The Dy. Commissioner of Income Tax, Circle 1(I), Salem 7.. IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI D BENCH, CHENNAI. Before Shri.U.B.S. Bedi J.M. & Shri. B. Ramakotaiah, A.M. Assessment Year: 1995-96 Vs. Sri Vithaldas Bhandari (deceased) through L/H 1. Smt. Rameshwari Bai Bhandari, w/o late Sri Vithaldas Bhandari, 2. Sri Laxcmikant Bhandari, Sri Gopaldas Bandari, No.4, Syed Madar Street, Shevapet, Salem 636002. 3. Smt. Pushpa Boob, W/o Sri Balkishan Boob, No. 539, Vishal Deep, A.T. Halli, Shantinagar, Bangalore. 4. Smt. Jamuna Sarada, W/o Laxminarayan Sarda, 4-4-64, Gunj Bajar, Secunderabad 500003 5. Kum. Sharda Innani & Kum. Madhuri Innani D/o Sri Kishangopal Innani, Paddputalawari Street, Governor Bada, 3 rd Floor Flat No.1, Ramachandra Complex, Vijayawada 520002. [GIN/PAN: V-735] (Respondent) (Appellant) Revenue by : Shri K.E.B. Rangarajan, Jr. Standing Counsel Assessee by : Dr. Anita Sumanth PER U.B.S. BEDI, J.M. ORDER This appeal of the Department is directed against the order passed by the ld. CIT(A) XII, Chennai dated 30.03.2000 relevant to the assessment year 1995-96 whereby the Department has challenged deletion of addition of `.8.00 lakhs made by the Assessing Officer by holding that in the absence of corroborative evidence to prove the genuineness of the NRI gift, the credits appearing in the capital account of the assessee is treated as unexplained and accordingly assessed to tax under section 68 of the Income Tax Act.
2 2. This case was assessed on 30.09.1999 and appeal of the assessee was decided on 30.03.2000 by the ld. CIT(A) against whose order, the Department has filed appeal on 16.06.2000 but the assessee, as per application of assessee s one of the legal heirs under clause (viii) of sub-rule 4A of Income Tax (AT) Rules, 1963, legal heirs have been brought on record. 2.1 Facts indicate that during the previous year relevant to the assessment year 1995-96, the assessee is stated to have received a gift of `.8.00 lakhs from the Non- Resident Indian Dr. D.P. Parwal residing at Hongkong. The Assessing Officer has made the following observation in the assessment order for the assessment year 1995-96: The gift was made through cheque dated 5.8.94 for `.8 lakhs, issued from the NRE Account 3317 of Dr. D.P. Parwal, maintained at State Bank of India, NRI Branch, Bombay, in support of this, the assessee produced letter given by the donor, Dr.D.P. Parwal, confirming the gift. During the course of assessment proceedings, the assessee was required to substantiate the gift of `.8 lakhs. As mentioned by the Assessing Officer in the assessment order, the assessee and 5 other donees, i.e. S/Shri/Smt. Gopaldas Bhandari, Vithaldas Bhandari, Rameshwari Bhandari, Jyothi Bhandari and Sangeetha Bhandari, admitted that Dr. D.P. Parwal, Non-Resident Indian residing at Hongkong had given gifts to them for `.1.07 crores on various dates by debiting his NRE accounts at State Bank of India, Bombay and Jaipur. The assessee represented by her son, Shri Gopaldas Bhandari, stated before the Assessing Officer that Dr. D.P. Parwal is a diamond merchant and industrialist. As the assessee could not produce the income tax assessment orders, relevant pages from the passport of Dr. D.P. Parwal indicating the date of arrival in India and departure dates out of India, the Assessing Officer treated
3 the gift of `.8 lakhs, as unexplained cash credit under section 68 of the Income Tax Act. According to the Assessing Officer, it was improbable that Dr. D.P. Parwal would have given such a huge gift to show his love and affection in gratitude of the help rendered to his family in the past. The Assessing Officer has made further observation in the last paragraph of the assessment order for treating the gift as unexplained as under: It has been reported in the press and elsewhere that the NRI gift channel has been misused by the assessee to bring black money into the books without paying tax and the departmental enquiries in many cases have confirmed this. In many cases, the assessees have voluntarily offered the NRI gift for tax to escape from penal action. The facts and circumstances in the instant case lead one to believe that the assessee has misused the NRI gift channel to white wash his black money generated in his business. Therefore, in the absence of corroborative evidence, to prove the genuineness of the NRI gift, the credits appearing in the capital account of the assessee are treated as unexplained and accordingly assessed to tax under section 68 of the IT Act. 3. The assessee took up the matter in appeal and submitted before the first appellate authority that the Assessing Officer was not justified in treating the gift received by the assessee from Dr. D.P.Parwal as unexplained cash credit under section 68 of the Act. He stated that the photocopy of the letter issued by the donor Dr. D.P. Parwal confirming the gift, copy of letter issued by the Manager, State Bank of India, NRI Branch that the cheque was issued in favour of the assessee by debiting the account maintained by Dr. D.P. Parwal and Xerox copy of the gifted cheque were furnished before the Assessing Officer. He further submitted that the assessee was summoned to depose before the assessing authority regarding gift received by him and receipt of gift was accordingly confirmed. Elaborating his arguments, he stated that the
4 Assessing Officer was carried away by press report and though letters were issued to the Bank Manager, State Bank of India, Bombay and Jaipur for furnishing the copies of NRE accounts of Dr. D.P. Parwal, no efforts were made by the Assessing Officer to obtain the details before the completion of the assessment proceeding, which were getting time barred by 31.03.1999. He further argued that though a qualified medical practitioner is an authority in precious stone and has been in the business for the past 30 years ever since he settled in Hongkong as a permanent citizen. It was thus, argued that as the identity of the donor, financial capacity to gift have been established, the Assessing Officer was not justified in treating the gift appearing in the capital account as unexplained under section 68 of the Act. It was thus argued for deletion of the impugned addition. Reliance was placed on Chandigarh Bench of ITAT in the case of R.K. Syal vs. Assistant Commissioner of Income Tax 66 ITJ 656 where the Tribunal has held that addition on account of unexplained gift is to be deleted where the Assessing Officer has accepted the fact that money came out of NRE account of the donors, and there was no material on record to show that the assessee has repaid the amount to the donee. 4. The ld. CIT(A), while considering and accepting the plea of the assessee as raised during the course of appeal hearing has concluded to delete the impugned addition. 5. Aggrieved by the order of the ld. CIT(A), the Department has come up in appeal and it was contended that the ld. CIT(A) has erred in deleting the addition made under section 68, who ought to have seen that the burden of proving the genuineness of alleged gift from Dr. D.P. Parwal is on the assessee as held by the Hon ble Delhi High Court in the case of K.L. Aggarwal vs. CIT 190 ITR 303. The ld. CIT(A) ought to have seen that the Hon ble Calcutta High Court in the case of CIT v. Precicion Finance (P)
5 Ltd. 121 CTR 20 has held that mere payment by account payee cheque is not sacrosanct nor can it make the non-genuine transaction genuine, but the surrounding circumstances like relationship between the donor and donee, occasion for making such a gift should be seen and in view of the case of Sumati Dayal vs. CIT 125 CTR 124 (SC) in which it was held that test of human probability is a must to prove the genuineness of the transaction and in this case the so called donees were not able to give the present whereabouts and other details regarding the donor and they have not even seen the donor even though the total gifts from the so called donor come to the extent of `.1.07 crores to the assessee and his family members. It was, thus prayed that the order of the ld. CIT(A) should be reversed and the order of the Assessing Officer should be restored. 6. The ld. Counsel for the assessee Dr. Anita Sumanth, while strongly relying upon the order of the ld. CIT(A) has pleaded for confirmation of the impugned order. She further submitted that the Assessing Officer was not justified in treating the gift received by the assessee from Dr. D.P. Parwal as unexplained cash credit under section 68, because, the photocopy of the letter issued by the donor Dr. D.P. Parwal confirming the gift, copy of the letter issued by the Manager, State Bank of India NRI Branch that the cheque was issued in favour of the assessee by debiting the NRE account of Dr. D.P. Parwal. The xerox copy of the gift cheque were filed before the Assessing Officer during the course of assessment proceedings. The assessee was also summoned to depose before the assessing authority regarding the gift received by him and such receipt of gift was accordingly accepted and confirmed by the assessee. But the Assessing Officer was just carried away by press reports and though letters were issued to the Bank Manager, State Bank of India, Bombay and Jaipur for furnishing the copies of NRE
6 accounts of Dr. D.P. Parwal, no efforts were made by the Assessing Officer to obtain the details before completion of the assessment proceeding, which were going to be time barred. So, there is no lapse on the part of the assessee and otherwise, Dr. D.P. Parwal is a qualified medical practitioner and is an authority in the precious stones as he has been in the business for the past 30 years ever since he settled in Hongkong as a permanent citizen. So, there cannot be any doubt about the donor, his financial capacity has also been established, therefore, the Assessing Officer was not justified in treating the gift as unexplained and the ld. CIT(A) considering all these aspects and material on record has came to a proper conclusion. Therefore, his action should be confirmed and alternatively, she pleaded in case this Bench is of the view that the Assessing Officer has not made proper enquiry by obtaining details from the concerned banks before completion of the assessment proceeding, which were getting time barred by 31.03.1999, matter may be set aside on the file of the Assessing Officer for doing the needful and passing fresh order. 7. The ld. DR in order to counter the submissions of the ld. Counsel for the assessee, has pleaded that the assessee has miserably failed to establish the genuineness of the donor as well as financial capacity to gift such an huge amount of `.8.00 lakhs when total gifts made by the same donor to the assessee and their family members of the assessee amount to `.1.07 crores and the main plea of the assessee s counsel that gift amount has come through banking channel and person giving the gift is identifiable, it cannot be sufficient to hold that the gift to be genuine if capacity to give the amount in gift and other relevant details of the donor are not produced despite having been given sufficient opportunity to the assessee. It was thus pleaded for setting aside the order of the ld. CIT(A) and restoring that of the Assessing Officer because, the
7 assessee has not been able to establish the genuineness of the gift or capacity of the donor to make such gift of `. 8.00 lakhs to the assessee. 8. We have heard both the sides, considered the material on record as well as precedents relied upon by the ld. CIT(A) and Assessing Officer. It is not in dispute that gift of `.8.00 lakh was stated to have been made in favour of the assessee through a cheque dated 05.08.1994 for `.8.00 lakhs issued through NRI account No. 3317 of Dr. D.P. Parwal maintained at State Bank of India NRI Branch, Bombay and except filing photocopy of the letter of the donor, photocopy of the letter issued by the Branch Manager, SBI, NRI Branch by debiting the NRI account of Dr. D.P. Parwal maintained in the Bank and copy of the gifted cheque, no other documentary evidence such as income tax assessment order relevant pages from the passport of the Dr. D.P. Parwal indicating the details of arrival and departure date out of India and no other evidence or material has been produced to establish the financial capacity of the donor to make gift of `.8.00 lakhs to the assessee and the Assessing Officer taking into account these facts has came to the conclusion that the assessee has not been able to either prove the genuinety of the gift nor financial capacity of the so called donor and the ld. CIT(A) has just accepted the plea of the assessee to delete the addition. Now it has to be seen whether the action of the ld. CIT(A) can, in view of the facts, circumstances and material on record, be held to be proper or order of the Assessing Officer is to be restored by setting aside the order of the ld. CIT(A). 8.1 The ld. Counsel for the assessee, the main stress laid on the point that the amount has been routed through banking channel and it is in such donor s NRI account where gift amount has been debited, therefore addition could not be made. Whereas, the Department s plea is that even if the amount of gift having been routed through
8 banking channel, it cannot be sufficient to hold that the transaction is genuine and the addition cannot be deleted in the absence of any other corroborative material such as establishing financial capacity of the donor, occasion on which gift was made and relationship between the donor and donee. The Hon ble Supreme Court in the case of CIT v. P. Mohanakala [2007] 291 ITR 278 (SC) while dealing with similar type of situation has held in favour of the Department while reversing the decision of Hon ble Madras High Court in the case of A. Rajendran and Others v. Assistant Commissioner of Income Tax [2007] 291 ITR 178 (Mad). The relevant held portion is reproduced hereunder: A bare reading of section 68 of the Income-tax Act, 1961, suggests that (i) there has to be credit of amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during the previous year; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression the assessee offers no explanation means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion. In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances
9 available on record do not justify the sum found credited in the books being treated as a receipt of income nature. The assessees received foreign gifts from common donor. The payments were made to them by instruments issued by foreign banks and credited to the respective account of the assessees by negotiation through a bank in India. Most of the cheques sent from abroad were drawn on the Citibank, N. A. Singapore. The evidence indicated that the donor was to receive suitable compensation from the assessees. On this material the Assessing Officer held that the gifts though apparent were not real and accordingly treated all those amounts which were credited in the account books of the assessees as their income applying section 68 of the Incometax Act, 1961. The assessees did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The Commissioner (Appeals) confirmed the assessment. On further appeal, there was a difference of opinion between the two Members of the Appellate Tribunal and the matter was referred to the Vice President who concurred with the findings and conclusions of the Assessing Officer and the Commissioner (Appeals). On appeal the High Court re-appreciated the evidence and substituted its own findings and came to the conclusion that the reasons assigned by the Tribunal were in the realm of surmises, conjecture and suspicion. On appeal to the Supreme Court: Held, reversing the decision of the High Court, that the findings of the Assessing Officer, the Commissioner (Appeals) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process of banking transaction was not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact. 8.2 While relying upon the case of Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) (125 CTR 124), the Hon ble Punjab and Haryana High Court in the case of Tirath Ram Gupta v. CIT [2008] 304 ITR 145 has dealt with similar type of situation and while following the earlier view in the case of Subhash Chander Sekhri v. Dy. Commissioner of Income Tax [2007] ITR 300 (P&H) and discussing 82 ITR 540 (SC) [in the case of CIT v. Durga Prasad More], [1981] 22 CTR P&H 135 (in the case of Lall Chand Kalra v.
10 CIT) & [2003] 264 ITR 435 (Delhi) (in the case of Sajan Dass and Sons v. CIT) has opined as under: A gift cannot be accepted as such to be genuine, merely because the amount has come by way of cheque or draft through banking channels, unless the identity of the donor, his creditworthiness, relationship with the donee and the occasion are proved. Unless the receipt has proved the genuineness thereof, the gift can very well be treated to be an accommodation entry of the assessee s own money, which is not disclosed for the purpose of taxation. The assessee had shown a foreign gift of `.1lakh from one D. The Assessing Officer found that the gift was not genuine as the assessee was not able to explain the foreign gift and relationship with the donor. The Commissioner of Income-tax (Appeals) reversed the view taken by the Assessing Officer but the Tribunal set aside the order of the Commissioner and held that the gift was not genuine. On appeal: Held accordingly, dismissing the appeal, that there was no occasion for the alleged donor to have gifted a huge amount of money to the assessee and his family. The donor was working as a watchman in a foreign country and his gift of `.1 lakh each to the assessee, two sons and two other family members was highly improbable. The assessee could not establish the relationship with the donor. The Tribunal on a consideration of the facts had come to the conclusion that the gift received by the assessee was not genuine. The view taken by the Tribunal was the only possible view in the facts and evidence on record. 8.3 Having considered the facts, circumstances and material on record, it is found that neither the assessee has been able to assert nor establish that there was any occasion for making a gift nor he could show relationship or close proximity of the so called donor with the donee and moreover, no material or evidence has been produced either before the lower authorities or before this Bench to show that either the said donee is a income tax assessee and he has financial capacity to gift such amount to the assessee. Therefore, while considering the ratio of the Hon ble Supreme Court s decision and Hon ble Punjab & Haryana High Court s decision as reproduced above
11 and in view of the facts and circumstances, we hold that the assessee has not been able to establish either the genuineness of the transaction or the financial capacity by placing financial earnings/accruals and details of the so called donor to gift the amount of `.8.00 lakh and there was neither any occasion to make the gift nor relationship between the donor and donee has either been shown or established, as such the Assessing Officer is found to be justified in making the addition and the ld. CIT(A) is found to have just deleted the addition without proper basis and material. As such, while accepting the appeal of the Revenue, we reverse the order of the ld. CIT(A) and restore that of the Assessing Officer. 9. In the result, the appeal of the Department gets accepted. Order pronounced on 10.02.2011. Sd/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER Chennai, Dated, the. 10.02.2011 Sd/- (U.B.S. BEDI) JUDICIAL MEMBER Vm/- To:The assessee//a.o./cit(a)/cit/d.r.