2024 (5) TMI 1435 - AT - Income Tax

Validity of assessment made by AO on the issues other than the issues for which notice u/s 143(2) was issued under CASS for limited scrutiny - immovable property under a family arrangement - HELD THAT - DR represented that the notice was issued on the basis of information received from SRO which equated gift with purchase and hence the notice was issued for limited purpose of verification of purchase of immovable property. AO has restricted the scope of assessment to the property under question and has not extended it to another gift received by the assessee. Considering the facts put forward by Ld. DR we dismiss the first ground of the assessee. Addition u/s 56(2)(x) - addition of stamp duty value of the said property to the assessee s income of the Act stating that the property is not received from the relative as defined and that the gift deed does not specify that it is a family arrangement - In present case, the transfer by way of gift is a part of family settlement through which individual shares were determined out of the property which they were already owning. It is not a case that the property was received from a third party where the assessee was having no interest at all. As noted the contents of affidavits filed by husband of the assessee, Shri Mahesh Bhagwandas Parwani, stating that the gift was made by his aunt as per his request as a part of family settlement. We have also noted the contents of other affidavits filed by the parties to family settlement confirming the fact that the gift was a part of family settlement. The details of gift made by Bhojraj Parwani Group to the families of other two brothers as a part of family arrangement to arrive at equality also supports the plea of the assessee that the property is received under family settlement. Hon ble Supreme Court in Kale others 1976 (1) TMI 172 - SUPREME COURT as explained the concept of family arrangements and their legal validity. The court held that a family arrangement can be even oral, and registration is necessary only if the terms are reduced into writing. The object of a family arrangement is to protect the family from long drawn litigation or perpetual strife which mars the unity and the solidarity of the family. The court also held that the family arrangement must be bona fide so as to resolve family disputes. In the case at hand, the CIT(A) failed to appreciate the nature and purpose of the family arrangement and the judicial precedents supporting the assessee's claim. He has relied on the order passed by the AO and concluded that the immovable property received by the assessee as a gift is not from a relative within the meaning of section 56(2)(x) of the Act. We hold that the addition made by the AO and confirmed by the CIT(A) u/s 56(2)(x) of the Act is not sustainable. Appeal of assessee partly allowed.

Summary

Issues Involved:
The appeal challenges the addition made by the Assessing Officer under section 56(2)(x) of the Income Tax Act, 1961, regarding the immovable property received by the assessee under a family arrangement.

Ground No. 1 - Validity of Assessment:
The first ground of appeal questions the validity of the assessment made by the Assessing Officer beyond the scope of the issues for which notice u/s 143(2) was issued. The contention is that the notice sought details beyond the limited scrutiny purpose.

Ground No. 2 and 3 - Taxability of Family Settlement:
The second and third grounds challenge the addition made under section 56(2)(x) of the Act, arguing that family settlements should not be considered transfers attracting tax. The assessee asserts that the property received was part of a family arrangement and not a taxable gift.

Judgment Details:
The Assessing Officer added the stamp duty value of the property to the assessee's income under section 56(2)(x) of the Act, stating it was not received from a relative and the gift deed did not specify a family arrangement.

The CIT(A) upheld the addition made by the AO, leading to the appeal. The counsel for the assessee argued that family arrangements are not transfers attracting tax and cited judicial precedents to support this claim.

The Tribunal considered the nature of family arrangements, emphasizing their purpose to resolve disputes and maintain family harmony. It noted that family arrangements are not conventional transfers and should not be taxed under section 56(2)(x) of the Act.

The Tribunal reviewed affidavits supporting the family settlement claim and referenced legal precedents highlighting the validity and wider interpretation of family arrangements. It concluded that the property received under the family settlement is not taxable income.

Accordingly, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition made under section 56(2)(x) of the Act, partially allowing the appeal.

The judgment was pronounced in the Open Court on 29 May, 2024, at Ahmedabad.