INCOME TAX

CASE BRIEF

PENDURTHI CHANDRASEKHAR

Vs

THE DEPUTY COMMISSIONER OF INCOME TAX (2018)

Submitted by: R. HARSHAD

Reg No: 17040142060

Batch 2017-22

Submitted to: Prof. ABHISHEK SRIVASTAVA

Alliance School of Law

Alliance University,
Bangalore

Date of Submission: 24th October 2020

Citation: Equivalent Citation: 407 ITR 179/ (2019) 175 DTR 73 / 307 CTR 249(T&AP) (HC)
(2007) 291 ITR 278; 304 ITR 145 (P&H); 290 ITR 306 (P&H); 1995 Supp. (2) SCC 453; (2000)
246 ITR 283;

Case: Briefing on Pendurthi Chandrasekhar Vs the Deputy Commissioner of Income

Bench: Sri Justice V. Ramasubramanian and Ms. Justice J. Uma Devi

Introduction of the case:

This case talks about whether there was an occasion when the assessee(Appellant) received
money as gift from his family relatives .The Appellant, Pendurthi Chandrasekhar has come up
with the appeal under Section 260A of The Income Tax Act, 19611, challenging a common order
passed by the Income Tax Appellate Tribunal in a batch of Income Tax Appeals 2. This was
related to the year 2008-2009.

Despite the availability of overwhelming and unimpeachable documentary evidence, the

Assessing Officer (AO) was not prepared to accept the same, as his approach appeared to be
loaded with prejudice, suspicion and pre-determined mind and preconceived notions. The whole
approach of the AO appears to be somehow rejecting the every explanation of the assessee and
the evidence produced in support of such explanation, by assigning reasons which are wholly
imaginary and perverse. While the authorities are entitled to examine each transaction minutely,
they cannot approach every transaction with undue suspicion by wearing colored glasses. The
approach of the AO reminds us of somebody describing a lamb as a dog and trying to make
everyone to believe it to be so….”

1
PCIT v. Arvind N. Nopany (2020) 185 DTR 369 / 313 CTR 87.
2
Jaspal Singh vs Commissioner Of Income Tax on 15 September, 2006
Facts of the case:

A search and seizure operation was done under Section 132 of the Income Tax Act, 1961 3 in the
group entities of Ms. Ambience Property Private Ltd., has taken place on 9.10.2007. As the
assessee happens to be a director of one of the group companies, namely, Ms. Dakshin Shelters
Private Limited, a search took place at his residence also. The assessee has not filed any return of
income prior to the search, as purportedly he did not have regular source of income.
Consequently, proceedings under Section 153-A4 of the Act were initiated against the assessee.
On receipt of the notice, he has filed his return of income for a total income of Rs.43,809/- for
the assessment year 2006-07. The Assessing Officer (AO) did not accept the return. He has
issued a notice proposing to make certain additions to the income of the assessee. The AO has
eventually made additions to the income of the assessee.

i) Gift of Rs. 73,00,000/- to the assessee by his maternal aunt Smt. Mikkilineni Nirmala.
ii) Unsecured loans of Rs.87,95,724/- from Mr. Dev Singh Palak.
iii) Addition of a loan of Rs. 10,00,000/- received by the assessee as unsecured loan from
Mr. J.V. Sudhakar, which was returned before the search by cheque.
iv) Interest income in respect of the amounts advanced by the assessee to Ms. Dakshin
Shelters Pvt. Ltd. For which TDS was deducted and remitted to the tax authorities by
the donee company.
v) Unsecured loan of Rs.14,50,000/- given by the assessee wife from out of the gift
received from her father.

Issues of the case:

Though there are five reframed substantial questions of law, they actually revolve only around
two issues, (1) the gift of Rs.11,97,267/- allegedly received by the assessee from his father-in-
law; and (2) the addition of Rs.74,15,000/- as business profits, on account of the difference
between the final consideration and original consideration.

As the case whether additions u/s 68 tenable on grounds that relatives gave gift without any
occasion?
Arguments:
3
1967 66 ITR 212 KAR, 1967 66 ITR 212 Karn.
4
Smt. Kusum Lata Thakral vs Commissioner Of Income Tx on 24 July, 2009
The first mentioned aspect, it defies any logic for, crediting of interest in account books does not
enable the assessee to withdraw the amount as the same was not physically made available by
M/s. Dakshin Shelters Private Limited for the assessee to make such withdrawal. The finding
that the assessee has received interest income but chose to keep it in the account in order to get
interest, is in conflict with his previous observations that there is no prohibition for the assessee
to withdraw the interest on the unsecured loan in the books of account of the company.

Indeed, the Revenue has not disputed the claim of the assessee that the loanee company
converted the unsecured loan and unpaid interest into equity shares during the year 2011-12 and
accordingly issued equity shares certificates in lieu of repayment of unsecured loans and unpaid
interest thereon. As submitted by the learned counsel for the assessee, the AO could have at best
directed to restrict the claim of TDS in proportion to the income admitted and to allow the
balance in the year in which interest income is admitted on receipt basis . The assessee filed an
appeal before by challenging the order of the commissioner. As the Assessing Officer (AO)
issued a notice to show cause as to why the amount of Rs.62.16 lakhs which according to him
represented a long term capital gain be not subjected a long term capital gain be not subjected to
taxations. As the assessee contended that if the acquisition of an asset has no cost to the assessee,
then the provisions relating to levy of tax as capital gain under Section 45(1) read with Section
48(1)5 would not apply.

One of the substantial question of law is there was admittedly an unexplained credit of
Rs.11,97,267/-. The assessee claimed the same to be a gift from his father-in-law. The Assessing
Officer rejected the same as not genuine, on the ground that the existence of the Donor, his
source of income and the occasion for the gift were not verifiable. Therefore, the Assessing
Officer concluded that the assessee must have routed his undisclosed income to his father-in-law
and brought it back.

The Assessing Officer, C.I.T (Appeals) as well as the Tribunal suspected that the undisclosed
income earned by the assessee could have been used for round tripping, namely routed through
the father-in-law and brought back in the form of gift. The answer sought to be provided by the
assessee is that he has no source of income. But the very reason why a raid was conducted in his

5
Commissioner Of Income Tax vs P. Mohanakala on 15 May, 2007.
residence was that he was one of the Directors of a real estate Company, viz., M/s. Dakshin
Shelters Pvt. Ltd. Therefore, the first three substantial questions of law are answered against the
assessee.
And it was argued by the assessee that the amount of Rs.22.50 lakhs which was found in his
bank locker which was brought in the house partly belonged to his partner Sri K. Srinivasarao, to
his brother Mr. Chandramohan and partly to his mother who has sold her house property at
Gollapudi Village, Vijayawada, about a year back.

Further, he has claimed that Smt. Anantha Lakshmi W/o Ramachander Rao, Vijayawada has
advanced the said amount of Rs.25, 00,000/- out of sale proceeds of her agriculture land situated
at Penamaluru village vide agreement of sale with possession dated 21-7-2007. In this
connection the assessee has submitted a confirmation letter allegedly signed by Smt. Anantha
Lakshmi dated 13-10-2009 along with the above said documents.

Judgment:

The High Court held in favor of assessee that an occasion is not necessary to accept a gift from a
relative. In the instant case, assessee received a gift of Rs. 73 lakhs from his maternal aunt. AO
added the same in assessee’s income on the ground that assessee failed to show any occasion on
which gift was received. It was concluded that when the donor herself had given a confirmation
letter clearly stating therein that she had transferred the amount of Rs. 73,00,000 to the account
of assessee and further declaring that she gave the said gift out of her natural love and affection
towards her nephew,6 AO ought not to have entertained further doubts. The donor being no other
than assessee’s own maternal aunt, was a ‘relative’ as defined under the Explanation to section
56(2)(v) and hence, it was not permissible for AO to judge the conduct of the donor.

Relevance of the case:

6
I.T.T.A.Nos.701 & 702 of 2016.
The case judgment was reliance to Commissioner Of Income Tax vs P. Mohanakala case 7. The
dispute in all the appeals of the case was essentially relates to the addition made by the Assessing
Officer in respect of several foreign gifts stated to have been received by the assesses from one
common donor namely Sampath Kumar. The gifts received were from one Ariavan Thotan and
Suprotoman. It is during the enquiry by the Revenue it is asserted that they were the aliases of
Sampathkumar. These gifts were made to A. Srinivasan and his wife, Smt. S. Kalavathy, his son,
S. Balaji Manikandan and to one of his brothers, Rajendran and Smt. Mohanakala. Each one of
them is an assessee within the jurisdiction of the appellant. The foreign gifts are received by the
assesses during the assessment years 1993-94 to 1996-97.
The authorities upheld the opinion formed by the Assessing Officer that the explanation offered
was not satisfactory. The assessees did not take the plea that even if the explanation is not
acceptable the material and attending circumstances available on record do not justify the sum
found credited in the books to be treated as a receipt of an income nature. The burden in this
regard was on the assessees.
The Assessing Officer also found that the gifts were not real in nature. Various surroundings
circumstances have been relied upon by the Assessing Officer to reject the explanation offered
by the assessees. The Commissioner of Appeals confirmed the findings and conclusion drawn by
the Assessing Officer. The Tribunal speaking though its Senior Vice President concurred with
the findings of fact. The findings in our considered opinion are based on the material available
on record and not on any conjectures and surmises. They are not imaginary as sought to be
contended

Conclusion:

AO was not justified in adding the amount of Rs. 73,00,000 to the account of assessee received
from maternal aunt as the donor herself had given a confirmation letter clearly stating therein
that she had transferred the amount and further declaring that she gave the said gift out of
natural love and affection towards her nephew and moreover, the donor being no other than the
assessee’s own maternal aunt, who was a ‘relative’ as defined under the Explanation to section
56(2)(v).

7
2007 Latest Caselaw 455 SC.