Rajesh Khosla v. Assistant Commissioner Of Income Tax, Circle-Vi, Ludhiana. .

1. This appeal by assessee has been directed against the order of ld. CIT(Appeals)-4 Ludhiana dated 27.09.2016 for Assessment Year 2009–10 on the following grounds:

1. That the Worthy Commissioner of Income Tax (Appeals) has erred in dismissing the appeal filed by the appellant.

2. That the Worthy CIT(A) has erred in confirming the action of the Assessing Officer in treating the amount of unsecured loan taken by the assessee from cousin sister as ‘Income from other Sources’ u/s 56 (2)(vi) of the Act by assuming the same as gift received by the assessee from his cousin sister.

3. That the Worthy CIT (A) while adding back interest free loan of Rs. 10 lacs has erred in not considering the affidavit, bank statement of the assessee and his cousin sister Sikha J Bedi, where she has confirmed the repayment of above said interest free loan.

4. That the addition has been made against the facts and circumstances of the case.”

2. The brief facts of the case are that the assessee who is a doctor by profession has filed his return of income for the year under consideration on 17.09.2009 declaring therein an income of Rs. 15,76,180/- which was stated to be processed under section 143(1) of the Act at the returned income. During the course of assessment proceedings, the Assessing Officer asked the assessee to explain the source of credit entry of Rs. 10,00,000/- in his capital account. In response thereto, it was submitted on behalf of the assessee that the assessee has taken interest free loan of Rs. 10,00,000/- from his cousin sister Smt. Shikha Bedi who is a resident of Canada. The assessee further filed affidavit from his cousin sister wherein it has been stated by her that she has given a gift of Rs. 10,00,000/- through cheque to her cousin brother out of natural love and affection. When asked to explain that as to why the amount of gift should not be taxed in his hands by invoking provisions of Section 56(2)(vi) of the Act, the assessee filed another affidavit from her cousin sister wherein it has been submitted that she has given interest free loan to her cousin brother and it was wrongly mentioned as gift in the earlier affidavit. However, the Assessing Officer did not accept this plea of the assessee and treated the amount of Rs. 10,00,000/- as gift and made an addition of Rs. 10,00,000/- to the returned income of the assessee by invoking provisions of Section 56(2)(vi) of the Act. The Assessing Officer has also treated this amount as unexplained credit entry in the books of assessee and made an addition of the same amount under section 68 of the Act also as the creditworthiness of the lender has not been proved by the assessee. The assessment in this case was ultimately completed by the Assessing Officer vide order under section 143(3) of the Act dated 28.12.2011 at an assessed income of Rs. 25,76,180/-.

3. The assessee challenged the addition of Rs. 10 lacs by invoking provisions of Section 56(2)(vi) of Income Tax Act before ld. CIT(Appeals). The written submission of the assessee is quoted in the impugned order in which assessee explained that the amount in question was received as interest free loan from Smt. Shikha Bedi, cousin of the assessee. Her affidavit was also filed in which she has wrongly mentioned it to be ‘gift’ therefore, her another affidavit was also filed explaining it was interest free loan and not gift. The assessee produced sufficient evidence on record to prove identity of the creditor, capacity of the creditor to advance money and genuineness of the transaction. Therefore, the Assessing Officer should not have treated it as unexplained gift under Section 56(2)(vi) of the Act. The assessee also made a request to the Assessing Officer at assessment stage that Smt. Shikha Bedi is presently in India and shall be reaching Ludhiana on 25.12.2011 and could file her fresh certificate/affidavit confirming the fact. The assessee, therefore, pleaded that since loan was repaid therefore, no addition should be made. The ld. CIT(Appeals), however, confirmed the addition on account of gift taxable under Section 56(2)(vi) of the Act because gift was received from his cousin sister.

4. After considering rival submissions, I am of the view matter requires re-consideration at the level of the Assessing Officer. PB-12 is copy of the capital account of the assessee in which Rs. 10 lacs were shown as loan from Smt. Shikha Bedi. The Assessing Officer at the assessment stage also asked the assessee to explain the loan taken. PB-28 is affidavit by Smt. Shikha Bedi in which she has explained that amount in question was given as gift to the assessee but later on realizing the mistake, her another affidavit was filed before Assessing Officer in which it was explained that the amount of Rs. 10 lacs were given to the assessee as loan in Assessment Year under appeal. It was also explained that she has received back the above amount through RTGS on 21.12.2011. The certificate of Bank of India in support of the return of the loan amount is also filed at page 30. PB-4 is identity proof of Smt. Shikha Bedi. PB-5 is return of income of Smt. Shikha Bedi filed in the State of Canada. PB-16 is affidavit of the assessee confirming the fact of receipt of loan and return of amount to Smt. Shikha Bedi through RTGS. Copy of Passport of Smt. Shikha Bedi alongwith her bank account is also placed on record. The reply of the assessee is filed at page 14 which was filed before Assessing Officer in which it was also explained that Smt. Shikha Bedi is present in Ludhiana and her fresh affidavit was filed alongwith copy of the bank statement. It was also explained that she is prepared to appear before Assessing Officer for recording of her statement. It was, therefore, submitted that it is an unsecured loan therefore, Section 56(2)(vi) is not attracted in this case. On the face of these evidences and material on record, it is clear that authorities below were wholly unjustified in considering it to be a gift and making addition under Section 56(2)(vi) of the Act as assessee explained that there was a mistake in first affidavit of Smt. Shikha Bedi explaining the transaction of gift which was subsequently rectified by filing her another affidavit that it was loan amount which was also repaid to her through banking channel. Therefore, sufficient evidences are available on record to explain that it was an unsecured loan to the assessee and not a gift. The assessee placed on record sufficient evidence to prove the ingredients of Section 68 of the Act therefore, there are no reasons for the authorities below to hold that it was a prohibited gift under Section 56(2)(vi) of the Act. I am, therefore, of the view that assessee has been able to explain it is the unsecured loan in the matter. Further, when assessee made a request to the Assessing Officer that Smt. Shikha Bedi is in India and is willing to appear before Assessing Officer for recording her statement, it was duty of the Assessing Officer to verify the facts from Smt. Shikha Bedi by recording her statement but Assessing Officer did not do anything, therefore, no adverse inference could be drawn against the assessee.

5. Considering the facts and circumstances of the case, it is clear that the assessee received unsecured loan from Smt. Shikha Bedi, however, it was considered and treated as gift under Section 56(2)(vi) of the Act. The matter, therefore, requires re-consideration at the level of the Assessing Officer because the Assessing Officer has not examined this issue as unsecured loan received by the assessee. I, accordingly, set aside the orders of authorities below and restore the matter in issue to the file of Assessing Officer with direction to re-decide the issue of unsecured loan of Rs. 10 lacs in accordance with law in the light of the evidence and material produced by the assessee before him by giving reasonable sufficient opportunity of being heard to the assessee.

6. In the result, appeal of the assessee is allowed for statistical purposes.

Order pronounced in the Open Court.