2016 (4) TMI 669 - AT - Income Tax

Tribunal Decision: Tax Appeal Allowed in Part, Focus on 'Relative' Definition

The Tribunal allowed the appeal partly, deleting the addition of Rs. 1 lakh under section 56(2)(vi) for a cash gift from HUF, considering HUF as a ... Hindu Undivided Family as 'relative' for exemption under section 56(2)(vi) - exemption of gifts received from relatives - remand for fresh consideration of unexplained investment and source of fundsHindu Undivided Family as 'relative' for exemption under section 56(2)(vi) - exemption of gifts received from relatives - Whether a gift received by the assessee from a HUF is to be treated as received from a 'relative' and therefore exempt under section 56(2)(vi). - HELD THAT: - The Tribunal, following the Coordinate Bench decision dealt with the character of an HUF as a collective of relatives and held that a gift from an HUF should be read as a gift from the relatives constituting that HUF. The reasoning accepted that though an HUF is a distinct taxable unit, it is formed by a group of relatives and, applying the Explanation to section 56(2)(vi), a gift from the HUF falls within the exemption accorded to gifts from relatives. On that basis the addition made by the Assessing Officer and confirmed by the CIT(A) was set aside and the amount received from the HUF was directed to be treated as exempt under the provision. [Paras 6]Addition of Rs. 1,00,000 treated as deleted; A.O. directed to treat the gift from the HUF as exempt under section 56(2).Remand for fresh consideration of unexplained investment and source of funds - Whether the investment of Rs. 50,000 in M/s. Mahadevi Industries was properly disallowed as unexplained investment in assessment when the assessee had given an explanation before the CIT(A). - HELD THAT: - The assessee had pleaded sources for the investment before the CIT(A), but the CIT(A) did not consider or adjudicate that ground of appeal. In consequence, the Tribunal declined to decide the question on merits and remitted the matter to the file of the CIT(A) for reconsideration in light of the explanation and evidence filed by the assessee. [Paras 7]Ground relating to the unexplained investment is remitted to the CIT(A) for fresh adjudication.Final Conclusion: Appeal partly allowed: the addition treating the gift from the HUF as taxable is deleted and the amount is to be treated as exempt; the addition concerning the unexplained investment is remitted to the CIT(A) for reconsideration. Issues:1. Addition under section 56(2)(vi) of the I.T. Act on account of cash gift received from HUF.2. Addition under section 143(3) on account of unexplained investment in M/s. Mahadevi Industries.Analysis:1. The appeal was filed against the Ld. CIT(A)'s order confirming the additions made by the A.O. The first addition of Rs. 1 lakh under section 56(2)(vi) was challenged, which was the amount received as a cash gift from HUF. The A.O. disallowed the claim of gift as HUF was not considered a relative. The Tribunal referred to a previous case where it was held that HUF can be treated as a relative. Thus, the Tribunal directed the A.O. to treat the gift from HUF as exempt under section 56(2), deleting the addition.2. The second addition of Rs. 50,000 made by the A.O. without proper interpretation of the accounts was also challenged. The assessee explained the source of the investment, but the Ld. CIT(A) did not address this issue. The Tribunal remitted this issue back to the Ld. CIT(A) for reconsideration based on the explanation and evidence provided by the assessee. This ground was set aside for further review.3. The Tribunal's decision was based on the interpretation of the term 'relative' under section 56(2) of the I.T. Act. The Tribunal held that HUF can be considered a relative for the purpose of exemption under this section. The decision in a similar case was followed, leading to the deletion of the addition related to the cash gift from HUF. The issue of unexplained investment was sent back to the Ld. CIT(A) for proper consideration based on the assessee's explanation and evidence.4. Overall, the appeal of the assessee was partly allowed for statistical purposes, with one addition being deleted and the other issue being remitted for reconsideration. The Tribunal's decision was based on the interpretation of the term 'relative' and the proper consideration of the explanations and evidence provided by the assessee.