Referring to the Amendment brought in by the Finance Act, 2012, the Income Tax Appellate Tribunal (ITAT), Kolkata, ruled that ‘HUF’ can act as a donee only, and certainly not as a donor. Since the definition of “person” as per Section 2(31) of the Income Tax Act recognises the “HUF” as a distinct entity from “an individual”, and the exact source of money, so gifted, was unknown, the Tribunal refused to exempt the receipt of a gift of Rs. 5.84 lacs shown to have received from an HUF.
Regarding the gift from HUF, in which the husband of the appellant is the Karta, the Tribunal clearly opined that an HUF cannot be treated as a “relative” within the meaning of Explanation to Section 56(2)(vii) of the Income Tax Act.
The Tribunal explained that Karta has no unrestricted right to alienate or gift away the HUF’s money or property. However, the members of HUF can give gifts to other members out of their self-acquired earnings or properties. Thus, the HUFs are incapable of having relatives as specified in the Explanation to Section 56(2)(vii).
The Division Bench comprising Sonjoy Sarma (Judicial Member) and Sanjay Awasthi (Accountant Member) observed while considering the so-called gifts amounting to Rs. 96,000, that the appellant herself has offered the same to tax as income from other sources. Thus, treating the said amount under Section 68 does not overtly result in any significant revenue gain since the rate of tax prevailing for this assessment year was 30% under Section 115BBE.
Regarding the issue of trading in commodities, the Bench found that it is an off-market trade, which admittedly is not barred by any law. However, in such instances, a greater onus is cast on the taxpayer to prove its bona fides with respect to the (i) Price at which the trade happened; (ii) Date(s) on which the trades happened; (iii) Consequential movement to or from the depository of such commodities or through any other means, for an arm’s length determination of the trading transaction claimed; and (iv) Payment method and dates of such transactions, clearly linked to such trades.
Accordingly, the Bench set aside the addition and directed the AO to verify the impugned transaction, after examining the issue of the correct PAN on the said transaction.
Briefly, a search and seizure operation conducted on the Adhunik Group, resulted in additions of (i) Miscellaneous receipts of Rs. 96,000 in cash shown as gifts received, and offered to tax; (ii) Receipt of a gift of Rs. 5.84 lacs from an HUF, claimed as exempt under Section 56(2) of the Income Tax Act; and (iii) Receipts of Rs. 2.99 lacs shown as profit from commodity trading, albeit on off-market basis.
On appeal, the CIT(A) confirmed the additions of Rs. 96,000, even though the appellant had supplied a list of persons (with affidavits) to show receipts of gifts. Regarding the issue of the “gift” received from HUF, the CIT(A) held that the appellant herself had not disclosed the true constituents of the HUF and the source of money from which the gift was received. Thus, the exact source of money, so gifted, was unknown. Regarding the receipts of Rs. 2.99 lacs added under Section 68, representing allegedly off-market transactions in commodities, the CIT(A) held that the AO has rightly treated the said sum as unexplained cash credit.
Appearances:
Miraj D Shah, for the Appellant/ Taxpayer
JCIT Monalisha Pal Mukherjee, for the Respondent/ Revenue
