2017 (6) TMI 867 - AT - Income Tax

Addition u/s 68- ingenue gift receipts - creditworthiness of the donors not proved - Held that - The documents produced by the assessee to prove the creditworthiness of the donors itself showed that they did not have capacity to make the gifts, their respective capital and income earned during the year, as reflected in their balance sheet showing insufficient funds. Even the explanation of the assessee that they had liquidated their entire advances given to others to make the impugned gifts does not appear to be credible considering that no prudent person would liquidate his entire assets to gift it to somebody when there was no occasion to do so either and also considering the fact that the donors were ill and required treatment in hospitals and on medication. Addition made is warranted since after the assessee discharged its onus of proving the genuineness of the transaction by filing relevant documents, the Assessing Officer pointed out from the very same documents that the creditworthiness of the donors was not established, which we find the assessee has not been able to displace since no credible explanation was offered nor were the donors produced for cross examination when asked by the Assessing Officer to do so.- Decided against assessee. Addition on Long term Capital Gain by applying the section 50C - Held that - In the case of the assessee transfer had taken place by virtue of agreement to sell only. Therefore, in the said case since no value has been assessed by the stamp duty value, therefore, provisions of section 50C of the Act would not apply in the case of the assessee. The word assessable inserted u/s 50C of the Act w.e.f. 1.10.2009 would not apply to the assessment year under appeal i.e. assessment year 2009-10. Thus we are of the view that section 50C is not applicable in the present case and the addition made by the Assessing Officer by applying such provisions is, therefore, deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ?3,00,000 under Section 68 of the Income Tax Act, 1961 on account of gifts received.
2. Addition of ?28,840 on Long Term Capital Gain by applying Section 50C of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of ?3,00,000 under Section 68 on account of gifts received:
The assessee challenged the addition of ?3,00,000 made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The AO noted that the assessee received ?1,25,000 from Shri Krishan Gopal and ?1,75,000 from Smt. Anita Garg as gifts. The assessee provided copies of the donors' passbooks, balance sheets, computation of income, and gift deeds but failed to produce the donors for examination due to their bad health. The AO found that the donors were not creditworthy, had significant cash deposits shortly before making the gifts, and failed to discharge the onus under Section 68. The CIT(A) agreed, noting the donors' lack of creditworthiness and the suspicious nature of the cash deposits.

The Tribunal upheld the AO's and CIT(A)'s findings, emphasizing that the donors' financial capacity and the genuineness of the gifts were not satisfactorily proven. The Tribunal noted that the donors had limited liquid resources and were undergoing medical treatment, making it improbable for them to make such gifts. The Tribunal also distinguished the case from precedents cited by the assessee, noting that the facts in those cases were different.

2. Addition of ?28,840 on Long Term Capital Gain by applying Section 50C:
The assessee also contested the addition of ?28,840 on account of long-term capital gain by applying Section 50C. The AO noted that the assessee sold a plot for ?7,20,000 and showed a long-term capital gain of ?5,71,349. The AO applied Section 50C, which deems the stamp duty value as the full value of consideration if it exceeds the sale consideration. The AO calculated the sale consideration for the land at ?6,73,600, excluding the value of the boundary wall and construction, and found it fell short of the stamp duty value by ?26,840, warranting an addition.

The Tribunal, however, found that Section 50C did not apply as the transfer was based on an unregistered agreement to sell, and no stamp duty value was assessed. The Tribunal cited the ITAT Jodhpur Bench's decision in Navneet Kumar Thakkar vs. ITO and the Hon'ble Madras High Court's decision in CIT vs. R. Sugantha Revindran, which held that Section 50C does not apply to unregistered agreements. The Tribunal concluded that the addition under Section 50C was not warranted and deleted the addition of ?28,840.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the addition of ?3,00,000 under Section 68 but deleted the addition of ?28,840 under Section 50C.