By TIOL News Service

ERNAKULAM, MAR 08, 2016: THE issue is - Whether Section 56(2) can be applied to a case where the salary income of a father is being gifted to his daughter directly in her bank account. NO is the answer.

Facts of the case

A) The assessee is an individual. Consequent to filing of his return, the AO noticed deposit of Rs. 38,39,969/- in the bank account, during assessment. According to the assessee, the deposits were made in the bank from the sale proceeds of the land. However, the AO found that the land itself was purchased only during the A.Y under consideration and the investment in the landed property was also not explained. The AO has also treated the profit on sale of land to the extent of Rs. 5,93,100/- as business profit. However, despite the explanation that the deposits were made from sale proceeds of land, the details of the transactions and sale were not filed before the AO. It was in the absence of such details or the explanation, that the Tribunal confirmed the order of the CIT(A), upholding the addition.

B) The assessee's father George Philip is an Air Craft Maintenance Engineer and that from his salary income, he gifted to his daughter, the aforesaid amount. Copy of the bank account statement produced by the assessee clearly showed that the money was transferred from Singapore to India by way of telegraphic transfer and within a day or two, the same was transferred to the assessee's account. However, the manner in which the money was transferred from Singapore to the assessee's father's account in India, could not be explained either before the Tribunal or this Court. Similarly, the role played by Tandon Investment Company, Singapore in this transaction was also a mystery and could not be explained. In fact the evasive submission made was that the assessee's father "mighthave" transferred his salary from Singapore.

Having heard the parties, the High Court held that,

++ in substance, the contention raised was that if at all any addition could be made, it should be only in the hands of the assessee's father and not in the hands of the assessee. A reading of the order of the Tribunal shows that on the materials before it, the Tribunal was satisfied that the assessee had not discharged her burden by proving the creditworthiness of her father, the identity of the parties and the genuineness of the transaction and on facts, we fully endorse that conclusion. One is also at a loss to understand why, if her father was stationed in Bahrain as claimed by the assessee and if he wanted to gift his salary income earned in that country to his daughter living in India, he should transfer the amount to Singapore and then to India, instead of directly transferring the amount from Bahrain itself. It was in the aforesaid circumstances that the Tribunal confirmed the order of the CIT(A), upholding the addition. The findings entered into by the Tribunal are entirely factual and on facts, once the theory of gift by father is rejected, the question of Section 56(2) does not arise at all;

++ insofar as the unexplained credits to the extent of Rs. 10,77,219/- is concerned, the evasive contention raised was that the unexplained credit "might have" been used for making deposit in the bank account and, therefore, it should not have been taken as income of the assessee. Similarly, with reference to the cash withdrawal from the bank to the extent of Rs. 2,91,600/-, the contention raised was that once the deposit was taken as income, withdrawal should not be taken as income once again. With reference to the foreign travel expenses, the AO has made addition of Rs. 5,00,000/- and the contention raised was that this expense was incurred from the withdrawals made from the bank. These factual contentions were considered by the Tribunal, and the Tribunal has made reference to the admitted fact that the assessee was not maintaining any books of account and that though the assessee had received huge amounts from various persons, details of such persons were not disclosed to the department. Insofar as the deposit of Rs. 19,54,243/-, which was admitted by the assessee is concerned, the Tribunal has noted that the AO has taken only Rs. 15,04,893/- and that the cheque payment to the extent of Rs. 5,68,316/- was not considered by him. Insofar as the amount that has been taken by the AO is concerned, the Tribunal has noted that in the absence of any details with regard to earning of income and the persons from whom the money was received, the AO has rightly treated the entire amount as income. Insofar as the unexplained credit to the extent of Rs. 10,77,219/- is concerned, the Tribunal has taken note of the fact that the assessee has shown the same as loan from others in the cash flow statement. However, having regard to the fact that the assessee had not explained the identity of the persons from whom the loan was allegedly availed of, the creditworthiness of his creditors and the genuineness of the transaction, the Tribunal confirmed the order of the AO, taking the aforesaid amount as income of the assessee;

++ the Tribunal has also confirmed the repayment made to the HDFC Bank, as income of the assessee, for the reason that even such payment could not be explained by the assessee before the lower authorities. Insofar as Rs. 2,91,600/- is concerned, the Tribunal agreed with the assessee that the same cannot be added to his income. With respect to Rs. 5,00,000/- incurred by the assessee towards foreign travel expenses is concerned, the Tribunal has held that the source of such expenditure was neither disclosed before the AO nor disclosed in his cash flow statement. It was for that reason the Tribunal confirmed the addition to the extent of Rs. 5,00,000/-. The only other common issue in respect of the assessment years 2003-04 to 2008-09 was with respect to addition on account of unexplained investment. The Tribunal has held that the said issue had already been contested in the appeal in relation to the A.Y 2002-03, where the Tribunal has ordered deletion of amounts withdrawn from the bank. Since facts were identical, similar view was taken with respect to these assessment years also and accordingly the Tribunal has ordered deletion of addition to the extent of amounts withdrawn from the bank. After hearing the parties, this court is satisfied that the aforesaid being the factual background, the findings in Tribunal's order are entirely factual and these appeals do not give rise to any question of law. In the light of the language of Section 260A, an appeal would lie to this Court only on a substantial question of law.

(See 2016-TIOL-430-HC-KERALA-IT)