S. Nagaraja Reddiar v. The Additional Commissioner of Income-tax, Alappuzha Range, Alappuzha
[Citation -2016-LL-0926-30]

Citation 2016-LL-0926-30
Appellant Name S. Nagaraja Reddiar
Respondent Name The Additional Commissioner of Income-tax, Alappuzha Range, Alappuzha
Court ITAT-Cochin
Relevant Act Income-tax
Date of Order 26/09/2016
Assessment Year 2011-12
Judgment View Judgment
Keyword Tags unexplained investment • confirmation letter • movable properties • principal value • deemed dividend • capital account • share capital • non-resident • primary onus
Bot Summary: According to the Assessing Officer, the above confirmation is not satisfactory and the assessee was asked to clarify certain questions posed by the Assessing Officer. The assessee clarified that there is no point in calling for the bank account as the assessee has stated that he has kept the income other than salary which he has received in Cash, as bank account would not earn any interest. At para 9.3 in page 31, it was held that the assessee had discharged the primary onus of providing the confirmation letter from the donor and the 12 ITA No. 03 Coch 2016 burden was on the department to disprove the assessee s claim. The donor could not be produced since he was managing 3 business establishments in Dubai and the Assessing Officer expecting the assessee to produce the bank pass books of the donor in Dubai is simply unpractical, since the assessee has no right to call for the pass book of the donor. As regards the addition of Rs.18,823 - stated to be difference between the opening balance as on 1 4 2010 as per the wealth statement and the opening balance as per ledger, though the assessee had filed reconciliation statement, it appears that some parties account have been transferred to the credit of the assessee. As regards the major addition of Rs.2.53 crores, stated to be the credit in the Federal Bank account representing gifts received from the assessee s son- in-law and daughter who are settled in Sharjah, the case of the Assessing Officer is that the assessee had not produced bank account particulars or copies of the bank account of the donors. Respectfully following the above decision and also considering the arguments put forth by the Ld. Counsel for the assessee, we hold that the inclusion of a sum of Rs.2.53 crores as income in the hands of the assessee was not warranted and we hereby delete the addition made on this score.


ITA No. 03 Coch 2016 , IN INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN, BEFORE S SHRI B. P. JAIN, AM & GEORGE GEORGE K., JM . I.TA No.03 Coch 2016 ( Assessment Year : 2011-12) Shri S. Nagaraja Reddiar, Vs Additional Commissioner of Lakshmi Sadanam, Mullackal, Income Tax, Alappuzha Range, Alappuzha. Alappuzha. Assessee Appellant) ( Revenue -Respondent) ( . . . PAN No. AFEPR 5347A Assessee By Shri R. Sreenivasan, FCA Revenue By Shri A. Dhanaraj, Sr. DR Date of Hearing 09 08 2016 Date of pronouncement 26 09 2016 ORDER PER B.P. JAIN, AM: This appeal of assessee is directed against order passed by Ld. CIT(A), Kottayam dated 08 12 2015 for AY 2011-12. 2. assessee has raised following grounds:- 1. Officers below were not justified in confirming addition of Rs.3,65,173 as deemed Dividend u s. 2(22)(c). 2. officers below did not appreciate fact that Rs.1,80,000 - out of above sum represents repayment of share capital and balance out of 1 ITA No. 03 Coch 2016 Reserves and Surplus, before winding up and if at all treated as Dividend it is not taxable in hands of appellant. 3. Commissioner of Income Tax went wrong in confirming inclusion of Rs.18,823 - stated to be difference in opening balance, for reason that, no details have been produced. In fact reconciliation statement was filed before Assessing Officer and Commissioner of Income Tax(Appeals). 4. Officers below were not justified in confirming addition of Rs.2.53 Crores, being gift received from Appellant s son in law and Daughter in Sharjah, UAE, for reason that, such amounts gifted have not been transferred from Donors account and proof has not been adduced. 5. Officers below failed to appreciate fact that appellant had established, identity of Donors, Genuineness of transaction and their capacity to gift such amounts. 6. Officers below went wrong in calling for source of source in such transaction, which is never contemplated under Act. 7. For above reason and other reasons as may be adduced at time of hearing your appellant prays grounds may be considered favourably. 3. brief facts of case are that assessee Shri S. Nagaraja Reddiar is individual. For assessment year 2011-12, assessee had returned total income of Rs. 12,77,480 -. This was processed u s. 143(1) of Income Tax Act and later on selected for scrutiny and notice u s. 143(2) was issued, initially by Assistant Commissioner of Income Tax, Circle-1, Alleppey and thereafter by Additional Commissioner of Income Tax, Kottayam. 4. Ground Nos. 1 and 2 pertains to addition of Rs.3,65,173 as Deemed dividend u s. 2(220(c). According to Assessing Officer, amount of Rs. 1 lakh and Rs.2,65,713 - is seen credited in bank account of assessee which was 2 ITA No. 03 Coch 2016 explained to be repayment of share capital in company called Alleppey Hospital Pvt. Ltd., which was wound up. receipt issued by company for for Rs.1 lakh shows that amount represents repayment of share capital in full and final settlement. balance sum of Rs.2,65,713 - represents share of assessee in surplus funds of Alleppey Hospital Pvt. Ltd. Assessing Officer has invoked provisions of section 2(22)(c) of Income Tax Act and assessed amount as dividend as it is stated to be distributed on liquidation of company. 5. next addition pertains to amount of Rs.18,823 - stated to be difference between opening balance shown in wealth statement filed as on 01 04 2010 and opening credit balance appearing in books as on that date. 6. major addition pertains to amount of Rs.2,53,00,000 - stated to be credits in Federal Bank c. Number 1050100110023 in name of assessee which was explained to be gift received from his daughter and son-in-law who are residing in Sharjah, UAE. details are as under:- Date Amount Narration in statement Contents of certificate from bank 1.6.2010 5000000 DDA-Ansari DD number 608549 dated 1.6.2010 from Al Ansari Exchange Abu Dhabi 3 ITA No. 03 Coch 2016 11.6.2010 2500000 DDA-Ansari 608632 dated 12.6.2010 received from Al Ansari Exchange, Abu Dhabi 11.6.2010 2500000 DDA-Ansari 608611 dated 12.6.2010 received from Al Ansari Exchange, Abu Dhabi 22.10.2010 2800000 DDA-Ansari DD No. 76106537 dated 18 10 2010 of Al Ansari Exchange, UAE, Abu Dhabi 22.10.2010 3000000 DDA-Ansari DD No. 76106538 dated 18 10 2010 of Al Ansari Exchange, UAE, Abu Dhabi 10 11 2010 1000000 1050100110023 Fed fast remittance UAE Exchange Centre 7.1.2010 5000000 DDA Ansari DD No. 076106945 dated 2 1 2011 remittance from Al Ansari Exchange, Abu Dhabi. 10.1.2011 2500000 105010010023 Fed fast remittance received from global exchange. 17.2.2011 500000 -do- Fed Fast remittance from global exchange 18.2.2011 5000000 -do- Fed fast remittance from global exchange 25300000 7. Joint confirmation from daughter and son-in-law were also filed. contents of joint confirmation are as under:- I Dr. Ramkumar presently residing in Twin Tower, al Nabha, Sharjah, UAE hereby confirm that I have made periodical remittances in form of gift 4 ITA No. 03 Coch 2016 to my father in law S. Nagaraja Reddiar, Lakshmi Sadanam Maheswari, Alappuzha during financial year 2010-11. Such amounts totaling to Rs.2,53,00,000 - have been remitted to his Federal Bank SB Account with Alappuzha Branch through money exchange Al Ansari Exchange in Sharjah, Dubai, (UAE). Having done my Post Graduation in Dentistry, I have been designated as Specialist Maxillo facial surgeon, visit various hospitals and clinics in UAE and also render private consultations and was principal and academic director of one of private college. My wife Mrs. Sree Bindu is running home Boutique and is also supplying home needs imported from other countries. I am settled here for past ten years plus. We are non residents and do not have Permanent Account number. 8. According to Assessing Officer, above confirmation is not satisfactory and assessee was asked to clarify certain questions posed by Assessing Officer. In reply another joint confirmation was filed. contents are as under: This is in reference with your queries to myself and my wife Sree Bindu through Mr. Sreenivasan, Chartered Accountant, Alleppey. Please find below answers to each of queries by number. I am Maxillo facial surgeon, aged 41 years. I did my undergraduation and post graduation at MGR Medical University, Chennai. I was working in India for two and half years as lecturer at Meenakshi Ammal Dental College. My wife Sree Bindu aged 38 years has done BSC Chemistry and runs her home boutique and tutors children at our residence in Sharjah (Please find attached degree certificates). My in laws reside at Lakshmi Sadanam Mullackal, Alleppey. We make sure that we visit couple of times in year to India. I also had travelled for academic purposes for visiting colleges, CME programmes, delivering lectures and scientific events. In my busy schedule I don t remember and do not keep track of my travel schedules Q (4,5 and 6). I have been employed from 2000 onwards and my wife runs boutique and tutors children. On average from 2003 onwards my gross income is 720K (AED) annually (Please find employment details) I have multiple bank accounts in UAE of which some are active and others are not. As we change employers, salary gets credited to particular bank account where employer does his banking. housing allowance, TA Extra working hours, outside 5 ITA No. 03 Coch 2016 consultations, visiting and other remunerations are paid as cash. money transferred to my father in law has been our accumulated savings from 2003 onwards. It has been transferred to him from Al-Ansari, UAE exchanges in Sharjah and Dubai. Hope we have been able to furnish all details to your queries. 9. According to Assessing Officer, after examination of reply, vital question which has not been answered was whether donor has any proof that money transferred to account of assessee were from them and from their own source. According to her, bank statement of donor do not indicate that money has been transferred by them. According to Assessing Officer, confirmation or clarification is not acceptable as neither bank details nor bank statement through which they have stated to have given alleged gift have been filed. According to her, identity of donor, capacity to give gift and genuineness of transaction, 3 requirements have not been fulfilled. 10. assessee clarified that there is no point in calling for bank account as assessee has stated that he has kept income other than salary which he has received in Cash, as bank account would not earn any interest. Further, it was also clarified, that it would be unfair for father in law to demand bank account particulars from his son-in-law and daughter who are not dependent upon him. It was also claimed by assessee that identity of donor has been established and money has been routed through banking channels from overseas and donors were not men of straw. 6 ITA No. 03 Coch 2016 11. According to Assessing Officer, assessee had been unable to prove that amount deposited in his bank account were from his son-in-law and daughter. son-in-law and daughter have been unable to prove that they have transferred money to account of assessee. Therefore, she concluded that source of deposit and identity of depositors as claimed by assessee is unproved. confirmation is stated to be unsubstantiated and cannot be accepted. donors have not established that they have capacity to give gift. Merely because donors claim to be Non-Resident, it does not mean that department cannot enquire into their source and their capacity to give gifts. Yet another reason stated by Assessing Officer for dis-proving gift, is that in confirmation it is stated that son-in-law is residing at Sharjah, but transfers were made through exchange in Abu Dhabi and not from Sharjah and Dubai as claimed in confirmation. Both these places are situated 100 KM apart and it is unlikely that person would travel several KMs to transfer money. It is also stated that donors were not able to correctly mention exchange through which transaction took place. 12. She has also referred to cases of Hon ble Apex Court reported in 107 ITR 938 and 50 ITR 1 wherein it is stated to have held that onus of proving that sum of money found to have been received by person is on that 7 ITA No. 03 Coch 2016 person. Further, according to her, merely because alleged donors are abroad, it does not prevent department from enquiring into source, i.e., to say that department can enquire into source of source. Accordingly, Assessing Officer concluded that assessee has sought to introduce money in his books by using name of his son-in-law and daughter for that purpose, even though confirmation is purportly sent by her son-in-law and daughter. 13. Assessing Officer has held that identity of donor is not proved. Source of credit is not established and even if donors have source to gift this amount, money has not come from them. Accordingly, she added amount of Rs.2,53,00,000 -. 14. Ld. Counsel for assessee, Shri R. Sreenivasan, FCA was heard. As regards addition of Rs.3,65,713 - being repayment of share capital of company, Alleppey Hospital Pvt. Ltd., amount of Rs.1.8 lacs represents original share capital and balance amount of Rs.1,85,713 - represents share of assessee in Reserves and other Surplus of company. According to Ld. Counsel, this is out of sale proceeds of companies property. If at all any tax should be levied, it should be on company and not on recipient shareholder. Further, it was also stated that assessee had shown in Wealth Statement amount of Rs.1,80,000 - as investment in Alleppey Hospital Pvt. Ltd., and to this extent, it is only repayment of share 8 ITA No. 03 Coch 2016 capital and cannot be taxed. Copy of wealth statement for year ending 31 03 2010 and 31 03 2011 was also filed, wherein under movable properties in Item No. 10, shows investment in Alleppey Hospital Pvt. Ltd. at Rs.1,80,000 -. According to Ld. Counsel, section 2(22)(c) deals with distribution made to shareholders of company, on liquidation, to extent to which liquidation is attributable to accumulated profits of company immediately before liquidation. It was reiterated that payments have been made by company to assessee before company was liquidated, so much so provisions of section 2(22)(c) is not applicable and action of Assessing Officer in bringing to tax principal value plus surplus, in manner in which it has been done is totally erroneous. assessee finally stated that this will be only in nature of dividend which is exempt under provisions of Income Tax Act in hands of recipient. 15. As regards addition of Rs.18,823 - stated to be difference between opening balance shown in wealth statement as on 1 4 2010 and opening balance appearing in books as on that date, it was explained by Ld. Counsel that subsequent to closing of account after crediting net result and before carrying over balance to next year s books, some amount from other accounts were transferred to capital account which has resulted in difference. Reconciliation to this effect was also filed 9 ITA No. 03 Coch 2016 before Assessing Officer, copy of which is also filed before us. Therefore, Ld. Counsel stated that it was only on misconception of figures that Assessing Officer has proceeded to make addition. 16. As regards inclusion of Rs.2,53,00,000 - stated to be credit in Federal Bank account of assessee u s. 68, at outset Ld. Counsel reiterated that it is fact that amounts have come through proper banking channel from outside country, so much so genuineness of transaction remains proved. joint confirmation has been filed by assessee from his son-in-law and daughter, who are residing in Sharjah, United Arab Emirates. Thus, identity of donors remain established. As far as their capacity to pay this amount, educational qualification details of which were filed with Assessing Officer, according to Ld. Counsel, would show that son-in-law is Specialist Maxillo facial surgeon. He is much sought after person in whole of United Arab Emirates. assessee s daughter was also running boutique which also earned substantial revenue. Thus, Ld. Counsel contended that capacity of donor also remains established. According to him 3 conditions enumerated in section 68 remain satisfied, namely, genuineness of transaction, identity of person, and their capacity. 10 ITA No. 03 Coch 2016 17. According to Ld. Counsel, whole addition has been made on flimsy ground. Firstly Assessing Officer has proceeded that donors are residing in place at Sharjah, whereas remittance have been made through exchange in Abu Dhabi which is far away place. Assessing Officer has not properly appreciated that Head Quarters of Al-Ansari Exchange is located in Abu Dhabi , having branches all over United Arab Emirrates, from where remittance can be made. address of H.O. would be shown in all remittances. That does not mean that assessee had travelled all way to Abu Dhabi to make each remittance. It was also represented that donor being son-in-law of assessee is free lancer and visits almost all major Hospitals in United Arab Emirates. This cardinal fact has been given go by Assessing Officer. Further, Ld. Counsel also contended that assessee was unable to produce bank account details of donors, which was very well explained, that it is not possible for father- in-law to ask his son-in-law about personal details and bank account, which would be embarrassing and awkward. This is not contemplated under provisions of section 68. Assessing Officer has proceeded on theory that assessee is liable to substantiate source of source, de-hors of provisions of section 68. Ld. Counsel also submitted that doctrine of source of source, origin of origin cannot be applied universally with reference to facts of each case. assessee has produced all that is contemplated u s. 68. 11 ITA No. 03 Coch 2016 18. He reiterated that word identifiable would mean that condition or fact of person or being that specified unique person, or thing. identification of person would include place of work, fact that he was actually carrying on work and recognition in eyes of public. actual and true identity of person is work undertaken by him. This should be correct and true legal position. money has been received by assessee through regular banking channel which is also not under dispute. credit worthiness of donor also remains established by virtue of their qualification. confirmation filed by donor cannot be disbelieved on face of it. Ld. Counsel also drew our attention to appellate order in case of same assessee for assessment year 1995-96 as rendered by Commissioner of Income Tax (Appeals)-IV, Kochi in I.T.A. No.9 ALPY 2000-01 dated 14 6 2002. He drew our attention to para 9.1 at page 30 of appellate order wherein similar issue has arisen. In that year, assessee had received in his Federal Bank account amount of gift Rs.20,50,000 - from his brother who was carrying on business in Dubai. In sworn statement, assessee explained that gift was from his brother in Dubai and further expressed his inability to produce donor or his bank pass book, showing withdrawal. However, confirmation was filed to Assessing Officer, who treated this amount as unexplained investment of assessee. At para 9.3 in page 31, it was held that assessee had discharged primary onus of providing confirmation letter from donor and 12 ITA No. 03 Coch 2016 burden was on department to disprove assessee s claim. It was also submitted that similar gift received from same donor has been accepted by Assessing Officer in subsequent year. It was finally held that addition made by Assessing Officer was uncalled for since donor has confirmed fact by giving confirmation letter. donor could not be produced since he was managing 3 business establishments in Dubai and Assessing Officer expecting assessee to produce bank pass books of donor in Dubai is simply unpractical, since assessee has no right to call for pass book of donor. Accordingly, Ld. Counsel held that addition made by Assessing Officer is not on sound basis. Though department filed appeal before ITAT for year 1995-96 on various other points, this was not taken up as ground. Copies of orders of Ld. CIT(A) and ITAT have also been filed. He has finally concluded that facts in present year are in no way different from that of assessment year 1995-96. assessee s son-in-law has also gifted in earlier years, which has been accepted. Therefore, Ld. Counsel concluded that Assessing Officer was not justified in making impugned addition of Rs.2.53 crores. 19. Ld. DR supported order of Assessing Officer and Ld. CIT(A) and reiterated that condition mentioned under section 68 has not been satisfied in full by assessee and stated that order of lower authorities may be confirmed. 13 ITA No. 03 Coch 2016 20. We have considered rival submissions and perused facts of case. As regards sum of Rs.3,65,713 - being amount received by assessee from Alleppey Hospital Pvt. Ltd., it is seen from wealth statement that Rs.1,80,000 - represents share capital and balance is stated to be amount received from surplus of company before liquidation. As stated by Ld. Counsel, surplus if any of company, has to be taxed in hands of company. amount received by assessee can only be in nature of dividend which is exempt from tax. Therefore, provisions of section 2(22)(c) are not applicable to this case, since that would come to operation only after liquidation of company. In view of above finding, we hold that addition of Rs.3,65,713 - is not warranted and hence deleted. 22. As regards addition of Rs.18,823 - stated to be difference between opening balance as on 1 4 2010 as per wealth statement and opening balance as per ledger, though assessee had filed reconciliation statement, it appears that some parties account have been transferred to credit of assessee. We set aside issue to file of Assessing Officer for verification of claim and to grant appropriate relief. 14 ITA No. 03 Coch 2016 23. As regards major addition of Rs.2.53 crores, stated to be credit in Federal Bank account representing gifts received from assessee s son- in-law and daughter who are settled in Sharjah, case of Assessing Officer is that assessee had not produced bank account particulars or copies of bank account of donors. She has also held that remittances have been made from Al-Ansari Exchange located in Abu Dhabi whereas assessee is residing at Sharjah which is faraway place and it is hard to believe that every time donor travels upto Abu Dhabi to make remittance. It is very well clarified by Ld. Counsel that Head Quarter of Al-Ansari Exchange is located in Abu Dhabi and Branches are spread over entire United Arab Emirates. Whatever, remittances are made from any branch, details would contain address of Head Office. That does not mean that any remittance through Al Ansari Exchange from any part of United Arab Emirates have to go over to Abu Dhabi for making remittance. 24. As regards case laws relied upon by Assessing Officer at para 9 at page 7 of assessment order, Ld. Counsel filed copies of said orders and reiterated that facts thereon are not at all applicable to facts of assessee s case. 25. In our view confirmations along with qualification certificates furnished by donors satisfy ingredients contemplated u s. 68. Further 15 ITA No. 03 Coch 2016 donors have also stated that they have multiple bank account in United Arab Emirates of which some are active and others are not. As they change employers, salary gets credited to particular bank account where employer does his banking. Allowances like housing, Travelling, Extra working hours, outside consultations, visiting and other remunerations are paid in cash. They have confirmed that money transferred to assessee is out of accumulated savings from 2003 onwards and transfer has been effected through Al-Ansari, UAE Exchange at Sharjah and Dubai. That apart reliance has been placed on appellate order of very same assessee for assessment year 1995-96 in I.T.A. No. 9 ALPY 2000-01 dated 14 6 2002 decided by Ld. CIT(A)-IV, Kochi wherein similar issued has been considered and it has been held in that case that gift received by assessee from his brother settled in Dubai is genuine. Department has also accepted this. 26. Respectfully following above decision and also considering arguments put forth by Ld. Counsel for assessee, we hold that inclusion of sum of Rs.2.53 crores as income in hands of assessee was not warranted and we hereby delete addition made on this score. 16 ITA No. 03 Coch 2016 27. In result, appeal of assessee is allowed. Pronounced in open court on 26-09-2016. sd - sd - (GEORGE GEORGE K.) (B. P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Cochin Dated: 26th September, 2016 GJ copy to: 1. Shri S. Nagaraja Reddiar, Lakshmi Sadanam, Mullackal, Alappuzha. 2. Additional Commissioner of Income Tax, Alappuzha Range, Alappuzha. 3. ( ) Commissioner of Income-tax(Appeals), Kottayam. 4. Principal Commissioner of Income-tax, Kottayam. 5. , DR ITAT, Cochin Bench. 6. Guard File. By Order Assistant Registrar, I.T.A.T., COCHIN 17 S. Nagaraja Reddiar v. Additional Commissioner of Income-tax, Alappuzha Range, Alappuzha
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