2017 (3) TMI 1643 - AT - Income Tax

Denial of loss from business income - Held that - CIT(A) while considering this ground of appeal observed that the assessee could recover ₹ 89,216/- in February 2011 and the same is offered in income of AY 2011-12. CIT(A) referred that for claiming the deduction as bad debts, the assessee has satisfied two condition; (i) amount claimed as bad-debt which has been offered in income in current year or earlier year (ii) The amount is actually written off in books. CIT(A) further concluded that the assessee has not fulfilled the condition no.1. The assessee has not offered in the income in any of the year. The alternative plea of assessee was not examined by the ld CIT(A) under section 37 of the Act, holding that specific provision will override the general provision. We are unable to agree with his view, since section 36(1)(iii) and section 37 operate in different field. Thus, we admit the plea of assessee to consider the allowability of loss under section 37 of the Act and restore the issue to the file of AO. - Decided in favour of assessee for statistical purpose. Taxing the gift received from Dinesh J. Shah HUF u/s. 56 - Held that - The Hyderabad Tribunal in ITO vs. Dr. M. Shobha Ravhuveera 2014 (5) TMI 41 - ITAT HYDERABAD while considering the identical ground hold that HUF is nothing but the group of relative. Merely because it has given a legal status as a HUF, the individual do not lose their identity as relative and such group of relative, who are member of HUF clearly falls within the definition of term relative as prescribed in the Explanation to Clause-5 of sub-section 2 of section 56 - Decided in favour of assessee Treatment of gift from Pankaj J Shah HUF as income under the head income from other source - assessee explained that Pankak J Shah HUF consist of Pankaj J Shah ( brother of assessee s father), Mrs Bharti P Shah ( wife of Pankaj J Shah) and Amish P Shah ( son of Pankaj J Shah) and Mrs. Bharti Shah/ Cousin of assessee. However - Held that - In our intervention that if there is any decision in his favour on this issue, since the assessee is not a member of Pankaj J Shah HUF. The ld AR for the assessee fairly conceded that this gift received from Pankaj J Shah HUF in wherein the assessee is not a member. And some of the members are not covered by the definition of relatives as prescribed under section 56(2)(vi) of the Act. - Decided against assessee

Summary

Issues Involved:
1. Disallowance of bad debt of ?1,00,000.
2. Taxation of gift of ?44,55,000 received from Dinesh J. Shah HUF under Section 56 of the Income-tax Act.
3. Taxation of gift of ?14,40,000 received from Pankaj J. Shah HUF under Section 56 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Bad Debt of ?1,00,000:
The assessee claimed a bad debt of ?1,00,000 related to a deposit given for business purposes in earlier years. The advance of ?3,00,000 was given to M/s Man Finance in FY 2006-07, which later changed its name to Sify India Pvt. Ltd. The assessee received ?2,00,000 back in November 2009 and claimed the remaining ?1,00,000 as bad debt. The AO disallowed the claim on the grounds that the amount was not offered as income in earlier years and was not related to trade debts. The CIT(A) upheld the disallowance, noting that the assessee did not fulfill the condition of offering the amount as income in any year. However, the Tribunal found that Section 36(1)(iii) and Section 37 operate in different fields and admitted the plea to consider the allowability of the loss under Section 37 of the Act. The issue was restored to the AO for examination in accordance with the law, allowing this ground of appeal for statistical purposes.

2. Taxation of Gift of ?44,55,000 from Dinesh J. Shah HUF:
The assessee received a gift of ?44,55,000 from Dinesh J. Shah HUF, which the AO taxed under Section 56(2)(vi) as "Income from Other Sources." The assessee argued that the gift was from relatives, citing the Rajkot Tribunal decision in Vinnet Kumar Raghavhibhai Bhalodia vs. ITO, which held that a gift from HUF members is not taxable. The Tribunal agreed, noting that HUF is considered a group of relatives, and gifts from such a group fall within the definition of 'relative' as per the Explanation to Clause-5 of Sub-section 2 of Section 56. The Tribunal referred to similar decisions by other benches, including the Hyderabad Tribunal in ITO vs. Dr. M. Shobha Ravhuveera and the Ahmedabad Bench in Harshabhai Dahyalal Vaidhya (HUF) V/s. ITO. The Tribunal concluded that the gift from Dinesh J. Shah HUF is not taxable and allowed this ground of appeal.

3. Taxation of Gift of ?14,40,000 from Pankaj J. Shah HUF:
The assessee received a gift of ?14,40,000 from Pankaj J. Shah HUF, which the AO also taxed under Section 56(2)(vi). The assessee argued that Pankaj J. Shah HUF consisted of relatives. However, the Tribunal noted that the assessee is not a member of Pankaj J. Shah HUF, and some members do not fall within the definition of 'relatives' under Section 56(2)(vi). The assessee's representative conceded that the gift does not qualify for exemption as the assessee is not a member of the HUF. Consequently, the Tribunal upheld the taxation of this gift and dismissed this ground of appeal.

Conclusion:
The Tribunal partially allowed the appeal. The disallowance of bad debt was remanded to the AO for reconsideration under Section 37. The gift from Dinesh J. Shah HUF was deemed non-taxable, while the gift from Pankaj J. Shah HUF was upheld as taxable income.