2003 (9) TMI 28 - HC - Income Tax

Question that is Whether, Tribunal was right in law in deciding the deletion of the gifts of two lakhs US dollars each received by the assessees through their father on protective basis in their hands and simultaneously deleting the addition made on substantive basis in the hands of their father because the financial capability of the donor has not been proved at any stage, either at the assessment stage or at the appellate stage.? is the question of law

Issues Involved:
1. Genuineness of the gifts.
2. Financial capability of the donors.
3. Onus of proof regarding the gifts.
4. Application of Section 69A of the Income-tax Act.
5. Protective assessment in the hands of the daughters.

Issue-wise Detailed Analysis:

1. Genuineness of the Gifts:
The Revenue alleged that the gifts of $200,000 each made by two donors to the assessee's daughters were bogus, representing the concealed income of the assessee. The Tribunal had accepted the assessee's claim, but the Revenue contended that the donors did not have the financial capability to make such gifts. The High Court noted that the gifts were made through bank drafts with consecutive numbers, issued by the same bank on the same day, which raised suspicion. The donors were not related to the donees and had no substantial relationship with the assessee. The court found no evidence of a close friendship or any substantial reason for the donors to make such large gifts. The court concluded that the gifts were not genuine.

2. Financial Capability of the Donors:
The court examined the financial status of the donors. Mr. O.S. Gill claimed to be drawing an annual salary of 120,000 pounds but failed to provide any bank account details or evidence of his financial capability. Mr. B.P. Bhardwaj did not appear before the Income-tax Officer, and the Inland Revenue's report indicated that the funds for the gift were provided by another individual, Mr. Varinder Sharma. The court found no evidence to support the financial capability of the donors to make such substantial gifts.

3. Onus of Proof Regarding the Gifts:
The court held that the assessee did not discharge the onus of proving the genuineness of the gifts. The evidence provided, including the statements of the donors and the Inland Revenue reports, was insufficient to establish that the gifts were made out of love, affection, or regard. The court emphasized that the onus was on the assessee to prove the validity of the gifts, which was not met.

4. Application of Section 69A of the Income-tax Act:
The court addressed whether the amounts gifted could be deemed as the assessee's income under Section 69A. Given the lack of evidence supporting the financial capability of the donors and the absence of any substantial relationship justifying the gifts, the court inferred that the funds were provided by the assessee. The court held that the amounts should be treated as the assessee's concealed income.

5. Protective Assessment in the Hands of the Daughters:
The Revenue had made a protective assessment of the gifted amounts in the hands of the assessee's daughters. The court noted that the protective assessment was made cautiously to protect the financial interest of the State. The court found no error in this approach, given the circumstances and the lack of evidence supporting the genuineness of the gifts.

Conclusion:
The High Court concluded that the gifts were not genuine, the financial capability of the donors was not established, and the assessee failed to discharge the onus of proving the validity of the gifts. Consequently, the amounts were deemed as the assessee's concealed income under Section 69A, and the protective assessment in the hands of the daughters was upheld. The appeals filed by the Revenue were allowed, and the questions of law were answered in favor of the Revenue.

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