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2016 (3) TMI 238 - ITAT MUMBAI

2016 (3) TMI 238 - ITAT MUMBAI - TMI - Revision u/s 263 - Claim of receipt of gift - Section 56 v/s 68 - Held that:- Section 56 of the Act grants exemption for bringing into tax such income under the head income from other sources. But, however, section 68 of the Act contemplates that with respect to any credit in the books, it is an obligation cast upon the assessee to explain the credit as appearing in the books of the assessee to the satisfaction of the A.O. by establishing the identity and c .....

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ief in case of receipts from close relatives as defined u/s 56 of the Act while Section 68 of the Act is placed under Chapter VI of the Act which deals with ‘Aggregation of income and set off or carry forward of loss’ and Section 68 of the Act cast primary onus on the assessee to explain nature and source of cash credit as appearing in the books of the assessee to the satisfaction of the AO and failure to explain the cash credit to the satisfaction of the AO shall lead to computation of income f .....

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.O. to make proper enquiry and reframe the assessment. The case laws relied upon by the assessee are not applicable in this case as in the instant appeal, the AO has not made any inquiries or verification which should have been made to satisfy the ingredients of Section 68 of the Act and has merely accepted the submissions of the assessee with respect to the gift of ₹ 1,48,00,000/- received by the assessee from his maternal uncle . - Decided against assessee - I .T.A. No. 2546/Mum/2015 - D .....

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raised by the assessee in the memo of appeal filed with the Tribunal read as under:- (i) The learned Principle Commissioner of Income tax 35, Mumbai has erred in setting aside Assessment Order for making it de novo for redeciding the issue related to the claim of receipt of gift of ₹ 148,00,000/- even though the receipt of such gift was fully verified by the learned Assessing Officer. (ii) The Appellant craves leave to add, alter, vary, omit, substitute or amend the above ground of appeal, .....

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on 30-12-2009. To examine the sources of investment in Mutual Fund and immovable property as reported in ITS under AIR , notice u/s 143(2) read with Section 142(1) of Income Tax Act,1961(Hereinafter called the Act ) was issued by the learned Assessing Officer (Hereinafter called the AO ). During the course of the assessment proceedings u/s 143(3) of the Act read with Section 143(2) of the Act, the assessee submitted that it has invested ₹ 1.45 crores on 15-5-2009 and ₹ 12 lacs on 20 .....

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assessment order u/s 143(3) dated 08-03-2013 passed by the AO and accordingly total income was computed at ₹ 36,73,810/- vide assessment order u/s 143(3) of the Act dated 8-3-2013 which was also the returned income filed with the Revenue by the assessee. 4.The Pr. CIT issued the notice dated 14.01.2015 w.r.t. revision of income u/s 263 of the Act for the assessment year 2010-11. Thereafter, The assessee was show caused by the Pr. CIT vide three show cause notices u/s 263 of the Act dated .....

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count of Mr. Kumar Chimanlal Mehta on 07-05-2009 with the entry Opera House Trade Finance Mumbai and the proceeds thereof were utilized for giving gift of ₹ 1,48,00,000/- to the assessee. The Pr. CIT held that the issue regarding the gift of ₹ 1,48,00,000/- received by the assessee has not been properly enquired/examined by the A.O., The A.O. was required to verify the capacity and creditworthiness of the donor , Mr Kumar Chimanlal Mehta and examine the genuineness of transaction but .....

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e assessee. The assessee also filed affidavit of Shri Kumar Chimanlal Mehta, copies of NRE account of the uncle Mr Kumar Chimanlal Mehta and a creditworthiness certificate issued by CA of Shri Kumar Chimanlal Mehta. However, the Pr. CIT held that the A.O. is duty bound to enquire about all the aspects of the gifts i.e. identity and capacity of the Donor and the genuineness of the gifts during the assessment proceedings which the A.O. has not verified during the assessment proceedings and has mer .....

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he capacity of the donor whether he was capable of donating such huge amount or not and also failed to examine the genuineness of transaction of this gift. The Pr. CIT accordingly set aside the assessment order dated 08-03-2013 for examination of the gift of ₹ 1.48 crores and directed the A.O. vide orders u/s 263 of the Act dated 25-03-2015 to examine all the aspects of the gift as claimed by the assesee and reframe the assessment after giving sufficient opportunity to the assessee of bein .....

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r definition of relative under section 56(2)(vii) of the Act and the amount is exempt from tax under the Act. The ld. Counsel of the assessee submitted that the Pr. CIT has not arrived at any conclusion rather he is directing the A.O. to enquire and find out the creditworthiness, capacity and genuineness about the donor and has wrongly concluded that the assessment order of the AO is erroneous and prejudicial to the interest of the revenue. Three show cause notices have been issued by the ld. Pr .....

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as sufficient creditworthiness to give gift of ₹ 1,48,00,000/- to the assessee. She submitted that in response to the audit query, the assessee also produced before the AO , the documents like original passport, certified true copy of passport of Shri Kumar Chimanlal Mehta, original copy of affidavit and source of gift amount received into NRE account of Shri Kumar C. Mehta. The ld. Counsel submitted that with reference to the audit query, the assessee also produced the photocopy of ING Vy .....

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0 was received vide Inward Remittance (Purchase) which is placed at paper book page 7 & 8 of the assessee s paper book which showed that remittance has been received from UAE to the credit of the NRE bank account of uncle Mr. Kumar Chimanlal Mehta of the assessee with ING Vysya Bank which was further used for giving gift to the assessee. The ld. Counsel submitted that the remittance was received by ING Vysya Bank Ltd., TFU Mumbai from Mashreq Bank of Dubai from the account of assessee s mate .....

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of ₹ 1.48 crores was the basis , upon which the query was raised by the AO which was duly replied by the assessee vide three letters dated 17-10- 2013, 13-01-2014 and 19-03-2014 filed before the AO which are also placed at paper book page No. 20 to 41, whereby all the details were duly submitted proving relation between the assessee and the donor, which are PAN card of the donor, passport of the donor, PAN card of the assessee s mother (as donor is the brother of assessee s mother), passpo .....

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tice issued by Pr. CIT which is almost after one year the audit query was raised by the A.O. The reply submitted before the AO in connection with the query of the audit team was also duly submitted before the Pr. CIT, hence, the Pr.CIT cannot make roving enquiry of the details after issue of notice u/s 263 of the Act. The Pr. CIT himself is not clear whether the gift is to be charged to tax u/s 56 or 68 of the Act and whether the order passed by the A.O. is erroneous and prejudicial to the inter .....

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ached any conclusion after going through the documents on record and he cannot invoke the provisions of section 263 of the Act.The ld. Counsel submitted that Section 263 of the Act cannot be invoked based on the audit query and she relied upon the decision of Hon ble Punjab and Haryana High Court in the case of CIT v. Sohana Woolen Mills (2008) 296ITR 238(Pun. & Har. HC).On being asked by the Bench about the implication of Explanation 2 to Section 263 of the Act being now incorporated in the .....

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ontended that the A.O. has not made proper enquiry and verification regarding the gift of ₹ 1,48,00,000/- received by the assessee from his maternal uncle, Mr Kumar Chimanlal Mehta and the AO has merely accepted the documents filed by the assessee before finalizing the assessment orders dated 08-03-2013 passed u/s 143(3) of the Act and hence the Pr. CIT has rightly invoked provisions of Section 263 of the Act. 8. We have heard the rival contentions and perused the material available on rec .....

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No. 221429 dated 8th May, 2009. We have observed that the assessee has filed an affidavit dated 30-12-2010 during course of assessment proceedings executed by his maternal uncle Shri Kumar Chimanlal Mehta, the donor whereby he stated that he has made the gift to his nephew i.e. the assessee of ₹ 1.48 crores on 08-05-2009 , out of natural love and affection. As per facts emerging from records, the A.O. has accepted the gift of ₹ 1,48,00,000/- received by the assessee on 08-05-2009 fro .....

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t of ₹ 1.48 crores without making any verification/investigation before passing the assessment order dated 08-03-2013 u/s 143(3) of the Act . The AO based on audit query raised post conclusion of the assessment, in turn asked the assessee to explain the gifts of ₹ 1,48,00,000/- received by the assessee from his maternal uncle on 08-05-2009 , the assessee gave the reply before the A.O. with respect to the audit query vide his three letters dated 17-10-2013, 13-01-2014 and 19-03-2014 w .....

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Bank for inward remittance of US $ 299953 along with copy of Mashreq Bank of Dubai and the CA certificate of Shri Kumar C. Mehta. These replies are placed in paper book filed by the assessee before the Tribunal. The Pr. CIT has invoked the provisions of section 263 of the Act and issued four notices dated 14.01.2015, 12.02.2015, 26.02.2015 and 17.03.2015. The assessee duly submitted the details in response to proceedings u/s 263 of the Act initiated by the Pr. CIT , with respect to the gift , w .....

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s mother). The Pr. CIT passed an order u/s 263 of the Act dated 25-03-2015 directing the A.O. to verify all the aspects of the gift of ₹ 1,48,00,000/- received on 08-05-2009 by the assessee from his maternal uncle, Mr. Kumar Chimanlal Mehta as the same were not verified by the AO while passing assessment orders u/s 143(3) of the Act . 9. We have observed that w.e.f. Ist June, 2015 by Finance Bill 2015, Explanation 2 to section 263 was inserted to declare the law which reads as under:- [Ex .....

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any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. ] We would like to refer at this stage to the meaning of Explanation as inserted in the Act whereby the Hon ble Supreme Court in the case of Sundaram Pillai v. Pattabiram reported in (1985) 1 SCC 591, whereby .....

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he Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act if it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) It cannot, however , take away a statutory right with which any person under a statute has b .....

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Commissioner or Commissioner considers that any order passed by the assessing officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the assessing officer or cancelling the assessment and directing fresh assessment. The interpretation of expression "erroneous in so far as it is prejudicial to the interests of the revenue&quo .....

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t been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. This amendment will take effect from 1st day of June, 2015. Notes on Clauses Finance Bill 2015 Clause 65 of the Bill seeks to amend section 263 of the Income-tax Act relating to revision .....

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cancelling the assessment and directing fresh assessment. It is proposed to amend sub-section (1) of the aforesaid section to insert an Explanation so as to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowin .....

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3 of the Act by insertion of Explanation 2 to Section 263 is declaratory in nature and is inserted to provide clarity on the issue as to which orders passed by the AO shall constitute erroneous and prejudicial to the interest of Revenue whereby it is provided , interalia, that if the order is passed without making inquiries or verification by the AO which, should have been made or the order is passed allowing any relief without inquiring into the claim; the order shall be deemed to be erroneous .....

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establish three ingredients i.e. identity and creditworthiness of the creditor and the genuineness of the transaction as appearing in the books of account as per mandate of section 68 of the Act which is a primary onus caste by law on the assessee. 11. In this instant appeal , during the course of the assessment proceedings, the assessee has submitted an affidavit dated 30-12-2010 of the donor to establish the identity and creditworthiness of the donor and to prove the genuineness of the gift a .....

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failed to make any enquiry or necessary verification which should have been made, the order becomes erroneous and prejudicial to the interest of revenue. A proviso added from 01-04-1988 to Section 43B of the Act from 01-04-1984 came up for consideration in Allied Motors Private Limited v. CIT (1997) 91 taxman 205(SC) before Hon ble Supreme Court and it was given retrospective effect from the inception of the section on the reasoning that the proviso was added to remedy unintended consequences a .....

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was a sharp divergence of opinion amongst the High Courts, was clarificatory and declaratory in nature and consequently retrospective. Similarly , in Brij Mohan Das Laxman Das v. CIT (1997) 90 Taxman 41(SC), explanation 2 added to section 40 of the Act was held to be declaratory in nature and , therefore , retrospective.(Reference Page 569-570,Principles of Statutory Interpretation by Justice G.P.Singh ,13th Ed.). Regarding the contention of the assessee that the Pr. CIT is not clear about the s .....

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to the satisfaction of the A.O. by establishing the identity and creditworthiness of the creditors and genuineness of the transaction. This initial and primary burden is cast upon the assessee u/s 68 of the Act to establish the identity and creditworthiness of the donor and to substantiate that the transaction is genuine. Thus, both the sections viz. Section 56 and 68 of the Act operate in different field whereas Section 56 of the Act deals with computation of the income of the tax payer under .....

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ion of the AO shall lead to computation of income from undisclosed sources under the head Income from other sources . Thus, in our considered view based on the facts as emanating from the records, the A.O. has not made any enquiry or verification before accepting the gift of ₹ 1.48 crores received by the assessee from his maternal uncle, Mr Chimanlal Mehta and has merely accepted the submissions of the assessee with respect to receipt of said gift and the Pr. CIT has rightly invoked the pr .....

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ssee has mainly relied upon the following case laws which are discussed below and are clearly distinguishable: a) CIT v. Sohana Woolen Mills (2008) 296 ITR 238 (P&H) - It was held by the Hon ble Punjab and Haryana High Court that mere audit objection and if a different view is possible are not enough to say that the order of the AO is erroneous and prejudicial to the interest of revenue. The Hon ble High Court held that no rigid rule can be laid down about the situation when the jurisdiction .....

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b) Globus Infocom Limited v. CIT (2014) 369 ITR 14(Delhi.) - In this case the AO has specifically gone into and examined the apportionment of common expenses , who was fully satisfied with the apportionment made while the CIT , instead of commenting upon or giving a final finding whether or not the apportionment was acceptable , observed that it was possible that there was an attempt to inflate expenses on trading activity and an attempt might have been made to reduce the actual expenses of the .....

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ould not be said that the orders of the AO was erroneous. While in the instant case , there is no enquiry or verification conducted by the AO with respect to submissions made by the assessee with respect to gift of ₹ 1,48,00,000/- received by the assessee from his uncle Mr. Kumar Chimanlal Mehta and the AO merely accepted the submissions of the assessee. c) DIT v. Jyoti Foundation (2013) 357 ITR 388(Delhi)- It was held by Hon ble Delhi High Court that orders which are passed without inquir .....

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