2025 (11) TMI 1414 - AT - Income Tax

Gift from HUF to member held exempt under ss.10(2), 56(2)(x); no higher tax under s.115BBE

Shri Saurabh Goyal Versus The DCIT, Central Circle-1, Chandigarh.

ITAT Chandigarh held that cash received by the assessee from the HUF could not be taxed at a higher rate under s.115BBE. It ruled that an HUF is a group ... Levy of rate of tax at higher rate u/s 115BBE - AO has held that gift received from the HUF is taxable because HUF does not fall within the ambit of definition of ‘Relatives’ provided in Section 56(2)(x)(a) read with 56(2)(vii) - cash found from the residence of the assessee HELD THAT:- HUF is a group of relatives and any money/asset received from HUF is exempt u/s 10(2) of the Act. It is not taxable because it has been withdrawn by the member of the HUF from his own resources contributed in the HUF. We are of the view that ld. AO has erred in making the additions. Accordingly, we allow this ground of appeal and delete the additions. See SHRI GYANCHAND M. BARDIA BARDIA MANSION, KAPASI [2022 (3) TMI 1243 - ITAT AHMEDABAD] andSHRI PANKIL GARG [2019 (9) TMI 337 - ITAT CHANDIGARH]. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts received by an individual from a Hindu Undivided Family (HUF) of which he is Karta/ member are taxable as 'income from other sources' under the provisions invoked by the Assessing Officer or are exempt as withdrawals of own contribution/ assets of the HUF. 2. Whether cash found during search and seizure proceedings in the assessee's residence constitutes unexplained cash taxable as income, and whether such cash should be taxed at the higher rate under the provision for specified income (referred to by the Tribunal as section 115BBE), or may be excluded/ deleted on the basis of explained sources and telescoping against declared income. ISSUE-WISE DETAILED ANALYSIS Issue 1: Taxability of amounts received from HUF Legal framework - The Assessing Officer treated receipts from HUF as taxable under the provisions dealing with receipts from non-relatives (the AO relied on the scope of 'relatives' under the provisions referred to in the record, specifically section 56(2)(x)(a) read with 56(2)(vii) as mentioned in the order). The Tribunal considered the exemption principle invoked in the impugned order material, namely that amounts withdrawn by a member from HUF resources are not taxable as income of the member. Precedent treatment - The Tribunal followed earlier decisions of the Appellate Tribunal which were placed on record (decisions examined in detail and cited in the papers) holding that HUF is a group of relatives and that money/asset received from an HUF by a member is not taxable because it represents withdrawal of the member's own resources contributed to the HUF (the Tribunal expressly relied on those ITAT precedents). Interpretation and reasoning - The Tribunal reasoned that a sum received from the HUF by a member is effectively a withdrawal of the member's own contribution to the HUF and thus falls outside the taxing provision relied upon by the AO. The order treats the principle as one where HUF distributions to members are not exigible as income in the hands of the member under the specific provisions invoked by the AO. Ratio vs. Obiter - Ratio: The holding that amounts received from HUF by a member are not taxable as income in the hands of the member (being withdrawal of his own funds) and therefore additions made by the AO on that basis are incorrect. The reliance on the prior ITAT rulings is treated as directly decisive (ratio). No separate obiter on broader interpretive points is recorded. Conclusion - The Tribunal set aside the addition made in respect of the amount received from the HUF and allowed the ground of appeal on this issue, concluding that the AO erred in treating the receipt as taxable. Issue 2: Treatment of cash found during search - explained source, telescoping, and higher rate under section referred to as 115BBE Legal framework - The AO treated cash found in the assessee's residence as unexplained and made additions, partly applying the proposition that specified incomes are subject to a higher rate (referred to in the record as section 115BBE). The assessee contended that the amounts were from explained sources and that declared income for the relevant years could cover the cash found. Precedent treatment - The Tribunal did not reference authority overruling the AO on the higher-rate provision but applied factual and evidentiary reasoning (and the established concept of telescoping) to assess whether the cash was unexplained. Interpretation and reasoning - The Tribunal noted the assessee's substantial declared incomes in the two relevant accounting periods (figures given in the record: ~Rs.75.84 lakhs and ~Rs.111.00 lakhs) and held that these figures indicate sufficient sources to account for the cash found. The Tribunal reasoned that where declared income of the assessee is large and no other incriminating additions or adjustments have been made by the AO from search material, benefit of telescoping can be afforded against declared income. Accordingly the Tribunal treated a part of the cash as explained by the assessee's available declared resources and allowed deletion of the impugned addition. The Tribunal also observed that the AO himself allowed benefit of Rs. 2,50,000 on account of cash found from the son, treating that portion as explained. Ratio vs. Obiter - Ratio: Where substantial declared income exists and no specific incriminating material or other additions arise from search, the principle of telescoping may be applied to allow explained-source treatment for cash found in the assessee's possession, leading to deletion of additions. Obiter: The order does not engage in a detailed statutory construction of the higher-rate provision (section 115BBE as invoked) and does not lay down a general rule limiting application of that provision; it decides the matter on facts and telescoping. Conclusion - The Tribunal deleted the addition of cash found in the relevant year on the basis that declared income provided adequate source and telescoping was appropriate; the addition and implied application of the higher rate provision were not sustained. Cross-reference and overall disposition The Tribunal treated the two issues together insofar as both concerned characterization of receipts found or received in search-affected assessments. It followed earlier Tribunal precedents on HUF withdrawals and applied telescoping against substantial declared income to treat the cash found as explained. In consequence, both impugned additions were deleted and both appeals were allowed.