2020 (8) TMI 68 - AT - Income Tax

Addition u/s 68 - Disallowance of gift received from father and brother - HELD THAT - It is an undisputed fact that both assessee s father and brother own substantial areas of agricultural land. Therefore, the agricultural income disclosed by them cannot be disputed unless some facts emerged that they have not carried on agricultural activities or have suffered losses in the agricultural activities. Normally farmers do not rely on the banking channel for conducting their day to day activities and do accumulate cash balance - by the class of ration card possessed by the individuals one cannot determine such individuals to belong to people of poor means. It is a generally known fact that on many instances even wealthy farmers possess ration cards of low economic class. CIT (A) s observation to hold that the quantum of savings of the assessee s father and brother cannot be relied upon is not appropriate. Considering the extent of land owned by the assessee s father and brother, their creditworthiness for accumulating the fund cannot be doubted and can be treated as reasonable. Further, the assessee s father and brother have also confirmed the transaction by furnishing their confirmation statements - Addition u/s 68 deleted - Decided in favour of assessee. Disallowance of unsecured loan - assessee has received an amount of ₹ 3 lakhs from Smt. B. Nirmala as loan treated as bogus - HELD THAT - Smt. B. Nirmala is engaged in the activity of running a small shop. Therefore, she has some source of income. Further, possessing ration card of low economic strata does not categorically prove that the assessee does not have any resources to earn reasonable income or financially unsound. Moreover, apparently the entire transactions are made through the banking channel. Accumulating an amount of ₹ 3 lakhs by an individual engaged in a small business activity is not an unrealistic factor. Thus the loan transaction cannot be treated as bogus - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of gift aggregating to ?7 lakhs.
2. Disallowance of unsecured loan of ?3 lakhs.

Issue 1: Disallowance of gift aggregating to ?7 lakhs:
The assessee declared receiving gifts of ?4,50,000 and ?2,50,000 from his father and brother, respectively. The AO treated these amounts as unexplained credits under section 68 of the Act due to lack of details like date and nature of gift. The CIT (A) upheld this decision, citing reasons such as the father and brother's low economic status, cash gifts, and lack of details on agricultural income sources. However, the Tribunal found that both donors owned substantial agricultural land, making their disclosed agricultural income credible. The Tribunal noted that farmers often deal in cash and possess low-category ration cards, not indicative of financial status. As the donors confirmed the gifts and had credible income sources, the Tribunal deemed the additions unjustified, directing the AO to delete the ?7 lakhs addition.

Issue 2: Disallowance of unsecured loan of ?3 lakhs:
The AO added ?3 lakhs received as a loan from Smt. B. Nirmala as income, suspecting it to be a bogus loan. The CIT (A) agreed with this, questioning the genuineness of the transaction due to the loan repayment and the recipient's economic status. However, the Tribunal found merit in the loan transaction. It noted that Smt. B. Nirmala's small shop indicated a source of income, and possessing a low-category ration card did not prove financial incapacity. The transaction was made through banking channels, and accumulating ?3 lakhs by a small business owner was deemed plausible. Consequently, the Tribunal set aside the CIT (A)'s decision, directing the AO to delete the ?3 lakhs addition in the assessee's income.

In conclusion, the Tribunal allowed the assessee's appeal, overturning the disallowances of both the gift aggregating to ?7 lakhs and the unsecured loan of ?3 lakhs. The decision highlighted the credibility of the donors' income sources and the plausibility of the loan transaction, emphasizing the need for a thorough assessment based on factual circumstances.