Income Tax Appellate Tribunal - Chandigarh
Kamal Kant Jain,, Chandigarh vs Assessee
Author: G.S.Pannu
Bench: G.S.Pannu
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'B' CHANDIGARH
BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER
AND MS SUSHMA CHOWLA, JUDICIAL MEMBER
ITA Nos. 304 to 310/Chd/2010
Assessment Years: 2001-02 to 2007-08
Shri Mandeep Jain, Vs. The DC IT, Central Circle,
Chandigarh Ludhiana
PAN No. AAOPJ5311K
ITA Nos. 311 to 317/Chd/2010
Assessment Years: 2001-02 to 2007-08
Smt. Veena Jain, Vs. The DC IT, Central Circle,
Chandigarh Ludhiana
PAN No. ADCPJ0030E
&
ITA Nos. 318 to 324/Chd/2010
Assessment Years: 2001-02 to 2007-08
Shri Kamal Kant Jain, Vs. The DC IT, Central Circle,
Chandigarh Ludhiana
PAN No. AAOPJ5311K
(Appellant) (Respondent)
Appellant By : Shri O.P.Sharma
Respondent By: Shri S.S.Kemwal,
ORDER
PER SUSHMA CHOWLA, JM
These twent y one appeals by the three different assessees though belonging to same famil y, are against the separate orders of C IT(A)-I, 2 Ludhiana dated 22.2.2010 & 25.1.2010 relating to assessment years 2001- 02 to 2007-08 against the order passed under section 153A r.w.s. 143(3) of the I.T. Act.
2. All these appeals having similar grounds of appeal were heard together and are being disposed off by this consolidated order for the sake of convenience.
3. Common issue raised vide three common grounds of appeal in ITA Nos. 304 to 324/Chd/2010 are as under:-
That in the facts and circumstance of the case, the CIT(A) has erred in his interpretation and application of provisions of chapter IV C of the I.T. Act to vacant / under renovation of co-owned business and residential properties of family, pending family settlement.
That the CIT(A) has erred in upholding the arbitrary and illegal order of Assessing Officer taxing the said properties on market rent on misconception that any and every property existing on mother earth is taxable under I.T. Act.
That the CIT(A) has failed to adjudicate on plea of vacancy allowance, application of highly excessive market rates and denial of opportunity to rebut such presumptions.
4. Though the factual aspects are common in all the appeals with regard to above said grounds of appeal, we are making a reference to the factual aspects in the case of Shri Kamal Kant Jain i.e. ITA No. 318Chd/2010. The brief facts of the case are that search u/s 132 of the Act was carried out on in the cases of M/s Nikka Mal Babu Ram & Sons, group of cases on 27.10.2006. The search was conducted at the residential premises of the assessee at House No. 1211, Sector 11, Chandigarh as well as residential premises No. 72, Sector 5, Chandigarh, H.No. 680, Sector 8, Chandigarh, H.No. 116, Kishangarh and business 3 premises of M/s Nikka Mal Babu Ram & Sons, SCF-17, Sector 22-D, Chandigarh. Cash and jewellery was found and seized at the different residential premises of assessee. The Assessing Officer issued the notices u/s 153 A of the Act for Assessment Years 2001-02 to 2006-07. The assessee in compliance filed the returns of income. The Assessing Officer noted the assessee to have owned various properties which remained vacant during the year except for H.No. 72, Sector 5-A, Chandigarh, which was used as residence by the assessee. The Assessing Officer has enlisted five properties at S.No. 1 to 5 in para 4.1 of the assessment order relating to Assessment Year 2001-02. Out of the said properties, the propert y at S.No.1 i.e. Industrial Shed at Chandigarh is shown to have been sold on 5.10.2000. The Assessing Officer observed that under the provisions of Section 22 of the Income Tax Act, the annual value of the propert y of which the assessee is the owner, other than such portions or properties which are occupied for his business or profession, the deemed income from such properties is chargeable under the head "income from house propert y." The Assessing Officer invoking the provisions of section 23 (1)(a) of the Act computed the ALV of the properties and after allowing deduction u/s 24 of the Act determined the income under the head income from house propert y. The C IT(A) upheld the order of Assessing Officer holding that income from house propert y is the onl y income charged to tax on notional basis and there is no merit in the claim of the assessee that the properties were purchased / constructed / acquired with no aim to rent out / let out. The assessee is aggrieved by the order of C IT(A) and hence the present appeal.
5. The learned AR for the assessee submitted the details of properties owned by the assessee and the purpose for which the same were being 4 used. The explanation of the assessee was that the famil y constituted of self, wife and two sons. It was further explained that because of the famil y dispute, it was decided to purchase separate business and residential premises for each member of the famil y and consequentl y the new properties were purchased and the famil y arrangement was executed on 9 t h Sept 2004 between the assessee, his wife and his two sons. As per the terms of the famil y settlement, the distribution of the properties to each separate member of the famil y was formulated in writing and is incorporated in the said famil y arrangement. Before the settlement by way of famil y arrangement on 9.9.2004, the learned AR for the assessee stressed, that the properties being acquired were under renovation and as such there was no merit in the aforesaid addition made on account of ALV of the vacant propert y. The learned AR for the assessee made submissions regarding the chargeabilit y of tax on the income from house propert y. The learned DR for the Revenue rel ying on the order of CIT(A) pointed out that in view of the provisions of section 22 and 23 of the Act, the computation of income from property has been correctl y made by the Assessing Officer and confirmed by the CIT(A).
6. We have heard the rival contentions and perused the records. Sections 22 & 23 of the Income Tax Act reads as under:-
22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property".
23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be--
(a) the sum for which the property might reasonably be expected to let from year to year; or 5
(b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or
(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable :
Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.
Explanation.--For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise.
(2) Where the property consists of a house or part of a house which--
(a) is in the occupation of the owner for the purposes of his own residence; or
(b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil.
(3) The provisions of sub-section (2) shall not apply if--
(a) the house or part of the house is actually let during the whole or any part of the previous year; or
(b) any other benefit therefrom is derived by the owner. (4) Where the property referred to in sub-section (2) consists of more than one house--
(a) the provisions of that sub-section shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf;
(b) the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-
section (1) as if such house or houses had been let.] 6
7. Under the provisions of section 22 of the Act, the annual value of the propert y, owned by the assessee, consisting of any building or lands appurtant thereto other than such portions which are occupied for the purpose of business or profession carried on by the assessee, profits of which are chargeable to tax, shall be charged to income tax under the head "income from house propert y". Section 23 prescribes the formula for determination of the annual value of the propert y. As envisaged b y section 22 of the Act, where the assessee is owner of a property consisting of building or lands appurtenant thereto, the requirement of law is that annual value of such propert y is to be charged to tax in the hands of the assessee as income from house propert y. The section provides exemption from the said provisions to such portions of the property or such properties which are being utilized by the assessee owner while carrying on his business or profession, profits of which are chargeable to tax.
8. Sections 22 and 23 of the Act prescribes the scheme of taxation of income from property. The assessibilit y of income from house propert y in the hands of the owner of the propert y is assessed not on accrual basis or receipt basis but is assessable as notional income against which adhoc deductions are allowed irrespective of the actual expenditure incurred for earning the said income. The Hon'ble Apex Court in Bhagwan Dass Jain Vs. Union of India [(1981) 128 ITR 315 (SC) ] had upheld the constitutional validity of the provisions of leving tax on income from propert y and it was explained that "the levy in question squarel y falls under entry 82 of list 1 of VIIth Schedule of the Constitution.
9. The tax is chargeable under Chapter IV-C on the deemed income from the property, consisting of building or land appurtenant thereto. The concept 7 of owner of property, annual value, building and / or land appurtenant thereto to, have been subject matter of various judicial interpretations. The Hon'ble Supreme Court in East India Housing and Land Development Trust Ltd Vs. CIT [(1961) 42 ITR 49 (SC)] had held that word "building" would include building occupied or intended for residence, building let for office use, storage or for welfare housing, or for use as a factory and shop or a bazzar and would also include stalls and platform in market enclosures.
10. The Hon'ble Supreme Court in Shambu Investment Pvt Ltd Vs. CIT [(2003) 263 ITR 143 (SC)] had affirmed the decision of Hon'ble Calcutta High Court in Shambu Investment Pvt Lt d Vs. C IT (249 ITR 47), wherein the Hon'ble High Court had held as under:-
"Taking a sum total of the aforesaid decisions it clearly appears that merely because income is attached to any immovable property that cannot be the sole factor for assessment of such income as income from property. What has to be seen is what was the primary object of the assessee while exploiting the property. If it is found applying such test that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from property. In case it is found that the main intention is to exploit the immovable property by way of complex commercial activities in that event it must be held as business income".
11. The criteria for charging annual value to tax is the ownership of the propert y coupled with its inherent capacit y of being let. The charge is levied on the owner of the house property and it is immaterial whether the owner is in possession and enjoyment of the propert y or had let it out on rent to a third person. The basis for assessing tax under the head income from propert y is the ownership of the propert y and not necessaril y the actual realization of income. The propert y must be capable of being let 8 out in order to be charged to tax under the provisions of section 22 of the Act. Where the propert y is not capable of being let out, even where the assessee is owner of the propert y, the notional income from such propert y is not includible in his hands under the provisions of section 22 of the Act. The said ratio has been laid down by the Hon'ble Bombay High Court in Shree Nirmal Commercial Ltd Vs. CIT [(1992) 193 ITR 694 (Bom)].
12. The said view of the Hon'ble Bombay High Court in Shree Nirmal Commercial Ltd Vs. CIT (supra) was affirmed by full Bench of the Bombay High Court in C IT Vs. Shree Nirmal Commercial Ltd [(1999) 213 ITR 361 (Bom.)(FB)]"
13. The Apex Court in Liquidator of Mahamudabad Properties Pvt Ltd Vs. CIT [(1984)124 ITR 31 (SC) ] had laid down the proposition "that the mere fact that the building is in a state of despair does not effect its chargeability to tax".. In the facts of the case before the Apex Court in Liquidator of Mahamudabad Properties Pvt Ltd Vs. C IT (supra), a building requisitioned by the government from the assessee, after the use for housing refugees, was derequisitioned in an uninhabited condition. During the year under appeal, the building was l ying vacant. The Hon'ble Apex Court upheld the order of High Court in holding that the said propert y had an annual value. It was further held that (iii) the proviso to section 23(1) could be availed of only if the property was in the occupation of a tenant and the assessee was not entitled to deduction of municipal taxes as the building was vacant during the previous year. (iv) That, as the building was not let out during the previous year, s.24(2)(ix) 9 did not apply and the assessee was not entitled to vacancy remission thereunder.
14. The assessibilit y to tax the income from propert y u/s 22 of the Act is on the owner of the propert y and the Hon'ble Supreme Court and High Courts in various judicial decisions have explained the meaning of the word "owner" in context of section 22 of the Act. Under the said section 22 itself, exemption to chargeabilit y to tax is provided to such portions of the building or such buildings, which are occupied for business. The section further lays down that where the building or any part of it is occupied by an owner, for the purpose of any business or profession carried on by him, then the same is to be excluded from the purview of section 22 of the Act, provided income from such business or profession is assessed to tax. The smallness of assessibilit y of business income is irrelevant and the nature of the property being utilized for the business or profession carried on by the owner and assessbilit y of such business income excludes the same from the purview of section 22 of the Act. The second aspect of the ownership is whether the propert y is owned by different owners but for the purpose of assessment of income u/s 22 of the Act, all such persons are considered as owners of the propert y to the extent of their share in the said propert y.
15. Though the property income u/s 22 of the Act is assessable on notional basis, but determination of the annual value of the propert y is envisaged u/s 23 of the Act.
16. Section 23(1) of the Act, is the deeming provision for computing the annual value of the propert y. Under sub clause (a) to section 23(1) 10 the annual value shall consists of a sum for which the propert y might reasonabl y be expected to be let from year to year and under sub clause
(b), the actual rent received or receivables by the owner is to be taken as annual value of the propert y and under sub clause (c) where the propert y let out was vacant during whole or any part of the year and the actual rent received is less then the sum referred to clause (a), the sum so received or receivable.
17. Under section 23 (2) (a) of the Act, where the propert y owned b y the assessee being the house or part of the house, is under the self occupation of the owner for the purpose of his / her residence, then the annual value of such propert y is to be taken at nil. Clause (b) of section 23(2) of the Act further prescribes that where the propert y cannot be occupied by the owner because of his employment, business or profession being carried out at any other place and he is residing at the other place in a building not belonging to him, in such cases also, the annual value of the said propert y is to be taken at nil. Under section 23(3), it is provided that where the assessee has actuall y let a house or part of the house during the whole or any part of the previous year or where the assessee has earned any other benefit from the said propert y, the provisions of sub section (2) of Section 23 of adopting the value at nil are not applicable. Section 23(4) of the Act provides that where the assessee is owner of more than one propert y which are under his occupation, then the provisions of sub section shall appl y in respect of one of such houses occupied by the assessee and the annual value of the other house or houses is to be determined under sub section 1 of section 23 of the Act as if the said house or houses had been let out.
11
18. In view of the above said legal position with regard to the assessibilit y of income under the head income from propert y, the purpose for which it is used is material. The following aspects need consideration for determining the assessibilit y of annual value of propert y under the head 'income from house propert y.'
a) Whether used for residential purpose or for the purpose of business, profits of which are chargeable to tax. If used for the purpose of business, the value of such propert y is to be excluded from charge under the head Income from propert y.
b) If the propert y is bought with the intention to use the same for business purposes, but the same is l ying vacant till the same is put to use for business purposes or repair / renovation are undertaken, but the propert y is otherwise habitable / fit for use, the annual value of such propert y is to be included in the hands of assessee, till the same is put to business use.
c) Where the propert y is residential house, but being used for the purpose of business i.e. a flat bought and used by the assessee at a place other than where he resides, used during his business trips is being used for the purpose of business and the annual value of such propert y is to be excluded.
d) Where the propert y is in occupation of owner used for the purpose of residence of the assessee, then value of such propert y is to be taken at NIL.
e) Where the assessee owns more than one propert y for his residential use, then annual value of one propert y at the option of assessee is to be taken at NIL and annual value of 12 other properties are to be computed u/s 23(1) of the Act and included as income of assessee.
f) If the properties are owned with the intention to use for residence, merel y because it is l ying vacant or there is no intention to let and / or is habitable, but is undergoing repairs / renovation, the option to adopt the annual value at Nil, being in residential use of assessee, is available in respect of one propert y and annual value of other properties are to be computed and included in the hand of the assessee.
g) As the income from house propert y is to be charged on notional basis and hence the status of the each propert y is to be verified independentl y in each year.
h) Where the propert y is not capable of being let, the annual value of such property is not includible in the hands of the owner of the property.
i) Where the propert y has not been let out throughout the year and was l ying vacant, whether the assessee is entitled to vacancy allowance or not.
j) The determination of annual letting value of the propert y in line with the provisions of section 23(1) of the Income Tax Act.
19. The abovesaid parameters, wherever applicable to the facts of the case have to be fulfilled in order to determine the chargeability of income from house property. Tax is leviable on the net annual value of the propert y after allowing permissible deductions u/s 24 of the Income Tax Act. In the facts and circumstances of the present case, we find that the complete particulars in respect of their users from year to year of various properties owned by the assessee needs to be looked into in order to 13 determine the first the chargeabilit y of the income under the head income from propert y and thereafter determination of annual letting value of the properties, value of which is to be included in the hands of the assessee as income for the years in which assessee owns the same. For the determination of ALV of the properties in question, the dut y of the Assessing Officer before coming to a conclusion is to confront the assessee with the material, which forms basis for said determination. In the facts of the present case, we find that no opportunit y was provided to the assessee by the Assessing Officer before adopting a particular ALV to the respective properties owned by the assessee. Such adoption of ALV of the various properties is challenged by the assessee and we are of the view that the Assessing Officer before computing the annual value of the respective properties should afford a reasonable opportunit y of hearing to the assessee. Following the principles of natural justice, we deem it fit to restore the issue back to the file of Assessing Officer to determine the nature of the property, whether annual value of same is includible in the hands of the assessee in line with our order in the paras hereinabove and after allowing a reasonable opportunit y of hearing to the assessee and decide the issue in accordance with law and settled legal position and compute the annual value as per section 23(1) of the Act.. The common grounds of appeal raised in ITA Nos. 304 to 324/Chd/2010 are allowed for statistical purposes.
ITA Nos. 304 to 310/Chd/2010 (Shri Mandeep Jain)
20. Common issue as discussed above had been raised in the present appeals by the assessee relating to Assessment Years 2001-02 to 2004-05 in ITA Nos. 304 to 307/Chd/2010 and the same are allowed for statistical 14 purposes in line with our order in the paras hereinabove. The assessee has further raised separate and different grounds of appeal in individual appeals, which are dealt with herein under:-
. ITA No. 304/Chd/2010 (Mr Mandeep Jain)
21. The ground raised by the assessee is as under:-
1. That the CIT(A) erred in uphold additions of Rs.
33,430/- as income of the appellant which was a gift from a friend in Sweden on the occasion of the birth of first child pretext of failure to procure the donor which was impossible and illegal demand.
22. The assessee during the year under consideration had received the gift of Rs. 33,430/- from Shri Pritinder Sandhu living in Sewden, who was a close friend of the assessee. The assessee had received the said gift on encashment of foreign exchange which was enchased through a Foreign Exchange Company. The assessee was requisitioned to produce the donor by the Assessing Officer and in the absence of his production, the said gift was added as income of the assessee. Even before the CIT(A), the assessee failed to prove the creditworthiness of the donor and in the absence of any occasion for making the gift, the genuineness of the transactions as per the C IT(A) was not proved. The order of Assessing Officer was accordingl y upheld. The assessee before us has failed to establish the creditworthiness of the donor or the genuineness of the transactions. The basis of the assessee upon the encashment of the foreign cheque through banking channels does not establish the case of the assessee. Though, we find no merit in the order of Assessing Officer in emphasizing upon the production of the donor but the onus is upon the assessee to establish the identit y and capacit y of the donor and prove the 15 genuineness of the transactions. The assessee has failed to establish the same and in the absence of any evidence being produced before us, merel y because the transaction is routed through banking channels is not enough to allow the credit of the said entry in the hands of the assessee. Accordingl y, we confirm the addition of Rs. 33,430/-. ITA No. 308/Chd/2010 (Mr. Mandeep Jain )
23. The Grounds of appeal raised in ITA No. 308/Chd/2010 (Mr. Mandeep Jain ) are as under:-
1. That the CIT(A) has erred to uphold the additions of Rs. 14,400.00 to the returned income on account of ¼ share in SCF No. 26, Sector 22-D, Chandigarh for a period of 4 months upto the date of family settlement on illegal application of A.L.V.
2. That the property is business premises settled in favour of younger brother who had started business in the name of M/s Nikka Mal Babu Ram, The jewellery Arcade.
3. That the concept of A.L.V to business premises is without authorit y of law.
ITA Nos. 309 & 310/Chd/2010 (Mr. Mandeep Jain)
24. The Grounds of appeal raised in ITA Nos. 309 & 310/Chd/2010 (Mr. Mandeep Jain) are as under:-
1. That the CIT(A) has erred to uphold the additions of Rs. 2,27,000/- to the returned income on account of Annual Letting Value of SCF No. 17, Sector 22-D, Chandigarh, in which the appellant is running his business holding 2/3 share and being managing partner of the firm M/s Nikka Mal Babu Ram & Sons.
2. That it is contravention of the settled rule of law that a partner providing business premises to a firm is exempt from the provisions of section 22 & 23 of the Income Tax Act.16
3. That in the facts and circumstance of the case A.L.V. added to the income is without authority of the Law
25. The issues in the present appeals are in respect of chargeability and determination of annual value of assessee's share in SCF No. 26, Sector 22-D, Chandigarh in Assessment Year 2005-06 and his share in SCF No. 70, Sector 22-D, Chandigarh in Assessment Years 2006-07 and 2007-08. The second issue is whether the premises owned by the assessee being used by the firm in which he is a partner, could be said to be in business use. While deciding the issue of addition on account of annual letting value in respect of various properties owned by the assessee, which was the common issue raised by assessee and his famil y members in many appeals, we have remitted the issue back to the file of the Assessing Officer with directions to decide the same in accordance with law and settled legal propositions. In line with our directions in paras hereinabove, the issue in the present appeals i.e. Assessment Years 2005- 06 to 2007-08 are also remitted to the file of the Assessing Officer to decide the same in line with our directions after allowing a reasonable opportunit y of hearing to the assessee.
26. In the result, the appeals in ITA Nos. 304 to 310/Chd/2010 are partl y allowed.
ITA Nos. 311 to 317/Chd/2010 (Smt. Veena Jain)
27. The common issue raised in all the appeals was regarding the assessabilit y of annual value of the properties both business and residential owned by the assessee in various years. In line with our orders in the paras hereinabove above, the issue is restored back to the 17 file of the Assessing Officer to decide the same as per our directions in the paras hereinabove. A reasonable opportunit y of hearing shall be afforded to the assessee. The grounds of appeals raised by the assessee are allowed for statistical purposes.
28. In the result, the appeals in ITA Nos. 311 to 317 are thus allowed for statistical purposes.
ITA Nos. 318 to 324/Chd/2010(Shri Kamal Kant Jain)
29. The common issue has been raised in the present appeals by the assessee relating to Assessment Years 2001-02 to 2007-08 and the same is allowed for statistical purposes in line with our order in the paras hereinabove. The assessee has further raised separate and different grounds of appeal in individual appeals, which are dealt with hereinunder. ITA No. 319/Chd/2010(Shri Kamal Kant Jain)
30. The ground of appeal raised by the assessee is as under:-
1. That the CIT(A) erred in uphold additions of Rs.
1,86,083/- received as gift from real sister in Canada, on lame excuse and incorrect facts.
31. The brief facts relating to the issue are that during the year under consideration the assessee had received a gift of Rs. 1,86,083/- from Smt. Subhash Jain Aggarwal resident of Canada. The photocopy of the affidavit sworn at Ottawa, Canada was filed during the course of assessment proceedings in which it was declared that gift of US$ 4000 has been made. The statement of the assessee was recorded on 22.12.2008 in which the assessee stated that Smt. Subhash Jain Aggarwal was his real sister and the said gift was given at the occasion of marriage of his 18 daughter. The Assessing Officer was of the view that the gift should have been given to the daughter and not to the assessee. Further, the Assessing Officer observed that capacit y of the donor was not proved and consequentl y addition of Rs. 1,86,083/- was made. The assessee has furnished on record an affidavit of Smt. Subhash Jain Aggarwal which is attested on 14.2.2009. In the said affidavit, the donor has stated to have made the said affirmation for the third time as the Income Tax Officer has disbelieved the earlier affidavit. In the said affidavit it has been affirmed that the said gift of US$ 4000 was made on 29.3.2001 to his elder brother. The donor further affirms that her annual income is about US$ 96000 and the source of income was her rental income in Canada.
32. We have considered the rival contentions and perused the records. The assessee has received the aforesaid gift from his sister who is based in Canada. We find no merit in the order of Assessing Officer in rejecting the plea of assessee on the surmise that the gift was given to the brother and not to his daughter. Further, the donor by way of affidavit has also affirmed her income in Canada, out of which the said gift was made. In the totalit y of facts and circumstances of the case, we set aside the order of the CIT(A) on this aspect and direct the Assessing Officer to delete the addition of Rs. 1,86,083/-. The ground No.1 raised by the assessee in ITA No. 319/Chd/2010 is thus allowed.
ITA No. 320/Chd/2010 (Shri Kamal Kant Jain)
33. The ground of appeal raised by the assessee is as under:-
1. That the CIT(A) erred in uphold additions of gifts from friends without authority of law with full documentary evidence in hand to prove the same genuine.19
34. During the year under consideration i.e Financial Year 2002-03, the assessee had received gift of Rs. 1 lac from Shri Amrit Dilawari and another gift of US$11500 equivalent to Rs. 5,46,575/- from Shri Charanjit P.Singh. The statement of the assessee was recorded on 22.12.2008 and the assessee was unable to provide the present/current addresses of both the parties and in respect of occasion of giving the gift it was stated b y the assessee that he was in financial crises and the said gifts were given by his friends. The Assessing Officer in view thereof, as the assessee had failed to substantiate his claim in respect of gifts, treated the same as income from undisclosed sources amounting to Rs. 6,46,575/-. The Assessing Officer also placed reliance on the ratio laid down by Hon'ble Supreme Court in Sumiti Daya Vs. C IT 214 ITR 801 (SC). The C IT(A) upheld the addition as assessee had failed to provide their present addresses and also the financial capacity of the said donors were not proved. The learned AR for the assessee pointed out that the assessee had proved the identity of the said persons and had also filed the confirmations from both the parties. The learned DR placed reliance on the order of the C IT(A).
35. We have heard the rival contentions and perused the records. Under the provisions of the Income Tax Act, the assessee has to discharge his onus of establishing the source of entries in his bank account or books of account. In respect of two credits received during the year under consideration, the assessee explained to have received that gift of Rs. 1 lac from Shri Amrit Dilwari and further Rs. 5,46,575/- from Shri Charanjit P.Singh. The assessee claimed to have filed confirmation in respect thereof. However, during the course of statement recorded, the 20 assessee was unable to provide the present address of the donors or their credit worthiness and satisfactoril y explain the occasion on which the gift was received.
36. Under the provisions of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the onus is upon the assessee to explain the nature and source thereof. The identit y of the persons, the creditworthiness of the persons who sourced the said entry and the genuineness of the transactions is to be established prima-facie with evidence by the assessee and in case of his failure to do so, the same under the provisions of the Act is includible as income of the assessee. In the facts of the present case, we find that that assessee has failed to discharge the onus of establishing the creditworthiness of the persons and even proving the genuineness of the transactions. The assessee has failed to satisfy the occasion for the receipt of the said gift. In the absence of the onus being discharged by the assessee, we are in conformit y with the order of the Assessing Officer that the said receipt of Rs. 6,46,575/- is to be included as income from undisclosed sources. The ground No.1 raised by the assessee in ITA No.320/Chandi/2010 is thus dismissed.
37. The ground No.2 raised by the assessee is as under:-
2. That the said authority has erred in upholding addition of Rs. 43,873/- spent on repair of flat out of withdrawals of Rs. 6,80,000/- by the couple.
38. During the course of search operations at the residential premises of the assessee two invoices of Erose Industrial Company (P) Ltd, Nehru 21 Place, New Delhi were seized and are available at pages 7 & 8 of Annexure A-1. The said invoices reflects Rs. 30,831/- and Rs. 13,047/- payable by the assessee on account of general maintenance charges. The explanation of the assessee was that the said payments pertain to maintenance of the Mukerjee Nagar Flat in October, 2002 but the same were claimed not to have been paid. The Assessing Officer was of the view that since the propert y was in the occupation of the assessee, the said maintenance charges must have been paid and as the sources of the payments of the same was not explained, it was added as income from undisclosed sources. Before the CIT(A) the submission of the assessee was that he had withdrawn Rs. 2.40,000/- and his wife had withdrawn Rs. 4,40,000/- during the year under consideration and the source of the payments of Rs. 43,873/- stands explained. The CIT(A) upheld the addition made by the Assessing Officer as the explanation of the assessee was found to be vague and uncorroborated. From the perusal of the details, we find that the seized papers were in connection with maintenance charges payable. No evidence has been found during the course of search that the said amounts had been paid by the assessee and in the absence of the same we find no merit in the addition made on this account. We accordingl y delete the addition of Rs. 43,873/-. We accordingl y allow the ground No. 2 raised by the assessee. ITA No. 323/Chd/2010 (Shri Kamal Kant Jain)
39. The assessee has raised the following ground of appeal:-
1. That the CIT(A) erred in upholding illegal additions of Rs. Ten lakhs based on a rough household expenses diary seized arbitrarily.22
40. The brief facts relating to the issue are that during the course of search operation, a diary was seized from the residential premises of the assessee and is placed at S.No.4 of Annexure A. The Assessing Officer noted certain transactions carried out in cash noted in the said diary. The nature and details of the said entries was requisitioned by the Assessing Officer vide questionnaire dated 19.9.2007, which is reproduced at pages 10 to 12 of the appellate order under para 7. The explanation of the assessee in this regard is also incorporated in the appellate order at page 12 of the appellate order in para 5.1. The Assessing Officer was of the view that the assessee had failed to justify the nature and source of transaction and made an addition of Rs. 10 lacs u/s 69 of the Income Tax Act. Before the CIT(A), the plea of the assessee was that his onl y source of income was as partner of M/s Nikka Mal Babu Ram & Sons. The assessee explained the nature of entries being details of house hold expenses and amount of Rs. 10 lacs attributed to a Kitt y run by few friendl y families. The contention of the assessee was that in the absence of any other evidence or material to hold it as investment, there was no justification for the aforesaid addition u/s 69 of the Income Tax Act. The second plea put up by the assessee was that it had onl y income from the firm and cash of Rs. 11 lacs had been surrendered as unaccounted income, on which tax was paid and in addition surrender of 1.05 crores was made on account of unaccounted stock. The assessee pleaded that the unaccounted sales and cash credits both could not be added as income, in view of the ratio laid down by the Chandigarh Bench of Tribunal in Bansal Rice Mills [ 245 ITR (AT) 36 (Chd)]. The CIT(A) held the explanation of the assessee in respect of the entries in the seized material to be vague and uncorroborated. The C IT(A) further held as under:- 23
"As per the provisions of section 132(4A) of the Act, a presumption can be drawn that the articles or things which are found in the possession of the person searched that the contents of these books of account and other documents are true. Though it is a rebuttable presumption but the burden lies on the person searched to prove otherwise the entries made in these seized papers from the possession of the appellant are free from any ambiguity and the appellant has failed to explain the entries therein. In the circumstances, the Assessing Officer has rightly made the addition of Rs. 10 lacs and the same is upheld."
41. We are in conformity with the observation of the C IT(A) that under the provisions of section 132(4)(a) of the Act, though the presumption of the articles or things found in the possession of the person/s searched and the contents of books of account and other documents, to be true, but the same is a rebuttable presumption and the burden is upon the assessee to justifiabl y explain the same. In the facts and circumstances of the present case, the assessee has failed to explain the entries in the seized documents and accordingl y the addition of Rs. 10 lacs as income from undisclosed income is warranted. However, the assessee has raised an alternative plea that in view of surrender of cash of Rs. 11 lacs in addition to surrender of stock, no addition of Rs. 10 lacs is warranted in the hands of the assessee. We find that the CIT(A) has failed to address the issue of availabilit y of telescoping to the assessee i.e. cash attributable to the entries in the seized diary and cash surrendered by the assessee consequent to the search proceedings. However, on the perusal of the orders of the authorities below we find that the necessary factual aspects in this regard are not available on record and we are unable to adjudicate the issue whether telescoping in the circumstances of the surrendered cash with the addition made on account of income from undisclosed sources totaling Rs. 10 lacs is warranted or not ? In the interest of natural justice, we restore the issue back to the file of Assessing Officer to adjudicate afresh. 24 However, in principle, we uphold the addition of Rs. 10 lacs as income from undisclosed sources subject to the Assessing Officer deciding the issue of allowing telescoping. Accordingly, the ground No.1 raised by the assessee is allowed for statistical purposes.
ITA No. 324/Chd/2010 (Shri Kamal Kant Jain)
42. The assessee has raised the following grounds of appeal:-
1. That the CIT(A) erred in upholding addition of Rs.
50,000/- out of total cash of Rs. 1,57,630/- found during search of residence made arbitrarily.
2. The learned CIT(A) has erred in confirming the penalty imposed u/s 271(1)(b) of the I.T. Act by ACIT, Central Circle, Patiala ignoring the reasonable cause. Hence relief be allowed.
43. The brief facts relating to the issue are that during the course of search cash of Rs. 1,72,630/- was found which was explained to be the cash belonging to assessee, his wife and his daughters. During the course of assessment proceedings an affidavit of his daughter Ms Ashu Jain was filed stating that cash of Rs. 1,57,630/- pertains to her. The Assessing Officer was of the view that the said plea of the assessee did not match with the original statement recorded during the search. Accordingl y, an addition of Rs. 50,000/- was made u/s 69A of the Act. The CIT(A) upheld the said addition. In line with our discussion under ground No.1 in ITA No. 323/Chd/2010, we are of the view that the said cash of Rs. 50,000/- can be considered as part of telescoping with the surrender made by the assessee and the issue is also remitted back to the file of Assessing Officer to look into the factual aspects and decide the issue afresh. In principle, the addition of Rs. 50,000/- is upheld, subject to the Assessing Officer deciding the issue of allowing telescoping. The ground No.1 raised by the assessee is thus allowed for statistical purposes. 25
44. In the result, the appeals in ITA Nos. 318 to 324/Chd/2004 are partl y allowed.
Order Pronounced in the Open Court on this 29 t h day of September, 2010.
Sd/- Sd/-
(G.S.PANNU) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : September, 2010
Rkk
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR