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2014 (10) TMI 324 - AT - Income TaxUnexplained credit u/s 68 Held that - This is only an isolated transaction in the relevant bank account, but as far as the assessee is concerned, it is demonstrated that the assessee has received the money through banking channels, viz. through that account - The creditor might have declared smaller amounts of income in the returns filed, but merely on that count alone, credit-worthiness of the creditor cannot be brushed aside, as she may be having receipts by way of agricultural income and capital gains which are tax free - Those factors may give rise to a doubt as to the genuineness of the transaction, but cannot clinch the issue against the assessee - The addition has been made by the Revenue authorities by expecting the assessee to establish the source of the source, which is not permissible under law - it may be in the hands of the creditor, if she is not able to explain the credit in her bank account, but not in the hands of the assessee, who has discharged the onus on him, by demonstrating that the amount in question has been received by him from the bank account of the creditor, establishing not only identity, but also the credit-worthiness of the creditor and the genuineness of the transaction the order of the CIT(A) is set aside Decided in favour of assessee. Capital gains addition Whether the capital gains arising out of a property given for development are liable to be taxed - Held that - Year of assesability of capital gains arising out of a development agreement, depends more importantly terms and conditions of the development agreement and flow of consideration in terms of the development agreement - the development agreement has not envisaged any consideration to be passed on to the land owner, viz. the assessee, at the time of signing of the development agreement - The development agreement categorically declared the assessee and his wife to be the owners of the property being developed until the completion of all the development work and till the handing over of the completed portion coming to the share of the assessee and his wife, with the title in relation to the other constructed areas being transferred by the assessee himself, to the nominees of the developer - The development agreement has specifically provided that the possession handed over to the developer by the land owners was only a permissive one, for the limited purpose of developing the property in terms of the agreement, and the same shall not be construed or treated as part performance of the agreement u/s 53A of the Transfer of property Act. The title over the property continues to rest with the land owners irrespective of handing over of the possession to the developer, and passes from the land owners only on the completion of the construction by the developer and registration of the completed flats in favour of the nominees of the developer, and does not indicate/prescribe any consideration in terms of money or otherwise flowing to the land owners before the completion of construction and handing over of constructed area coming to the share of the land owners, by the developer, it is not correct for the Revenue authorities to say that the consideration flowed to the assessee on account of the expenditure incurred by the developer on the development of the property - the capital gains have to be brought to tax only in the AY 2007-08, when the development of the property in terms of the development agreement has been completed and the constructed area coming to the share of the land owners has been handed over by the developer Decided in favour of assessee. Addition u/s 40(a)(ia) Held that - There is a change in the version of the assessee as to the nature of the payment made by her to Dr. K. Ramchandra - While the payment was claimed in the first instance as consultancy charges, and the same stood disallowed in the original assessment proceedings u/s 40(a)(ia) of the Act, in the return filed in response to the notice u/s.153A of the Act, the disallowance has not been offered to tax, and in the assessment proceedings that ensued assessee came with the plea that what was paid was by way of fixed amount of salary and not consultancy charges - since such consultancy charges were paid without complying with the TDS provisions, the AO made disallowance of the amount u/s 40(a)(ia) of the Act, while originally completing the assessment the disallowance made in terms of u/s 40(a)(ia) of the Act, as the income of the assessee, even in the assessment proceedings initiated, subsequent to the search action, by issuance of notice u/s 153A of the Act Decided against assessee. Addition u/s 69 Held that - The wills of testament on which reliance was placed by the assessee for explaining the jewellery have been found/furnished by the assessee at the time of search - The wills found at the time of search may not be registered documents - But non-registration of the will by itself does not warrant any adverse inference against the assessee - the fact that a will was found at the time of search itself, leaves no scope for implying it to be a fabricated or non-genuine document, and being a document produced spontaneously to substantiate the contention of the assessee while explaining the jewellery found, leads one to believe it to be an authentic one, in the absence of any material found to suggest the non-genuineness of such a document - That reasoning given is also not correct because the averments made in the will, free English translation of which has been furnished to us, speak otherwise and state that the assessee is only grand-daughter of the deponent, Dr. G. Lakshmamma - The other averments made such as the Lakshmamma, on account of her old age, staying with the assessee, who alongwith other family members, including her husband, Dr. K. Ramachandra and daughter, Chetana taking care of her and her husband, Late Venkataiah 1995, and her continuing to stay with the assessee and her family even after the death of her husband, only justify the action of the deponent in bequeathing her entire jewellery in favour of the assessee and her daughter - there is no justification to disbelieve the version of the assessee Decided in favour of assessee.
Issues Involved:
1. Addition of Rs. 3,00,000 as unexplained credit under Section 68. 2. Addition of Rs. 2,00,000 as unexplained cash credits under Section 68. 3. Addition of Rs. 41,72,782 as capital gains for assessment year 2004-05. 4. Addition of Rs. 1,20,000 under Section 40(a)(ia) for assessment year 2006-07. 5. Addition of Rs. 12,57,000 under Section 69 for unexplained investment in jewelry for assessment year 2009-10. Detailed Analysis: 1. Addition of Rs. 3,00,000 as Unexplained Credit under Section 68: The assessee contended that the loan of Rs. 3,00,000 was received from Smt. K. Sujatha, who was assessed to tax and had a PAN. The Assessing Officer (AO) and CIT(A) doubted Sujatha's creditworthiness due to her low declared income. However, the Tribunal noted that the identity of the creditor and the receipt of the loan through banking channels were established. It was held that the assessee had discharged the onus of proving the source of the credit, and any further inquiry should be directed at the creditor. The addition was deleted. 2. Addition of Rs. 2,00,000 as Unexplained Cash Credits under Section 68: The AO added Rs. 2,00,000 received from K. Venkateswarlu (HUF) as unexplained cash credit, doubting the creditworthiness of the HUF. The CIT(A) upheld this addition. The Tribunal found that the identity and creditworthiness of the creditor were established through the balance sheet and income returns. The confirmation letter signed by the assessee due to the creditor's death was deemed acceptable. The addition was deleted. 3. Addition of Rs. 41,72,782 as Capital Gains for Assessment Year 2004-05: The AO taxed the capital gains in the year the development agreement was signed (2004-05), while the assessee argued it should be taxed in 2007-08 when the construction was completed. The CIT(A) agreed with the AO. The Tribunal, considering the terms of the development agreement and the lack of immediate consideration, held that the capital gains should be taxed in 2007-08 when the constructed area was handed over. The addition for 2004-05 was deleted. 4. Addition of Rs. 1,20,000 under Section 40(a)(ia) for Assessment Year 2006-07: The AO disallowed Rs. 1,20,000 claimed as consultancy charges under Section 40(a)(ia) due to non-deduction of TDS. The CIT(A) upheld this, rejecting the assessee's claim that it was salary. The Tribunal noted the inconsistency in the assessee's claims and upheld the disallowance, dismissing the appeal. 5. Addition of Rs. 12,57,000 under Section 69 for Unexplained Investment in Jewelry for Assessment Year 2009-10: The AO added Rs. 12,57,000 for unexplained jewelry found during a search, accepting only part of the jewelry as explained. The CIT(A) reduced the addition to Rs. 7,38,000. The Tribunal found the wills and explanations provided by the assessee credible and deleted the entire addition, allowing the appeal. Conclusion: - Dr. K. Ramachandra's Appeals: - ITA No. 374/Hyd/2014 (2003-04): Allowed. - ITA No. 375/Hyd/2014 (2004-05): Allowed. - Dr. B. Manoharamma's Appeals: - ITA No. 376/Hyd/2014 (2004-05): Allowed. - ITA No. 377/Hyd/2014 (2006-07): Dismissed. - ITA No. 378/Hyd/2014 (2009-10): Allowed. Order pronounced in the court on 16th September, 2014.
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