2013 (1) TMI 756 - AT - Income Tax

Tribunal dismisses appeals on payments to nieces, upholds addition under IT Act, allows deductions for sisters and REC Bonds

Shri Kamlakar Moghe, Versus. Dy. Commissioner of Income Tax,

Shri Kamlakar Moghe, Versus. Dy. Commissioner of Income Tax, - TMI Issues Involved:1. Disallowance of Rs. 15 lakhs paid to nieces claimed as deduction under Section 48(i) of the IT Act, 1961.2. Addition of Rs. 20 lakhs under Section 69 of the IT Act, 1961.3. Deduction of Rs. 45 lakhs paid to sisters claimed under Section 48(i) of the IT Act, 1961.4. Deduction of Rs. 22 lakhs invested in Capital Gain Bonds under Section 54EC of the IT Act, 1961.Detailed Analysis:Issue 1: Disallowance of Rs. 15 lakhs Paid to NiecesThe assessee claimed a deduction of Rs. 15 lakhs paid to his three nieces under Section 48(i) of the IT Act, 1961, which was disallowed by the AO and upheld by the CIT (A). The Tribunal noted that the nieces had no legal claim over the property as per the will of Smt. Kamlabai Moghe. The payments made to the nieces were considered a mere application of income and not in connection with the transfer of the property. The Tribunal upheld the disallowance, referencing the Delhi High Court judgment in Ashok SOI vs. CIT, which stated that amounts paid to settle claims without any legal right, title, or interest in the property do not qualify for deduction under Section 48(i).Issue 2: Addition of Rs. 20 lakhs Under Section 69The AO added Rs. 20 lakhs under Section 69 of the IT Act, 1961, based on the 'Paid by cash' clause in the sale agreement dated 7.7.2006. The assessee argued that the amount was not paid during the assessment year 2007-2008 but in April 2007, relevant for AY 2008-2009. The Tribunal found the assessee's explanation unconvincing, noting the agreement's clear mandate for cash payment and the absence of any date against the payment. The Tribunal upheld the addition, emphasizing that the assessee's conduct and subsequent events indicated an afterthought to avoid tax liabilities. The Tribunal agreed with the CIT (A) that the addition pertains to AY 2007-2008 and should not be considered for AY 2008-2009.Issue 3: Deduction of Rs. 45 lakhs Paid to SistersThe assessee claimed a deduction of Rs. 45 lakhs paid to his three sisters under Section 48(i) of the IT Act, 1961, which was allowed by the CIT (A). The Tribunal upheld this decision, noting that the sisters had a residuary right in the property as per the will of Smt. Kamlabai Moghe. The payment was considered necessary to obtain a clear title for the property transfer, aligning with the Bombay High Court's decision in CIT vs. Shkuntala Kantilal. The Tribunal agreed that the payment was an expenditure incurred wholly and exclusively in connection with the transfer of the property.Issue 4: Deduction of Rs. 22 lakhs Invested in Capital Gain Bonds Under Section 54ECThe assessee invested Rs. 22 lakhs in REC Bonds beyond the six-month period due to non-availability of the bonds. The AO disallowed the deduction, but the CIT (A) allowed it, citing a reasonable cause for the delay. The Tribunal upheld the CIT (A)'s decision, referencing the Bombay Tribunal's decision in Celle Plast vs. DCIT, which supported the allowance of the deduction due to the non-availability of bonds. The Tribunal agreed that the delay was justified and upheld the CIT (A)'s order.Conclusion:Both the assessee's and the Revenue's appeals were dismissed. The Tribunal upheld the disallowance of Rs. 15 lakhs paid to nieces and the addition of Rs. 20 lakhs under Section 69. It allowed the deduction of Rs. 45 lakhs paid to sisters and Rs. 22 lakhs invested in REC Bonds under Section 54EC. The judgment emphasized the importance of legal claims and the necessity of payments in connection with property transfers.