2008 (7) TMI 615 - AT - Income Tax

Unexplained moneys - Genuineness of the gift transaction u/s 68 - Disallowance of interest paid on unsecured loan - HELD THAT - The donor did not come forward before the Assessing Officer to state why he parted with a huge amount by gifting the same to the assessee with whom he could be having business relation and except that he was a complete stranger in the sense that the donee was not related to him for giving such huge amounts as gift out of love and affection. The donor further did not prove his creditworthiness, as mere filing of return for assessment year 1998-99 and balance sheet for assessment year 2001-02, not accompanied by the return for that assessment year, in no way established the financial capacity of the donor to justify the gift of huge amount paid in instalments to the assessee out of love and affection. It is also cardinal principle of the evidence that, in case the documents filed on record in evidence by a party are either challenged by the other party or by the authority before whom these are tendered as evidence, the party should produce the author of the documents for examination and for proving the authenticity of those documents. On the contrary in the instant case neither the assessee himself produced the donor before the Assessing Officer to prove the documents nor produced the donor for examination despite specifically been asked by the Assessing Officer to produce the donor for examination so that the Assessing Officer could examine the genuineness of the gift as well as the creditworthiness of the donor. Hence, in our opinion, we hold that in the instant case the assessee failed in establishing the creditworthiness of the donor and genuineness of the gift transaction so the CIT(A) was not justified in deleting the impugned addition by treating the gifts received by the assessee to have been satisfactorily explained. Thus, the Assessing Officer had rightly treated the impugned gift amounts as non-genuine and bogus and the amounts received by the assessee in gift as assessee s income from undisclosed sources representing assessee s own money introduced in the garb of gift. Consequently, the findings of CIT(A) in this regard are reversed and the order of the Assessing Officer in this regard is upheld. Thus, we find support from the case of CIT v. K. Chinnathamban 2007 (7) TMI 204 - SUPREME COURT , wherein the deposits found recorded in the bank accounts were not satisfactorily explained by the assessee, the same were held to be rightly brought to tax by the tax authorities below as deemed income of the assessee under section 69A of the Income-tax Act, 1961. Hence, the alleged gift amount received by the assessee found deposited in the bank account of the assessee can be treated as deemed income of the assessee u/s 69A of the Income-tax Act, 1961 because we have already held that the assessee failed in proving that the amount received by the assessee was a genuine gift. For the reasons stated above, the order of CIT(A) in deleting the impugned addition is set aside and the order of the Assessing Officer in treating the impugned gift amounts as non-genuine gift transactions and consequently treating the same as undisclosed income of the assessees is upheld, however, we add that the impugned additions are to be made u/s 69A of the Income-tax Act, 1961 and not under section 68 of the Act as held by the Assessing Officer. In consequence of our findings, the Ground Nos. 1 to 3 of the appeal taken by the revenue pertaining to addition made on account of unexplained gift amount are allowed. Interest payment on unsecured loan - We are of the opinion that once the finding of fact recorded by the CIT(A), that there is no nexus between the loan taken and friendly interest-free advances given by the assessee, remained un-controverted the CIT(A) was fully justified in deleting the impugned disallowance. The order of CIT(A) in this regard is upheld and Ground No. 4 of the appeal of the revenue is rejected. In the result, the appeal filed by the revenue is partly allowed.

Summary

Issues Involved:
1. Addition of Rs. 11 lakhs as unexplained gift u/s 68 of the Income-tax Act, 1961.
2. Relief of Rs. 54,905 on account of interest paid by the assessee to Smt. Anju Agarwal.

Summary:

Issue 1: Addition of Rs. 11 lakhs as unexplained gift u/s 68 of the Income-tax Act, 1961

The revenue appealed against the deletion of an addition of Rs. 11 lakhs made by the Assessing Officer (AO) u/s 68 of the Income-tax Act, 1961, on account of unexplained gifts received by the assessee. The AO doubted the genuineness of the gift, suspecting it to be the assessee's own funds channeled through the donor, Shri R.K. Chaudhary. The CIT(A) deleted the addition, noting that the identity, capacity, and mode of transaction were adequately explained by the assessee through bank statements and balance sheets.

Upon appeal, the Tribunal examined the case law and principles surrounding the genuineness of gift transactions, emphasizing the need to consider human probabilities, the relationship between donor and donee, and the financial capacity of the donor. The Tribunal found that the assessee failed to establish the creditworthiness of the donor and the genuineness of the gift transaction. The Tribunal concluded that the AO was justified in treating the gift as non-genuine and adding it as the assessee's income from undisclosed sources. However, the Tribunal held that the addition should be made u/s 69A of the Income-tax Act, 1961, rather than u/s 68, as the amount was credited in the bank account and not in the books of account.

Issue 2: Relief of Rs. 54,905 on account of interest paid by the assessee to Smt. Anju Agarwal

The revenue contested the CIT(A)'s decision to allow relief of Rs. 54,905, which was disallowed by the AO on the grounds that the assessee had given interest-free loans to others while paying interest on a loan from his wife, Smt. Anju Agarwal. The CIT(A) found no nexus between the loan taken from Smt. Anju Agarwal and the interest-free loans given to others, as the loans were taken and given in different years.

The Tribunal upheld the CIT(A)'s decision, noting that the revenue failed to controvert the specific findings of fact recorded by the CIT(A). The Tribunal found that the CIT(A) was justified in deleting the disallowance of interest.

Conclusion:

The appeal filed by the revenue was partly allowed. The addition of Rs. 11 lakhs was upheld but modified to be added u/s 69A instead of u/s 68. The relief of Rs. 54,905 on account of interest paid was upheld.