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Shri Shailesh C. Modi Versus Income Tax Officer, Ward – 1 (1) (4) , Surat

2016 (5) TMI 637 - ITAT AHMEDABAD

Addition u/s 41 - conversion of unsecured loan from the sister as gift by book entry - in the earlier years, interest paid to sister was claimed as deduction - whether remission / cessation of liability u/s 41(1) - Held that:- There was no remission of liability u/s 41(1) of the Act, because the gift was genuinely made by Smt. Kiranben Gandhi and accepted by the assessee out of natural love and affection and there was no business consideration in this transaction. Therefore, the provisions of Se .....

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of the Commissioner of Income-tax (Appeals)-1, Surat, dated 16.09.2015 passed against the order u/s 143(3) of the Act for Assessment Year 2012-13 by Income Tax Officer, Ward 1(1)(4), Surat. 2. The assessee has raised following grounds of appeal:- 1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in disallowing ₹ 11,12,947/- u/s 41(1) of the I.T. Act, 1961 .....

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012, showing total income of ₹ 7,740/-. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 30.08.2013, followed by notice u/s 142(1) dated 01.02.2014 was duly served upon the assessee. During the course of assessment proceedings, the learned Authorized Representative observed that the assessee has shown gift of ₹ 40,69,952/- from his sister out of natural love and affection. The said amount was shown as unsecured loan in the name of Smt. Kira .....

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for the interest paid to Smt. Kiranben Gandhi in earlier years by treating it as cessation of liability u/s 41(1) of the Act. The learned Authorized Representative also made addition of ₹ 1,00,430/- by disallowing 20% of expenses of ₹ 5,02,153/- on account of personal element involved in those expenses. Accordingly, assessment was framed by assessing the income atRs.12,21,117/- after making following two additions; i) Disallowance u/s 41(1) of the Act - Rs.11,12,947/- ii) Disallowan .....

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u/s 41(1) of the Income-tax Act. 4. The learned Authorized Representative submitted that during the year under consideration assessee's real sister Smt. Kiranben Jayant Gandhi has given the sum to the assessee as gift amounting to ₹ 40,69,952/- which was outstanding in the books of the assessee as loan on which assessee paid the interest of ₹ 11,12,947/- in earlier years. She has given the amount as gift to her real brother out of love and affection as she was well settled in USA .....

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ide letter dated 21.03.2015. However, assessing officer was not satisfied with the reply of the assessee and on the basis of his observation at para no. 4.2 to 4.4 he made the addition of interest paid in earlier years of ₹ 11,12,947/- to Kiranben Gandhi by treating it as cessation of liability u/s. 41(1) of the I. T. Act, 1961. The learned Authorized Representative further submitted that, in the course of appellate proceedings, it is not disputed that assessee owed a sum of ₹ 40,69, .....

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y passed by the assessee also had the very same effect and hence a different view could not have been taken by the tax authorities. The single book entry passed by the assessee should be considered as two separate entries as 'constructive receipt of gift and 'constructive payment of outstanding liability. Accordingly, the provisions of section 41(1) would not apply to the impugned transaction, as there was no cessation or remission of liability. He further submitted that when in a scenar .....

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ax burden just because he has passed a single book entry instead of two separate transactions. Further, when the interest expenses were claimed by the assessee, the Kiranben Jayant Gandhi would have offered the same for taxation in her computation of income. Further no benefit would be claimed by the Kiranben Jayant Gandhi in form of claiming any bad debts or discount in the year of write-off as the said amount would be debited to her Capital account as gift given. In the present case, the amoun .....

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learned Departmental Representative supported the orders of the lower authorities. 5. We have heard the rival contentions and perused the material on record. The only issue before us for adjudication is that whether the learned CIT(A) erred in sustaining the disallowance u/s 41(1) of the Act at ₹ 11,12,947. From going through the records, we find that as on 01.04.2007, there was opening balance of ₹ 26,15,430/- in the name of Smt. Kiranben Jayant Gandhi in the books of assessee. Ther .....

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Thereafter, Smt. Kiranben Jayant Gandhi, who is a Non- Resident Indian and settled in USA, gave the said amount of ₹ 40,69,952/- as gift to her brother. 5.1 The Assessing Officer has duly accepted the said gift of ₹ 40,69,952/- and has not questioned about the genuineness of the gift from assessee s sister and the addition called for by the Assessing Officer was limited only to the amount of interest of ₹ 11,12,947/- booked by the assessee in the earlier years. We are able to u .....

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in the normal course of business. During the year under appeal, a sum of ₹ 6,91,569/- was further added to the unsecured loan balance in the name of Smt. Kiranben Jayant Gandhi and thereafter, through a proper gift deed, she has gifted the sum of ₹ 40,69,952/- to the assessee. We find that similar issue has been dealt in by the Co-ordinate Bench (ITAT, Cochin Bench) in the case of Rajesh Kumar vs. ACIT, Circle-1, Kottayam, reported in [2012] 24 taxmann.com 133 (Coch.), wherein follow .....

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d to be treated as cessation/remission of trading liability as per section 41(1). Accordingly, he added the gift of ₹ 75 lakhs under section 41(1). Commissioner (Appeals) confirmed the addition. The Co-ordinate Bench has adjudicated this issue by observing as under:- There was no dispute with regard to the fact that the donor V was the proprietor of Vee and the assessee had purchased goods from that concern. It was also not disputed that the assessee owed a sum of ₹ 72.55 lakhs to Ve .....

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ty would amount to "remission of trading liability". The revenue strongly supported the view expressed by the Commissioner (Appeals). [Para 6] However, according to the assessee, the balance outstanding in the account of Vee could not be fully considered as a trading liability (as assumed by the tax authorities), as the said account was having mixed transactions, i.e., the transactions of general nature and also transactions of trading nature. The assessee further submitted that the As .....

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