2010 RELATING TO ASSESSMENT Y EAR 2007-08 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. A CT 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:=- 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES THE LD. CIT(A) HAD ERRED IN LAW IN CONFIRMING AN ADDITION O F RS. 15 75 775/- U/S 56(2) (VI) IN THE HANDS OF APPELLAN T HUF THOUGH THE SAID AMOUNT WAS RECEIVED AS GIFT BY THE KARTA OF APPELLANT HUF IN HIS INDIVIDUAL CAPACITY FROM HIS B ROTHER BY SIMPLY BRUSHING ASIDE THE VITALS FACTS AND EVIDE NCE ON RECORD. 2 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES THE LD. CIT(A) HAS ERRED IN LAW IN CONFIRMING TREATMENT OF INTEREST FREE LOAN OF RS. 30 LACS FROM COPARCENERS OF APPELL ANT HUF AS INCOME U/S 56(2)(VI) IN THE HANDS OF THE APPELLA NT HUF BY OBSERVING THAT IN VIEW OF NON CHARGING OF INTERE ST THE SAID CONTRIBUTION BY COPARCENERS WERE WITHOUT CONSIDERATION AND SIMPLY IGNORING THE VITAL FACTS O N RECORD. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES THE LD. CIT(A) HAS ERRED IN LAW IN CONFIRMING AN ADDITION O F RS. 4.8 LACS U/S 56(2) AS NOTIONAL INTEREST @ 12% P.A. ON INTEREST FREE ADVANCE OF RS. 40.00 LACS GRANTED TO THE APPELLANT HUF BY AN LIMITED (UGSL) AND UGSL HAS TAK EN THE SAID PREMISES ON LEAVE AND LICENSE FOR THE PURP OSE OF RESIDENCE OF THEIR EMPLOYEES. 4. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES THE LD. CIT(A) HAS ERRED IN LAW IN SUSTAINING DISALLOWANCE OF INTEREST OF RS. 5 44 775/- U/S 24(B) ON HOUSING LOA N FORM UNION BANK OF INDIA BHAT BAZAR MUMBAI ON THE GROU ND THAT THE SAME IS NOT ALLOWABLE AS THE LOAN TAKEN IN THE INDIVIDUAL NAME OF THE KARTA BY COMPLETELY DISREGAR DING THE VITAL FACTS AND DOCUMENTS ON RECORD. 3. THE ISSUE RAISED VIDE GROUND NOS. 1 TO 3 IS IN R ESPECT OF ADDITION MADE U/S 56(2)(VI) OF THE INCOME TAX ACT. 4. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT D URING THE ASSESSMENT PROCEEDINGS THE ASSESSEE WAS FOUND TO HAVE PURCHAS ED A FLAT IN BASANT PARWATI COOPERATIVE HOUSING SOCIETY LIMITED MUMBAI FOR A TOTAL CONSIDERATION OF RS. 2.30 CRORES. THE SOURCES OF PU RCHASE WERE EXPLAINED BY THE ASSESSEE AS UNDER:- 3 AMOUNT BANK ACCOUNT NAME OF BANK ACCOUNT HOLDER 80 00 000/- HDFC BANK SANTA CRUZ MUMBAI SHRI GURSHAN SINGH SAWHNEY SMT. GURMEET KAUR SAWHNEY (WIFE) AND GURCHARAN SAHANI (SISTER) 15 00 000/- STATE BANKOF HYDERABAD MUMBAI A/C NO. 52025222135 GURMEET KAUR SAWHNEY (WIFE) 15 00 000 STATE BAN OF HYDERABAD MUMBAI A/C NO. 011900009423 BANIT SINGH SAWHNEY (WIFE) 40 00 000/- PAY ORDER LOAN FORM KREDENCE MULTI TRADING LTD 80 00 000/- UNION BANK OF INIDA MUMBAI LOAN ACCOUNT IN THE NAME OF SHRI G.S.SAWHNEY 5. THE ASSESSING OFFICER FURTHER NOTED FROM THE DET AILS SUBMITTED BY THE ASSESSEE AS UNDER:- I) DURING THE YEAR M/S G.S.SAWHNEY (HUF) HAD RECE IVED AS GIFT OF RS. 15 74 775/- FROM HIS BROTHER. THE L OAN WAS RECEIVED IN FOREIGN EXCHANGE US$ 34995 AND WAS DEPOSITED IN BANK ACCOUNT NO. 00791000073241 WITH HDFC IN THE NAME OF SHRI GURSHARAN SINGH SAWHNEY SMT. GURMEET KAUR SAWHNEY AND GURSHANRAN SAHANI (SISTER OF SHR G.S. SAWHNEY). II) THE HOUSING LOAN WAS TAKEN FROM UNION BANK OF INDIA IN INDIVIDUAL NAME. III) AS PER LETTER SUBMITTED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE HAD STATED THAT ACCOUNT NO. 00791000073241 IN HDFC BANK SANTA CRUZ IS USED EXCLUSIVELY FOR HUF PURPOSE. THIS ST AND WAS TAKEN BY THE ASSESSEE DURING THE SCRUTINY PROCEEDINGS OF M/S G.S .SAWHNEY (HUF) FOR THE ASSESSMENT YEAR 2006-07 ALSO. 6. THE ASSESSING OFFICER WAS OF THE VIEW THAT IN VI EW OF THE PROVISIONS OF SECTION 56(2)(VI) OF THE INCOME TAX A CT ANY MONEY 4 RECEIVED BY AN HUF AFTER 1.4.2006 ABOVE RS. 50 000/ - WITHOUT CONSIDERATION IS TAXABLE EXCEPT IN THE CASES PROVI DED IN THE SECTION. AS PER THE ASSESSING OFFICER SINCE THE HUF HAS NO REL ATIVES AND AS ASSESSEE HUF HAD RECEIVED GIFT OF RS. 15 74 775/- THE SAME WAS TO BE ADDED AS INCOME OF THE ASSESSEE HUF. THE LD. AR FOR THE A SSESSEE IN REPLY SUBMITTED THAT THE GIFT WAS REFLECTED IN THE INDIVI DUAL HANDS AND COULD NOT BE TREATED AS INCOME OF THE ASSESSEE. THE SAID AMO UNT WAS RECEIVED IN THE HDFC BANK ACCOUNT WHICH WAS EXCLUSIVELY USED BY TH E ASSESSEE HUF. THE COUNSEL FOR THE ASSESSEE COULD NOT EXPLAIN HOW THE GIFT OF RS. 15 74 775/- COULD BE TREATED AS A GIFT OF INDIVIDUA L WHEN DEPOSITED IN THE BANK ACCOUNT OF THE ASSESSEE HUF. THE ASSESSING OF FICER ACCORDINGLY MADE AN ADDITION OF RS. 15 74 775/-. 7. FURTHER THE ASSESSING OFFICER NOTED THAT SMT. G URMEET KAUR SAWHNEY(WIFE) AND BANIT SINGH SAWHNEY (SON) HAD CON TRIBUTED RS. 15 LACS EACH FOR THE PURCHASE OF THE SAID PROPERTY. BO TH THE WIFE AND THE SON OF THE ASSESSEE HAD RECEIVED FUNDS FROM REDEMPTION OF THEIR INDIVIDUAL INVESTMENT IN MUTUAL FUNDS. THE SUM OF RS. 15 LAC S EACH WAS UTILIZED FOR THE PURCHASE OF THE PROPERTY IN THE NAME OF THE ASS ESSEE HUF. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAID REC EIPT OF RS. 30 LACS CONSTITUTED MONEY RECEIVED BY THE ASSESSEE HUF WITH OUT CONSIDERATION AND ADDITION OF RS. 30 LACS WAS MADE U/S 56(2)(VI) OF THE INCOME TAX ACT. 8. FURTHER THE ASSESSEE HUF HAD RECEIVED INTEREST FREE LOAN FROM KREDENCE MULTI TRADING LIMITED WHICH WAS THE HOLDI NG COMPANY OF M/S UTTAM GALVA STEEL PVT LTD WHERE SHRI G.S.SAWHNEY WA S CHIEF FINANCIAL OFFICER. THE ASSESSEE HUF HAD GIVEN PROPERTY ON RE NT TO M/S UTTAM GALVA STEEL PVT LTD @ RS. 2 LACS PER MONTH. THE AS SESSING OFFICER FOUND 5 THE ASSESSEE NOT TO HAVE PAID ANY INTEREST ON LOAN OF RS. 40 LACS AND HENCE THE INTEREST COMPONENT ON THE SAID LOAN OF RS. 40 L ACS @ 12% BEING RS. 4.80 LACS WAS HELD TO BE DEEMED GIFT TO THE ASSESSE E HUF AND WAS TAXED U/S 56(2)(VI) OF THE INCOME TAX ACT. 9. BEFORE THE CIT(A) A CERTIFICATE WAS FURNISHED F ROM SHRI S.S. SAWHNEY UNDER WHICH HE CERTIFIED TO HAVE GIFTED US$ 34495 TO HIS BROTHER SHRI G.S.SAWHNEY. THE COPY OF THE INCOME TAX RETUR N OF SHRI G.S. SAWHNEY REFLECTING THE SAID GIFT WAS ALSO FILED BEF ORE THE CIT(A). THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT THE SAID GIFT WAS RECEIVED IN THE ACCOUNT OF ASSESSEE HUF VIDE ELECTR ONIC TRANSFER AS SHRI G.S. SAWHNEY INDIVIDUAL WAS NOT MAINTAINING ANY SUC H BANK ACCOUNT WHERE ELECTRONIC TRANSFER COULD BE FACILITATED THE AMOUNT WAS RECEIVED IN THE HUF ACCOUNT OF SHRI G.S.SAWHNEY. THE ADDITIONAL EVIDENCE IN THE FORM OF CERTIFICATE FROM DONOR WAS CONFRONTED TO TH E ASSESSING OFFICER AND IN HIS REMAND REPORT THE ASSESSING OFFICER OBS ERVED THE SAID CERTIFICATE TO BE AN AFTER THOUGHT AND REQUEST WAS MADE NOT TO ADMIT THE SAME AS ADDITIONAL EVIDENCE. FURTHER THE FACT OF SHRI G.S. SAWHNEY GIVING NOTE IN HIS INDIVIDUAL RETURN AS BEING NOT V ERIFIABLE THE ASSESSING OFFICER ALSO REJECTED THE SAME. IN REPLY IT WAS EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE THE CIT(A) THAT COP Y OF THE INCOME TAX RETURN FILED BY SHRI G.S.SAWHNEY IN HIS INDIVIDUAL CAPACITY WITH ITO MUMBAI WAS SUBMITTED BEFORE THE ASSESSING OFFICER IN TIME. THE ASSESSEE ALSO MADE A PLEA BEFORE THE CIT(A) THAT THE HUF HAD RECEIVED LOANS FROM SMT. GURMEET KAUR SAWHNEY(WIFE) AND SHRI BANIT SING H SAWHNEY(SON). THE AFFIDAVITS IN THIS REGARD WERE FURNISHED WHICH AS PER THE ASSESSING OFFICER DOES NOT MERIT TO BE ADMITTED AS ADDITIONAL EVIDENCE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE NATURE O F TRANSACTIONS WAS 6 CHANGED TO LOAN TO AVOID TAXES AND WAS AN AFTER THO UGHT AFTER THE COMPLETION OF ASSESSMENT PROCEEDINGS AS THE AFFIDAV IT WERE FOUND TO BE MADE THEREAFTER ONLY. THE CIT(A) UPHELD THE ADDITIO NS MADE BY THE ASSESSING OFFICER OBSERVING THAT FROM THE MATERIAL ON RECORD IT EMERGED THAT THE ACCOUNT WITH HDFC BANK WAS EXCLUSIVE ACCOU NT OF HUF AND AS THE GIFT WAS DIRECTLY CREDITED TO THIS ACCOUNT BY T RANSFER THERE WAS NO JUSTIFICATION TO CONSIDER THE SAME AS TO HAVE BEEN RECEIVED IN HIS INDIVIDUAL CAPACITY. THE CERTIFICATE OF GIFT FILE D BEFORE THE CIT(A) BEING ON PLAIN PAPER AND NOT BEING NOTARIZED WAS R EJECTED AND EVEN THE CONTENTION OF ELECTRONIC TRANSFER WAS FOUND TO BE N OT LOGICAL IN VIEW OF THE FUNDS BEING UTILIZED BY THE HUF. THE CIT(A) UP HELD THE ADDITION OF RS. 30 LACS AS ON INTEREST WAS PAID ON THE SAID LOA NS AND HENCE CONTRIBUTION WAS HELD TO BE WITHOUT CONSIDERATION. ADDITION OF RS. 4.50 LACS WAS ALSO UPHELD. 10. THE ASSESSEE IS IN APPEAL AGAINST THE AFORESAID ADDITIONS. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT THERE WAS NO D ISPUTE IN RESPECT OF THE AMOUNT OF INVESTMENT IN THE PROPERTY PURCHASED BY T HE ASSESSEE AND SOURCES OF THE AFORESAID INVESTMENT. THE DISPUTE W AS ONLY IN CONNECTION WITH THE AMOUNTS RECEIVED FROM SHRI G.S. SAWHNEY I NDIVIDUAL GURMEET KAUR SAWHNEY AND BANIT SINGH SAWNNEY BEING TREATED AS GIFTS UNDER THE PROVISIONS OF SECTION 56(2)(VI) OF THE ACT. THE TH IRD ADDITION WAS IN RESPECT OF THE AMOUNT RECEIVED FROM KREDENCE MULTI TRADING LTD WHEREIN NOTIONAL INTEREST WAS ESTIMATED AND TREATED AS DEEM ED GIFT. THE LD. AR POINTED OUT THAT IN RESPECT OF THE GIFT RECEIVED FR OM SHRI SURINDER SINGH SAWNHEY THE CERTIFICATE OF DONOR AND AFFIDAVIT OF THE DONOR WAS FURNISHED. THE BANK ACCOUNT WITH HDFC BANK WAS IN THE NAME OF THREE PERSONS AND KARTA HAD MADE A STATEMENT THAT THE TRA NSACTIONS IN THE SAID 7 ACCOUNT WERE RELATING TO THE HUF. THE BANK BALANC E OF HDFC BANK WAS REFLECTED IN THE BALANCE SHEET OF THE HUF FILED AL ONGWITH RETURN OF INCOME. OUR ATTENTION WAS DRAWN TO THE BANK STATE MENT FILED AT PAGES 13 & 14 OF THE PAPER BOOK. IT WAS POINTED OUT THAT DU RING THE YEAR THE ASSESSEE IN HIS INDIVIDUAL CAPACITY HAD RECEIVED TW O GIFTS FROM HIS BROTHER IN U.S. ONE ON 12.4.2006 AND THE OTHER ON 5.10.20 06. THE ADDITION WAS MADE IN RESPECT OF FIRST GIFT RECEIVED ON 12.4.200 6 BUT NO ADVERSE FINDINGS WERE MADE IN RESPECT OF SECOND GIFT RECEIV ED ON 5.10.2006. THE LD. AR FURTHER DREW OUR ATTENTION TO THE COMPUTATIO N OF INCOME FILED BY SHRI G.S. SAHWNEY IN HIS INDIVIDUAL CAPACITY WHERE IN UNDER A NOTE THE RECEIPT OF GIFT WAS DECLARED IN THE COMPUTATION OF INCOME. THE DOCUMENTS ARE PLACED ASSESSMENT PAGES 18 TO 20 OF THE PAPER B OOK ALONGWITH THE INTIMATION ISSUED U/S 143(1) ASSESSMENT PAGE 17 OF THE PAPER BOOK. THE LD. AR EXPLAINED THE ASSESSEE HAD FURNISHED LIST OF ASSETS AND LIABILITIES AS ON 31.3.2007 PLACED AT PAGE 3 OF THE PAPER BOOK IN WHICH BALANCE WITH HDFC BANK WAS DECLARED AND FURTHER THE LIABILITIES OF SHRI G.S.SAWHNEY BANIT SAHWNEY AND GURMEET SINGH SAWHNEY WERE ALSO D ECLARED. ALSO THE LIABILITY OF KREDENCE MULTI TRADING LIMITED WAS REF LECTED. THE DETAILS OF ADVANCES RECEIVED AS PER THE DETAILS OF ASSETS AND LIABILITIES AS ON 31.3.2007 WAS FILED BEFORE THE ASSESSING OFFICER AL ONG WITH LETTER DURING THE COURSE OF ASSESSMENT PROCEEDINGS A COPY OF WHI CH IS PLACED AT PAGES 1 & 2 OF THE PAPER BOOK. 11. THE NEXT GRIEVANCE OF THE LD. AR WAS THAT THE A SSESSING OFFICER WHILE APPLYING THE PROVISIONS OF SECTION 56(2)(VI) NEVER CONFRONTED THE ASSESSEE AND THE ASSESSMENT SO MADE WAS NOT JUSTIFI ED. RELIANCE WAS PLACED ON VARIOUS CASE LAWS FOR THE PROPOSITION. IN RESPECT OF LOAN RECEIVED FROM SHRI BANIT SAWHNEY & SHRI GURMIT KAU R SAWHNEY THE LD. 8 AR SUBMITTED THAT THE SOURCES WERE EXPLAINED AND TH E LIABILITIES WERE ACKNOWLEDGED BY THE ASSESSEE. IT WAS FURTHER POINT ED OUT BY THE LD. AR THAT THE PROVISIONS OF SECTION 56(2)(VI) ARE NOT AP PLICABLE WHERE THE TRANSACTIONS IS BETWEEN RELATIVES. AS PER THE ASS ESSING OFFICER THE HUF RELATIVE CANNOT HAVE ANY RELATIVE. AN ALTERNATIVE SUBMISSION WAS MADE TO THE EFFECT THAT SECTION 64(2) OF THE ACT DE-RECOGNI ZES A TRANSACTION OF GIFT. THE LD. DR FOR THE REVENUE POINTED OUT THAT THE ASS ESSEE VIDE HIS COMMUNICATION FURNISHED BEFORE THE ASSESSING OFFICE R PLACED AT PAGE 1 & 2 OF THE PAPER BOOK HAD ACKNOWLEDGED TO HAVE RECEIV ED GIFT OF RS. 15 74 775/- FROM HIS BROTHER ON 2.4.2006. THE SAID AMOUNT WAS UTILIZED FOR BUYING THE PROPERTY OF HUF AND THE MOUNT WAS DE POSITED IN AN ACCOUNT EXCLUSIVELY USED BY HUF. RELIANCE WAS PLAC ED ON THE FINDINGS OF THE CIT(A) / ASSESSING OFFICER IN THIS REGARD. IN RESPECT OF THE LOAN RECEIVED FROM OTHER TWO FAMILY MEMBERS IT WAS POIN TED OUT BY THE LD. DR THOUGH THE ASSESSEE CLAIMS TO HAVE FILED THE BAL ANCE SHEET BEFORE THE ASSESSING OFFICER BUT BEFORE THE ASSESSING OFFICER THE ONLY STAND WAS THAT CONTRIBUTIONS WERE MADE BY HIS WIFE AND SON TO WARDS PURCHASE OF PROPERTIES. AS PER THE LD. DR THE AFFIDAVITS FRO M THE PARTIES AND THE BALANCE SHEET WERE FILED BEFORE THE CIT(A) AND RELI ANCE WAS PLACED ON THE OBSERVATIONS OF THE CIT(A) IN PARAS 17 & 18. IN RE SPECT OF THE LOAN RECEIVED FROM M/S KREDENCE MULTI TRADING LIMITED T HE LD. DR PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER AND CIT(A) IN THIS REGARD. IN REJOINDER IT WAS STRESSED BY THE LD. AR THAT TH E DETAILS OF ASSETS AND LIABILITIES WERE FURNISHED BEFORE THE ASSESSING OFF ICER. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ISSUE ARISING IN THE PRESENT APPEAL VIDE GROUND NOS . 1 TO 3 ARE IN RESPECT OF THE VARIOUS AMOUNTS RECEIVED BY THE ASSESSEE DUR ING THE YEAR UNDER 9 CONSIDERATION. THE ASSESSEE HAD MADE INVESTMENT IN THE PURCHASE OF A FLAT IN MUMBAI AND WHILE EXPLAINING THE SOURCES OF INVES TMENT IN THE SAID PROPERTIES CERTAIN CREDIT ENTRIES WERE SOUGHT TO B E EXPLAINED BY THE ASSESSEE. THE EXPLANATION FURNISHED BY THE ASSESSE E WAS DISBELIEVED BY THE ASSESSING OFFICER AND CONFIRMED BY HE CIT(A) RE SULTING IN ADDITION AFTER INVOKING OF THE PROVISIONS OF SECTION 56(2)(V I) OF THE ACT. 13. WE FIND THAT THE ISSUE OF APPLICABILITY OF THE PROVISIONS OF SECTION 56(2)(VI) OF THE ACT HAS BEEN CONSIDERED BY THE CHA NDIGARH BENCH OF THE TRIBUNAL AND STANDS COVERED BY THE DIFFERENT ORDERS OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. SARAN PAL SINGH HUF IN ITA NO.692/CHD/2009 AND IN ITO VS. MEENA IN ITA NO. 174/CHD/2010. THE TRIBUNAL IN ITO VS. MS MEENA (SUPRA) HAD IN TU RN RELIED ON THE ORDER IN SMT. KANTA RANA VS. ITO (ITA NO. 517/CHD/2010 RE LATING TO ASSESSMENT YEAR 2006-07 ORDER DATED 18.6.2010) HELD THAT THE LOANS ARE NOT COVERED UNDER THE PROVISIONS OF SECTION 56( 2)(VI) OF THE ACT. IT HAS BEEN HELD AS UNDER:- 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ONLY ISSUE ARISING IN THE PRESENT APP EAL IS AGAINST THE ADDITION OF RS.10 20 000/- U/S 56(2) (V ) OF TH E ACT. WE FIND THAT ISSUE OF ADVANCEMENT OF INTEREST FREE LOAN AND ITS TREATMENT U/S 56(2)(V) OF THE ACT WAS DECIDED BY THE TRIBUNAL IN ACIT VS. SHRI SARANPAL SINGH HUF (ITA NO. 697/CHD/2009- ASSE SSMENT YEAR 2006-07) VIDE ORDER DATED 9.9.2009 IN TURN FO LLOWING THE RATIO LAID DOWN BY MUMBAI BENCH OF TRIBUNAL IN CHAN DERKANT H.SHAH [19 DTR 241 (MUM)] WHEREIN IT WAS HELD THAT FROM THE AFORESAID IT IS EVIDENT THAT THE TRIBUNAL NOTICED T HE INTENTION BEHIND THE INSERTION OF SECTION 56(2)(V) OF THE ACT AND IN THIS CONTEXT IT HAS BEEN INFERRED THAT SUCH PROVISION S EEKS TO BRING TO TAX CASES OF BOGUS GIFTS IT HAS THEREAFTER CONCLUD ED THAT LOANS ARE NOT COVERED WITH THE PROVISIONS OF SECTION 56(2)(V ) OF THE ACT. 7. IT WAS FURTHER HELD AS UNDER:- .. IN OUR CONSIDERED OPINION THE FACTUM OF THE ASSESSEE BEING LIABLE TO REPAY THE IMPUGNED UNSECU RED LOAN IMPLIES THE SAME WITH CHARACTERISTICS OF A LI ABILITY . 10 M ERELY BECAUSE THE AMOUNT OF LOAN HAS BEEN RAISED WI THOUT INVOLVING PAYMENT OF INTEREST CANNOT BE SEEN TO HA VE VESTED THE IMPUGNED AMOUNT WITH CHARACTERISTICS OF AN INCO ME WITHIN THE MEANING OF SECTION 56(2)(V) OF THE ACT. THE EXISTENCE OF EXPRESSION WITHOUT CONSIDERATION IN SECTION 56(2)(V) CANNOT DISTRACT FROM THE FACT THAT IN THE IMPUGNED CASE THE SUM OF MONEY RECEIVED IN QUESTION CARRIED A LIABILITY OF ITS REPAYMENT AND THE SAME WAS NOT REC EIVED BY THE ASSESSEE WITH AN ABSOLUTE UNFETTERED RIGHT OF P OSSESSION. THEREFORE IN THE TOTALITY OF FACTS AND CIRCUMSTANC ES OF THE PRESENT CASE WE FIND NO JUSTIFICATION TO UPHOLD TH E STAND OF THE ASSESSING OFFICER AND THE CIT(A) WAS JUSTIFIED IN DELETING THE IMPUGNED ADDITION. ACCORDINGLY THE CONCLUSION OF THE CIT(A) IS CONFIRMED. 8. THE TRIBUNAL IN PRINCIPLE LAID DOWN THE PROPOSITION THAT THE PROVISIONS OF SECTION 56(2)(V) OF THE ACT SEEKS TO BRING TO TAX THE CASES OF BOGUS GIFTS AND DOES NOT COVER WIT HIN ITS PROVISIONS THE LOANS RAISED. IN THE FACTS OF THE P RESENT CASE BEFORE US THE ASSESSEE CLAIMS TO HAVE RECEIVED LOA NS FROM THE AFORESAID PARTIES TOTALING RS. 10 20 000/-. THE SAID LOANS WERE RECEIVED WITH PROMISSORY NOTES DULY EX ECUTED IN EACH CASE WITH PROVISION OF INTEREST TO BE PAID ON THE ABOVE SAID AMOUNTS. THE CLAIM OF THE ASSESSEE WAS REJECTE D BY THE ASSESSING OFFICER AS THE ASSESSEE HAD NOT PAID ANY INTEREST ON THE ABOVESAID LOANS EITHER DURING THE YEAR UNDER CONSIDERATION OR IN THE SUBSEQUENT YEARS. THE SAI D AMOUNTS WERE PAYABLE TILL THE CLOSE OF THE ASSESSMENT PROCE EDINGS. BEFORE THE CIT(A) THE ASSESSEE IN ORDER TO JUSTIFY ITS CLAIM MADE AN EFFORT TO REPAY PART OF THE LOAN AMOUNT TO TWO OF THE LOAN CREDITOR/S BY ISSUING CHEQUES OF RS. 1.50 LACS AND RS. 2 LACS FAVOURING MR. AMIT RAJ AND M/S GATHA INTERNATIONAL RESPECTIVELY WHICH WERE CLEARED AFT ER DEPOSIT OF CASH IN THE ACCOUNT OF THE ASSESSEE. HOWEVER THE MODE OF REPAYMENT DOES NOT FIND FAVOUR WITH THE CIT(A) A S ACCORDING TO HIM THE SAID AMOUNTS WERE NEVER INTEND ED TO BE LOANS. WE ARE NOT IN CONFORMITY WITH THE FINDING OF CIT(A) AS NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE RE VENUE AUTHORITIES TO PROVE THE CONTRARY. THE STAND OF TH E ASSESSEE BEFORE THE AUTHORITIES WAS THAT IT HAD RECEIVED THE ABOVE SAID LOANS AMOUNTING TO RS. 10 20 000/- FOR THE PUR POSE OF INVESTING IN THE PURCHASE OF PLOT. THE CONFIRMATIO N OF THE SAID LOANS WAS EVIDENCED BY THE PROMISSORY NOTES EX ECUTED BY THE RESPECTIVE PARTIES EVIDENCE OF WHICH WAS FU RNISHED ON RECORD AND HAS BEEN COMMENTED UPON BY THE LOWER AUTHORITIES. THE PARTIES HAVE CONFIRMED TO HAVE A DVANCED LOANS AND THERE IS NO EVIDENCE BROUGHT ON RECORD TO PROVE THE CONTRARY. ADMITTEDLY THERE IS NO DISPUTE REG ARDING THE NATURE AND SOURCE OF THE IMPUGNED UNSECURED LOANS. THE TRIBUNAL IN ACIT VS. SHRI SARANPAL SINGH HUF (SU PRA) HAD LAID DOWN THE PROPOSITION THAT THE PROVISIONS O F SECTION 56(2)(V ) OF THE ACT ARE APPLICABLE TO BOGUS GIFTS AND LOANS ARE NOT COVERED UNDER THE AFORESAID SECTIONS. IN THE FACTS 11 AND CIRCUMSTANCES OF THE CASE AND APPLYING THE RA TIO LAID DOWN BY THE COORDINATE BENCH OF THE TRIBUNAL IN ACI T VS. SHRI SARANPAL SINGH HUF (SUPRA) WE HOLD THAT THE L OANS RAISED BY THE ASSESSEE ARE NOT COVERED UNDER THE PR OVISIONS OF SECTION 56(2)(V) OF THE INCOME TAX ACT. THE AS SESSEE HAS FURTHER FURNISHED EVIDENCE TO HAVE REPAID PART OF THE LOANS RAISED DURING THE COURSE OF APPELLATE PROCEEDINGS AND THERE IS NO MERIT IN THE ORDER OF CIT(A) IN HOLDING THE S AME TO BE AN AFTER THOUGHT IN THE ABSENCE OF ANY EVIDENCE TO THE CONTRARY. ACCORDINGLY WE DIRECT THE ASSESSING OFF ICER TO DELETE THE ADDITION OF RS. 10 20 000/- MADE ON THIS ACCOUNT. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE TH US ALLOWED. 14. COMING TO THE FACTS OF THE PRESENT CASE THE FI RST CREDIT UNDER CONSIDERATION IS RS. 15 74 775/-. THE SAID AMOUNT WAS CREDITED TO THE SAVING ACCOUNT WITH HDFC BANK WHICH STANDS IN THE N AME OF THE ASSESSEE SMT. GURDEEP KAUR AND GURCHARAN SAHWNEY (SISTER O F THE ASSESSEE). THE EXPLANATION OF THE ASSESSEE IN CONNECTION WITH THE SAID AMOUNT WAS THAT GIFT IN US$ WAS RECEIVED FROM SHRI SURINDER SINGH S AWHNEY BROTHER OF SHRI G.S. SAWHNEY. THE SAID GIFT WAS RECEIVED THRO UGH ELECTRONIC TRANSFER AND WAS CREDITED TO THE SAVING ACCOUNT WITH HDFC BA NK OF ASSESSEE HUF AS SHRI G.S. SAWHNEY INDIVIDUAL WAS NOT MAINTAININ G ANY ACCOUNT WHERE ELECTRONIC TRANSFER WAS FACILITATED. THE ASSESSEE HUF HAD FURNISHED ON RECORD THE STATEMENT OF TOTAL INCOME FILED IN THE I NDIVIDUAL CAPACITY IN WHICH THE SAID GIFT HAS BEEN DISCLOSED BY WAY OF AN NOTED APPENDED TO THE COMPUTATION OF INCOME. SHRI G.S. SAWHNEY INDIVID UAL HAS FURNISHED HIS RETURN OF INCOME WITH THE INCOME TAX DEPARTMENT MU MBAI AND THE SAID RETURN HAS BEEN PROCESSED U/S 143(1) OF THE ACT. T HE ABOVE SAID DOCUMENTS ARE FURNISHED AT PAGES 17 TO 20 OF THE PA PER BOOK. THE SAID EVIDENCE WAS FURNISHED BEFORE THE ASSESSING OFFICER AND NO ADVERSE FINDINGS ARE REPORTED BY THE ASSESSING OFFICER. DU RING THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSEE HAS ALSO FILED A CERTIFICATE FROM THE DONOR WHICH WAS REJECTED BEING AN AFTER THOUGHT. WE FIND NO MERIT IN 12 THE SAID REJECTION IN VIEW OF THE VARIOUS EVIDENCE PRODUCED BY THE ASSESSEE. THE GIFT HAVING BEEN RECEIVED BY SHRI G .S. SAWHNEY IN HIS INDIVIDUAL CAPACITY FROM HIS BROTHER IN U.S. CANNO T BE INCLUDED AS INCOME IN THE HANDS OF THE ASSESSEE UNDER THE PROVISIONS O F SECTION 56(2)(VI) OF THE INCOME TAX ACT. THE DEPOSIT OF THE SAID AMOUNT IN THE SAVING ACCOUNT WITH HDFC BANK ENTRIES OF WHICH ARE CLAIMED BY THE ASSESSEE HUF TO BE BELONGING TO HIM DOES NOT IPSO FACTO ESTABLISH THA T ALL THE AFORESAID ENTRIES BELONG TO THE ASSESSEE HUF. WE FIND MERIT IN THE CLAIM OF THE ASSESSEE HUF THAT THE SAID ENTRY RELATES TO SHRI G.S.SAWHNEY INDIVIDUAL. THERE IS NO MERIT IN ADDITION MADE U/S 56(2)(VI) OF THE ACT BEING GIFT FROM SHRI SURINDER SINGH SAWHNEY TO ASSE SSEE HUF. ACCORDINGLY WE SET ASIDE THE ORDER OF CIT(A) IN TH IS REGARD AND DIRECT THE ASSESSING OFFICER DELETE THE ADDITION OF RS. 15 74 775/-. 15. THE SECOND ADDITION IS WITH REGARD TO THE INTER EST FREE LOANS OF RS. 30 LACS RECEIVED BY THE ASSESSEE HUF. THE ASSESS EE HAD RECEIVED RS. 15 LACS FROM HIS WIFE MRS GURMEET KAUR AND RS. 15 LAC S FROM HIS SON BANIT SINGH. THE SOURCE OF THE SAID AMOUNTS ADVANCED WE RE EXPLAINED BY THE ASSESSEE HUF TO BE OUT OF ENCASHMENT OF THEIR INDIV IDUAL INVESTMENTS IN MUTUAL FUNDS. THE ASSESSEE AT PAGES 26 TO 28 AND 2 9 TO 34 HAS ANNEXED THE EVIDENCES FURNISHED BEFORE THE ASSESSING OFFICE R INCLUDING THE REDEMPTION OF THE INVESTMENT IN MUTUAL FUNDS BY THE RESPECTIVE PARTIES. THE SAID AMOUNTS WERE TREATED AS LOANS BY THE ASSES SEE WHICH IS FURTHER SUPPORTED BY THE DETAILS OF ASSETS AND LIABILITIES PREPARED BY THE ASSESSEE AS ON 31.3.2007 AND FILED BEFORE THE AUTHORITIES BE LOW. AS PER THE ASSESSING OFFICER THE SAID AMOUNT ADVANCED BY SHRI BANIT SINGH AND SMT. GURMEET KAUR TO THE ASSESSEE HUF CONSTITUTES MONEY PAID WITHOUT CONSIDERATION AND IN VIEW OF THE PROVISIONS OF SECT ION 56(2)(VI)OF THE ACT 13 ADDITION WAS MADE IN THE HANDS OF THE ASSESSEE TOTA LING RS. 30 LACS WHICH WAS UPHELD BY CIT(A). IN VIEW OF THE RATIO LAID D OWN BY THE TRIBUNAL IN ACIT VS. SHRI SHARANPAL SINGH HUF (SUPRA) THERE IS NO MERIT IN THE AFORESAID ADDITIONS AS THE PROPOSITION LAID DOWN BY THE TRIBUNAL IS THAT THE PROVISIONS OF SECTION 56(2)(VI) ARE APPLICABLE TO BOGUS GIFTS AND LOANS ARE NOT COVERED UNDER THE AFORESAID SECTION. THUS WE HOLD THAT THE LOANS RAISED BY THE ASSESSEE TOTALING RS. 30 LACS ARE NOT COVERED UNDER THE PROVISIONS OF SECTION 56(2)(VI) OF THE INCOME TAX A CT . THE ASSESSEE HAVING FURNISHED THE EVIDENCE WITH REGARD TO THE RA ISING OF LOANS FROM THE RESPECTIVE PARTIES INCLUDING THE SOURCE OF THE SAID INVESTMENTS AND ALSO OF HAVING ACKNOWLEDGED ITS LIABILITY TO PAY THE SAME DOES NOT WARRANT ANY ADDITION ON THIS COUNT. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 30 LACS. 16. THE NEXT ADDITION HAS BEEN MADE U/S 56(2)(VI) O F THE ACT ON ACCOUNT OF INTEREST PAYABLE ON THE LOANS RAISED FROM KREDEN CE MULTI TRADING COMPANY. IN LINE WITH OUR OBSERVATIONS IN THE PA RA HEREINABOVE THERE IS NO MERIT IN THE AFORESAID ADDITION OF RS. 4 80 000/ - MADE ON ACCOUNT OF DEEMED GIFT U/S 56(2)(VI) OF THE ACT. WE DIRECT T HE ASSESSING OFFICER TO DELETE THE SAME. ACCORDINGLY GROUND NOS. 1 TO 3 RAISED BY THE ASSESSEE ARE THUS ALLOWED. 17. THE ISSUE IN GROUND NO.4 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF INTEREST OF RS. 5 44 775/-. THE A SSESSEE HAD RAISED A HOUSING LOAN OF RS. 80 LACS AGAINST WHICH INTEREST OF RS. 5 44 775/- WAS DUE AND THE SAME WAS CLAIMED AS DEDUCTION U/S 24(B) OF THE ACT. THE ASSESSING OFFICER FROM THE EVIDENCE COLLECTED FOUND THE SAID LOAN TO BE DISBURSED IN THE NAME OF SHRI G.S. SAWHNEY IN HIS INDIVIDUAL CAPACITY 14 AND AS NO LOAN WAS RAISED BY THE ASSESSEE HUF THE CLAIM OF INTEREST WAS REJECTED. THE CIT(A) UPHELD THE ORDER OF ASSESSIN G OFFICER. 18. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT TH E SAID LOAN RAISED FROM UNION BANK WAS NOT DISBURSED TO THE ASSESSEE H UF OR TO HIS INDIVIDUAL BUT THE CHEQUE WAS DIRECTLY ISSUED IN FA VOUR OF THE SELLER OF THE FLAT AND IN THE CERTIFICATE ISSUED BY THE BANK THE PAN NUMBER OF THE ASSESSEE HUF IS MENTIONED. THE LD. DR ON THE OTHE R HAND POINTED OUT THAT THE UNION BANK IN ITS LATER COMMUNICATION HAD CLARIFIED THAT THE SAID LOAN WAS ISSUED TO SHRI G.S. SAWHNEY AGAINST WHICH AN UNDERTAKING WAS ISSUED BY M/S UTTAM GALWA STEEL LTD. THE LD. DR F URTHER STATED THAT AS THE SAID LOAN WAS NOT RELEASED TO THE ASSESSEE HUF NO DEDUCTION IS TO BE ALLOWED ON ACCOUNT OF INTEREST DUE ON HOUSING LOAN. 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. ADMITTEDLY A HOUSING LOAN OF RS. 80 LACS HAS BEEN ISSUED BY UNION BANK OF INDIA MUMBAI. THE SAID LOAN HAS NOT BEEN DISBU RSED TO THE ASSESSEE HUF OR TO SHRI G.S. SAWHNEY INDIVIDUAL BUT THE AMO UNT HAS BEEN DIRECTLY PAID BY THE BANK TO THE SELLER OF THE FLAT. IT IS ALSO NOT IN DISPUTE THAT THE SAID FLAT HAD BEEN PURCHASED BY THE ASSESSEE HUF DU RING THE YEAR UNDER CONSIDERATION. THE LOAN BEING ISSUED TO SHRI G.S. SAWHNEY INDIVIDUAL DOES NOT CHANGE THE PURPOSE FOR WHICH THE LOAN WAS GRANTED AND THE UTILIZATION OF THE SAME. THE LOAN HAS BEEN UTILIZE D FOR INVESTMENT IN THE PURCHASE OF A FLAT INCOME OF WHICH IS REFLECTED I N THE HANDS OF THE ASSESSEE HUF. THE EXPENDITURE IN CONNECTION WITH THE EARNING OF RENTAL INCOME BEING THE INTEREST PAID ON HOUSING LOAN IS T O BE ADJUSTED AGAINST THE RENTAL INCOME DECLARED BY THE ASSESSEE HUF. W E SET ASIDE THE ORDER OF CIT(A) IN THIS REGARD AND DIRECT THE ASSESSING O FFICER TO ALLOW THE 15 DEDUCTION CLAIMED U/S 24(B) OF THE INCOME TAX ACT A MOUNTING TO RS. 5 44 775/-. THE GROUND NO.4 RAISED BY THE ASSESSEE IS THUS ALLOWED. 20. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF FEBRUARY 2010. SD/- SD/- (N.BARATHVAJA SANKAR) (SUSHMA CHOWLA) VICE PRESIDENT JUDICIAL MEMBER DATED : 23 RD FEBRUARY 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR