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Panna S. Khatau Mumbai Versus ITO-2 (3) (2) , Mumbai

Addition on net increase in the assessee’s capital on account of write back as well as write off of some old credits and debits appearing in accounts - Income – Concept & Scope - Held that:- We confirm the assessment of the impugned sum as income, which would, in the absence of the establishment of the cause of remission or cessation of liability, fall to be assessed under Chapter IV-F under the head ‘income from other sources’ u/s. 56. When an amount, which is stated, claimed and accepted as a .....

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e law permits the A.O. to draw an adverse inference of it as representing the assessee’s income. As regards the year, there can again be little doubt in the matter. The impugned credit/s, which we have found as a fresh credit/s, is during the current year. The liability was accepted as genuine for and up to the immediately preceding year, while it is no longer payable as at the year-end. The taxable event, in terms of gain, thus, has taken place during the year, even if one considers the passing .....

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f earlier year expenses to the assessee’s capital account for the year - Held that:- . No taxable event has taken place in the current year, as well as, as it appears, in the past. A reversal of a wrong entry, having no income or expense implication, cannot, by any stretch of imagination, result in income. Book entries do not create income but merely recognize it. In fact, even the Act does not define ‘income’ conclusively, but only in terms in which it ordinarily manifests itself. The Revenue h .....

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rrent or even an earlier year. It is for these reasons that we stated at the beginning of our discussion of our finding no appeal or merit in the Revenue’s case. We decide accordingly, directing the deletion of the impugned sum.- Decided in favour of assessee. - I.T.A. No. 3596/Mum/2012 - Dated:- 3-7-2015 - Shri Sanjay Arora and Shri Sanjay Garg, JJ. For the Petitioner : Shri Paresh Shaparia For the Respondent : Shri Jeetendra Kumar ORDER Per Sanjay Arora, A. M.: This is an Appeal by the Assesse .....

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the net increase in the assessee s capital during the year on account of write back as well as write off of some old credits and debits appearing in her accounts. 3. The brief facts of the case are that the assessee s accounts, on verification of her return for the year, were observed to reflect a net increase of ₹ 28,09,953/-, being the difference between the amount of sundry creditors written back and of sundry debtors written off, at ₹ 30,42,500/- and ₹ 2,32,547/- respective .....

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1 Dhanji Shivaji Bhanushali 1,50,000 12 Dhanji Bhaga Patel 2,50,000 13 Pravin Shivaji Furia (HUF) 1,50,000 14 Onida Enterprises 1,75,000 15 Manji Ladha Patel 1,25,000 16 Harilal Kuvarji Gala 1,50,000 17 Bombay Textile 3,00,000 Total 30,42,500 The assessee being unable to substantiate her claim, furnishing no more than the names of the parties, nor even not the reason for the write back, the same was treated as income from other sources, i.e., under the residuary head of income. In appeal, it was .....

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the capital account for the current year clearly represented a receipt for that year, attracting section 56(2)(vi), as none of the excepted payers, as listed at clauses (a) to (g) thereof, were applicable. The addition being confirmed thus, the assessee is in second appeal. 4. Before us, the assessee s principal contention was that neither section 41(1) nor, consequently, section 59(1) would apply. The impugned sums had not been claimed or allowed in the assessment for any preceding year, and n .....

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, in the first instance. Further, the credit to the assessee s capital account being during the current year, the impugned sum can only be considered as having been received during that year. The provision of section 56(2) shall, therefore, apply. Reliance stands placed by it on the decision in the cases of CIT vs. P. Mohanakala [2007] 291 ITR 278 (SC) and Major Metals Ltd. vs. Union of India (in WP No. 397 of 2011 dated 22.02.2012, since reported at [2013] 359 ITR 450 (Bom)). 5. We have heard t .....

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also refer para 5.4). Case law in the matter is legion (refer: CIT vs. G. R. Karthikeyan [1993] 201 ITR 886 (SC); Emil Webber vs. CIT [1993] 200 ITR 483 (SC) (also refer para 7). True, capital receipts are excepted. The reason is, again, simple. Income, by definition, is always conceived in terms of accretion to capital. When, therefore, what is received stands established as capital, there is no question of it being considered as accretion thereto and, hence, as income. However, here again ther .....

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explained, even where the credit is to the account of another, or not on revenue account; the receipt being itself an evidence of income. Where, therefore, the genuineness of a loan or gift , both forms of capital transfers, is not satisfactorily proved, the same is liable to deemed as income, the second aspect of which relates to the year for which it is to be brought to tax. The Revenue is, in such a case, under no obligation to locate the exact source of credit (A. Govindarajulu Mudaliar vs. .....

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d to draw an inference that the receipt is of an assessable nature. In Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC), the hon ble apex court, after referring to its earlier decisions in Sreelekha Banerjee vs. CIT [1963] 49 ITR 112 (SC); Parimisetti Seetharamamma vs. CIT [1965] 57 ITR 532 (SC); CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC); and CIT vs. Orissa Corporation P. Ltd. [1986] 159 ITR 78 (SC), held as under: In all cases in which a receipt is sought to be taxed as income, the burden li .....

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essee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut the said evidence, it can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee, the Department cannot, however, act unreasonably (see pp. 804H. 805A - C).) [emphasis, ours] The decision in the case of O .....

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of the reports) to reiterate the same principle, i.e., that in the absence of a satisfactory explanation, as where the assessee does not produce any evidence about the nature and source of the credit rebutting the presumption of section 68, the same would hold, attracting charge to income tax. In P. Mohanakala (supra), to which again reference stands made by the hon ble court (at pg. 447 of the reports), the apex court clarified that the expression the assessee offers no explanation occurring in .....

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ections 56(2)(v) to (vii), provisions recently introduced, provide for receipt without consideration from an unrelated party, except otherwise than in any specified condition, is statutorily presumed to bear the character of income. The same is the second exception to the rule of a capital receipt being not considered as income under the Act and, in that sense, is again a rule of evidence, i.e., as s. 68, etc. The provision/s is harsh on genuine transfers, legislated in view of the propagation a .....

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the fair market value of the share as income. The apex court in T.V. Sundram Iyengar (supra) opined in favour of the write back of trade advances as income, de hors the provision of section 56(2), applying the concept of income, consistent with section 2(24), in the facts of the case. The efflux of time, coupled with the write back, so that it was no longer payable, it opined, was sufficient to signify a qualitative change in the nature of the sum as one of receipt of business. The finding of i .....

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at the same is business income, assessing it as income from other sources u/s. 56, but as to the nature of the receipt, i.e., if it at all is, or represents, the assessee s income. 5.2 During hearing, the ld. counsel was specifically questioned by the Bench that even assuming, without admitting though, the sums under reference to be, as contended, received by way of unsecured loans, i.e., in the absence of confirmations to that effect, how would it assist the assessee s case in-as-much as these .....

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, the hon ble court found the conversion of the loans into share application money, including the extent of premium at which the shares were allotted, i.e., at ₹ 990/- per share of a face value of ₹ 10/-, as a valid basis for enquiry by the Settlement Commission into the genuineness of the loan/share application money. Continuing further, section 68 would hold even if the impugned sums represent, as contended by the Revenue, the assessee s liabilities, assumed in the past, on whateve .....

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onstructive receipt during the year in-as-much as it is received on own account, while the earlier receipt was that by way of incurring a liability for value received (in kind) or even if in the form of money, only for being paid back and, as such, not without consideration. The second receipt, however, is without consideration. Section 68 shall also, as afore-referred, apply in-as-much as there is fresh credit/s in the assessee s books in the form of credit/s to the capital account. In our view .....

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the impugned sums to have been allowed deduction in the assessment for any earlier year, is absent in the instant case. This, however, would be of little moment. Conclusion 5.4 We, for the reasons afore-stated, confirm the assessment of the impugned sum as income, which would, in the absence of the establishment of the cause of remission or cessation of liability, fall to be assessed under Chapter IV-F under the head income from other sources u/s. 56. We have, while discussing the taxability, a .....

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e amount stands credited in the books to her capital account. The same is a credit, separate and distinct from that made earlier, i.e., on the receipt of money or, as the case may be, incurring of the liability in relation to the payable/s. The ingredients of section 68 are satisfied. One may argue that the Revenue has not invoked the said provision. That, to our mind, is of little consequence. As long as the assessing authority has a requisite power for a particular act, invocation of a wrong s .....

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fg. Co. Ltd. v. CIT (1971) 82 ITR 363 (SC)). Again, we are not advocating that the credit should be construed as income only on the basis of the rules of evidence, i.e., de hors the common notion of income. When an amount, which is stated, claimed and accepted as a payable, is no longer so, the assessee gains to that extent. There is nothing unreal or notional about this gain. It can show that, even so, the same is not chargeable as income or no tax liability is attracted in-as-much as the benef .....

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ring the current year. The liability was accepted as genuine for and up to the immediately preceding year, while it is no longer payable as at the year-end. The taxable event, in terms of gain, thus, has taken place during the year, even if one considers the passing of the journal entry, recording so, on a particular (single) date in the books, to be a matter of convenience only. It is for these reasons that we find the impugned credit as corresponding and answering to the concept of income unde .....

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e non-substantiation of her stand by the assessee. In the appellate proceedings, it was again reiterated that the write back was on account of erroneous entries made by the appellant in her books for the earlier years, and the impugned entry was only by way of a rectification entry, not leading to any income, much less chargeable to tax. The matter was subject to a remand report by the A.O., who endorsed his earlier view, stating the assessee to be entitled to an income in the impugned sum towar .....

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. and Wvg. Co. Ltd. (KMSWL) or any other, which was in fact payable by the said company to a third party. The payment (Rs.1,51,712/-) was, however, made on its behalf by one, Kedar Kiran Investment Pvt. Ltd. KMSWL, however, instead of crediting the latter in its accounts, credited the assessee s account on account of rent. The assessee, as it stated, responded by debiting KMSWL while crediting the payer-company, even as no entry was required to be passed in her books. Again, as explained during .....

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