Validity of Addition under section 69 if Cash is deposited in assessee’s bank account out of the Sale of property of the father

Short overview  Merely because assessee’s father did not file return of income within due date specified under section 139(1), it could not be held that cash component of consideration on sale of property should be assessed in the hands of the assessee, who was a General Power of Attorney (GPA) holder also, as had been held by the CIT(A).

Assessee, a student doing her Ph.D, filed her return of income for assessment year 2010-11 declaring income of Rs. 1,88,350. She was a GPA holder for her father R who was in judicial custody. In the course of assessment proceedings, AO called for, inter alia, the bank accounts and on examination thereof observed that there were cash deposits to the extent of Rs. 16,80,500 made in her Bank account with Corporation Bank. The assessee explained that aforesaid cash deposits in her Bank account represented the cash component of the consideration received for sale of her father’s immovable property. It was submitted that the father of assessee was in judicial custody and the assessee had sold the property which was in the name of the father by taking GPA from her father. It was further submitted that amounts totaling to Rs. 77 lakhs was received in cheque and Rs. 16,80,500 was received in cash and the entire amount was deposited in Banks. The AO, however, did not accept the explanation put forth by the assessee and treated the cash deposit amounting to Rs. 16,80,500 as ‘unexplained investment’ in the hands of the assessee and brought the same to tax in the assessee’s hands. The assessment was accordingly completed under section 143(3). CIT(A), however, rejected the assessee’s contentions and upheld the addition made by the AO. 

It is held that  The assessee had provided an explanation that the cash deposits represent the amounts received as part of the consideration for sale of immovable property sold by her father; again a fact borne out by the records and not controverted by the AO. Assessee had also submitted a copy of the return of income filed by her father, wherein the entire sale consideration of Rs. 93,80,500 (i.e., comprising both cheques amounting to Rs. 77 lakhs plus the cash component of Rs. 16,80,500) was shown. The recitals in the sale deed dated 7-6-2010 clearly establish that the sale was done by the father and assessee was only a GPA holder. Taking into account the factual matrix and the circumstances of the case, the inference of the AO that the cash deposits amounting to Rs. 16,80,000 in the assessee’s bank account in Corporation Bank constitutes unexplained investment by the assessee in the present case was, not tenable. The explanation furnished by the assessee in this regard was proper and plausible and ought to have been accepted, but was rejected without substantial reasons. Merely because the assessee’s father did not file the return of income within the due date specified under section 139(1), it cannot be held that the cash component of the consideration on sale of property should be assessed in the hands of the assessee, as had been held by the CIT(A).

Decision: In assessee’s favour.

Followed: Ramawathi v. ITO [ITA No. 701/JP/2014 [ITAAt Jp Benhc].

Relied: CIT v. P.K. Noorjahan (1999) 237 ITR 570 (SC) : 1999 TaxPub(DT) 80 (SC).

Referred: Gyan Chand Agarwal v. Addl. CIT [ITA No. 266/JP/2017] &  [ITAT-Jaipur Bench].

 

IN THE ITAT, BANGALORE BENCH

JASON P BOAZ, A.M.

R. Kum. Kavitha v. ITO

ITA No. 666/Bang/2019

12 July, 2019

Assessee by: R. Anitha, CA

Revenue by: Karuppusamy S.R, Additional Commissioner

Jason P. Boaz, A.M.

This appeal by the assessee is directed against the order of Commissioner (Appeals), Mysore, dated 19-3-2015 for assessment year 2010-11.

2. Briefly stated, the facts of the case are as under :–

2.1 The assessee, a student doing her Ph.D, filed her return of income for assessment year 2010-11 on 30-9-2010 declaring income of Rs. 1,88,350. She is a GPA holder for her father Shri. Rachaiah who was in judicial custody. The case was selected for scrutiny. In the course of assessment proceedings, the assessing officer (AO) called for, inter alia, the bank accounts and on examination thereof observed that there were cash deposits to the extent of Rs. 16,80,500 made in her Bank account with Corporation Bank, Vijayanagar Branch, Mysore. The assessee explained that the aforesaid cash deposits in her Bank account represent the cash component of the consideration received for sale of her father’s immovable property. It was submitted that the father of the assessee was in judicial custody and the assessee had sold the property which was in the name of the father by taking GPA from her father. It was further submitted that amounts totaling to Rs. 77 lakhs was received in cheque and Rs. 16,80,500 was received in cash and the entire amount was deposited in Banks. The assessing officer, however, did not accept the explanation put forth by the assessee and treated the cash deposit amounting to Rs. 16,80,500 as “unexplained investment” in the hands of the assessee and brought the same to tax in the assessee’s hands. The assessment was accordingly completed under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) vide Order, dated 31-12-2012.

2.2 Aggrieved by the order of assessment, dated 31-12-2012 for assessment year 2010-11, the assessee carried the matter in appeal to Commissioner (Appeals), Mysore. Before the Commissioner (Appeals), the assessee reiterated the submissions put forth before the assessing officer. The assessee also admittedly placed on record a copy of the Return of Income filed by her father on 31-3-2013, wherein the entire sale consideration of Rs. 93,80,500 (i.e., Rs. 77,00,000 + Rs. 16,80,500) received on sale of immoveable property was shown; which included the cash component of Rs. 16,80,500. The Commissioner (Appeals), however, rejected the assessee’s contentions and upheld the addition made by the assessing officer; observing that filing of the return of income by the assessee’s father is an afterthought and that the assessee could not substantiate with evidence the receipt of on-money in the sale transaction of immovable property.

3.1 Aggrieved by the order of the Commissioner (Appeals)-Mysore, dated 19-3-2015 for assessment year 2010-11, the assessee has filed this appeal before the Tribunal, wherein she has raised the following grounds :–

1. The learned assessing officer, has failed to provide sufficient opportunity to the Appellant before passing the assessment order under section 143(3) of the Act.

2. The assessment order/order of the learned Commissioner (Appeals) is erroneous in law and under the facts and circumstances of the case.

3. The learned assessing officer has erred in law and on facts in raising demand of Rs. 7,05,530.

4. The learned assessing officer has erred in law and on facts in making addition of Rs. 16,80,500 without appreciating the explanations offered by the Appellant.

5. The addition made by the assessing officer as “unexplained investment” is erroneous both under the law and on facts as the Appellant has acted in the capacity of the power of attorney holder and the Appellant was not the owner of the land which is apparent from the registered sale deed and even otherwise the income is assessable under the head “Capital Gain” and not under “Income from other sources”. Thus there is a fatal error in characterizing the addition without any basis and is contrary to the provisions of the Act.

6. The learned assessing officer has failed to appreciate that the Appellant acted as a power of attorney holder on behalf of her father who was in judicial custody and the facts related to additions made by the learned assessing officer had nothing to do with her individual capacity.

7. The learned assessing officer has erred in law and on facts in making addition in the hands of the Appellant without appreciating the fact that the Appellant was holder of Power of Attorney and hence acted in the capacity of an agent her father in executing the transfer of immovable property and thus the ed assessing officer has no jurisdiction to subject the Appellant to assessment under Act.

8. The learned assessing officer has erred, in law and in facts, in initiating penalty dings under section 271(1)(c) of the Act.

3.2 All the grounds raised in this appeal (supra) are in respect of the issue of the addition of Rs. 16,80,500 made towards “undisclosed investment” in the hands of the assessee. In the course of proceedings, the learned Authorised Representative of the assessee filed a paper book (pages 1 to 59) containing various documents/judicial pronouncements in support of her case, which are duly considered.

3.3.1 In appeal proceedings, the learned Authorised Representative of the assessee put forth various submissions, the gist of which is as under :–

(i) The assessee in the period under consideration is admittedly a student and therefore has no independent source of income and was therefore incapable of earning any such unexplained income or investment; as alleged.

(ii) The father of the assessee Shri. R. Rachaiah was in judicial custody and the assessee had obtained General Power of Attorney (GPA) from her father and sold the property; which fact is borne out from the recitals in the sale deed, dated 7-6-2010. As such the sale of the said immovable property was by her father and the income from the sale should be assessed only in the hands of the father.

(iii) It is settled principle that capital gains on sale of property should be considered in the hands of the actual seller and not that of the ‘GPA’ holder.

(iv) The father of the assessee had filed the return of income for assessment year 2011-12 showing the total sale consideration; including the cash component of Rs. 16,80,500. Merely because the assessee’s father is entitled for deduction under section 54 of the Act, the return filed by him cannot be disregarded.

(v) The assessing officer has not raised any issue on assessing the sale consideration received in cheque in the hands of the father and therefore the on money/cash component also has to be assessed in the hands of the father.

(vi) The word used in section 69 of the Act is “the investment may be deemed to be income” and not “shall”. Therefore, the addition under section 69C of the Act cannot be automatic. It is discretionary and the Assessing officer/Commissioner (Appeals) should have considered the explanation put forth by the assessee; particularly as the assessee is a student and does not have any source of income from which she could have generated unaccounted income.

(vii) Along with the cash deposit of Rs. 16,80,500 there is a deposit of Rs. 2 lakhs by cheque, received as an advance for the sale of the property, which is evidenced from the recitals in the sale deed. This establishes the link between the sale consideration of the said property and the cash deposit in the assessee’s bank account.

3.3.2 In support of the assessee’s contentions, the learned Authorised Representative placed reliance on the following judicial pronouncements :–

(i) Ramawathi v. ITO (ITA No. 701/JP/2014) (ITAT Jaipur Bench).

(ii) CIT v. P. K. Noorjahan (1999) 237 ITR 570 (SC) : 1999 TaxPub(DT) 0080 (SC);

(iii) Gyan Chand Agarwal v. Addl. CIT (ITA No. 266/JP/2017) (ITAT-Jaipur Bench).

3.4 Per contra, the learned Departmental Representative for Revenue supported the orders of the authorities below.

3.5.1 I have considered the rival contentions, the submissions made, documents submitted and carefully perused the material on record; including the judicial pronouncements cited. The basic undisputed facts are that in the year under consideration the assessee was a student; a fact recorded on page 1 of the order of assessment and therefore she had no independent source of income. The fact that the sale of the said immovable property was done by the assessee’s father and that the assessee is only a GPA holder is borne out from the recitals in the sale deed and is not disputed. In fact, it is seen that the assessing officer has not raised the issue of any income from capital gain, in the assessee’s hands, arising out of the sale consideration received in cheque even though the cheques amounting to Rs. 77 lakhs (Rs. 75 lakhs plus Rs. 2 lakhs) have also been deposited in the assessee’s bank account. Therefore, the fact that the sale consideration of the property has to be considered in the hands of the father and not in the hands of the assessee has been accepted and not disputed by the assessing officer. It is settled principle that the capital gains arising on sale of property should be considered in the hands of the actual seller and not the GPA holder and the stand of the assessing officer in this regard is correct.

3.5.2 The only dispute in this appeal is with regard to the taxability of the cash deposits amounting to Rs. 16,80,500 in the assessee’s bank account. In this regard, the assessee’s contention is that these cash deposits were part of the sale consideration of the property and the assessee has no other source of income. It is observed that along with the cash deposits in question, there is a deposit of a cheque for Rs. 2 lakhs and from the cheque number, it is seen that this amount was towards advance received for the property sale, as mentioned in the sale dee. From a perusal of the assessee’s bank account with Corporation Bank, Vijayanagar Branch, Mysore, it is evident that apart from the cheque deposit of Rs. 2 lakhs of the sale consideration and the impugned cash deposits, there are no other deposits of any great value; clearly establishing that the assessee has no other source of income.

3.5.3 In the case of Smt. Ramawati v. ITO in ITA No. 701/JP/2014, dated 10-4-2015, the Jaipur Bench of the ITAT has explained the scope of section 69 of the Act and has drawn on the decision of the Hon’ble Apex Court in the case of CIT v. P. K. Noorjahan (1999) 237 ITR 570 (SC) : 1999 TaxPub(DT) 0080 (SC) to hold that when a person has no source of income, it cannot be presumed that the assessee has undisclosed income which is deposited in the bank account. The relevant portion of the ITAT-Jaipur Bench at paras 8 and 9 of its order is extracted hereunder :–

3.5.4 The facts of the case on hand are similar to those in the case of Smt. Ramawati (supra). In the case on hand, the assessee is a student and apparently does not have any proven source of income; which fact has not been controverted by the assessing officer. The assessee has provided an explanation that the cash deposits represent the amounts received as part of the consideration for sale of immovable property sold by her father; again a fact borne out by the records and not controverted by the assessing officer. In this regard, the assessee has shown the link it has with the advance of Rs. 2 lakhs received for sale of immovable property. The assessee has also submitted a copy of the return of income filed by her father, wherein the entire sale consideration of Rs. 93,80,500 (i.e., comprising both cheques amounting to Rs. 77 lakhs plus the cash component of Rs. 16,80,500) is shown. The recitals in the sale deed, dated 7-6-2010 clearly establish that the sale was done by the father and the assessee was only a GPA holder. Therefore, merely because the assessee’s father did not file the return of income within the due date specified under section 139(1) of the Act, it cannot be held that the cash component of the consideration should be assessed in the hands of the assessee; as has been held by the Commissioner (Appeals).

3.5.5 Taking into account the factual matrix and the circumstances of the case, as discussed above, the inference of the assessing officer that the cash deposits amounting to Rs. 16,80,000 in the assessee’s bank account in Corporation Bank, Vijaynagar Branch, Mysore, constitutes unexplained investment by the assessee in the case on hand is not tenable. In my considered view, the explanation furnished by the assessee in this regard was proper and plausible and ought to have been accepted, but was rejected without substantial reasons. The finding rendered by the ITAT-Jaipur Bench in the case of Smt. Ramawati (supra) is equally applicable to the facts of the present case and therefore the addition made by the assessing officer being untenable and unsustainable is ordered to be deleted. It is accordingly ordered.

4. In the result, the assessee’s appeal for assessment year 2010-11 is allowed.