2009 (9) TMI 676 - AT - Income Tax

Unexplained investments in immoveable properties - search and seizure operations u/s 132 - as per AO annual rent yield on this property was very high as compared to the normal return of investment, accordingly applying the rent capitalization method, the AO has arrived at the fair market value - CIT(A) held that in his opinion the valuation of the property can reasonably be taken at a rate which was higher than the value disclosed by the assessee. Accordingly, part relief was given by the CIT(A). HELD THAT - In view of the fact that no material was found indicating anything paid over and above the registered sale price of the property so acquired, keeping in view of the decision of Hon ble Supreme Court in the celebrated judgment of K.P. Varghese s case 1981 (9) TMI 1 - SUPREME COURT wherein it was held that onus lies on the department to prove that some consideration over and above the consideration stated in the sale deed have been invested, no addition can be made on presumptions and suspicions. In the latest case of CIT v. Smt. Shakuntala Devi 2009 (3) TMI 5 - DELHI HIGH COURT , Hon ble Delhi High Court held it may be relevant to note that a Division Bench of the court comprising Dr. Arijit Prasayath and Justice D.K. Jain, as their Lordships then were retreated that there must be a finding of the revenue that the assessee had received amounts over and above the consideration stated in the sale deed, following the ratio of K.P. Varghese s case (supra). The Division Bench of Hon ble Delhi High Court in CIT v. Ashok Khetrapal 2007 (7) TMI 36 - HIGH COURT , DELHI observed that by referring to the report of valuation officer in the absence of any incriminating documents found in the course of a search no addition could be made by treating investment as undisclosed on the basis of any DVO s report. Hence, we do not find any merit in the addition made by AO under the head Unexplained investment on account of various properties purchased by the assessee during the block period on the basis of fair market value as estimated by the AO. All these additions are directed to be deleted. Addition made on account of gifts received by them and their children - HELD THAT - Gifts usually flow from close blood relations and childhood friends. That too only on an important occasions. Mostly these gifts are prevalent among relations and they are reciprocal in nature. Most of these gifts are in kind and cash gifts do exists but they are in small denomination. Seldom we see huge sums of lakh of rupees as gifts especially to minors. In this case the appellant has clarified that he has not given gifts to any of these persons earlier or in subsequent period. Hence the concept of reciprocation is totally lacking in the instant case. Mere fact that the amounts were routed through bank account does not ipso facto proves the credibility of the donors beyond doubt. To give lakh of rupees as gifts to neighbours the person should have been worth crores of rupees having income of substantial nature. No such confirmations are forthcoming to establish the financial soundness of these two donors. Neither the donors given gifts to others nor the assessee received gifts from other close relations. It only fructifies the belief that the gifts are nothing but assessee s own income which are ploughed back as gifts through other persons. By referring to the various decisions in Smt. Naushaba Rana v. Asstt. CIT 2007 (1) TMI 208 - ITAT DELHI-C , Gurbachan Singh Jaggi v. CIT 2007 (9) TMI 632 - PUNJAB AND HARYANA HIGH COURT , Chain Sukh Rathi v. CIT 2003 (9) TMI 12 - RAJASTHAN HIGH COURT and CIT v. Anil Kumar 2007 (3) TMI 223 - DELHI HIGH COURT , the authorities below come to the conclusion that gifts are nothing but assessee s own money received back under the guise of gifts from unknown persons. Unless occasion and relationship is established, the gifts cannot be held as genuine. From the perusal of family details it can be seen that a number of close relations are available but none of them had gifted any sums to the assessee. However, assessee could receive substantial amounts as gifts from a remotely connected persons. Assessee also could not confirm to the fact that he knew the donors intimately. This type of one-sided gifts of substantial amounts not associated with any occasion from relatively unknown persons in successive years defies any amount of logic. the whole transaction is designed to show huge amounts as gifts without any liability of paying taxes. The findings so recorded by the lower authorities could not be controverted by the learned AR by bringing any material, much less a cogent material so as to persuade us to deviate from the alleged finding. We therefore do not find any reason to interfere in the order of the lower authorities in respect of the addition made on account of bogus gifts. In the result, the grounds taken by all the assessees with regard to gifts in various years, are being dismissed. Charging of interest u/s 234B - it was held by the Co-ordinate Bench in the case of Dinesh Jain belonging to the same group of assessee s vide order, that interest u/s 234B is to be calculated from the date of order u/s 143(1) or 153A whichever is later. Respectfully following the decision referred, we direct the AO to recompute the interest u/s 234B as directed hereinabove. In the result, all the appeals of the assessee and, revenue, are allowed in part, in terms indicated hereinabove.

Summary

Issues Involved:
1. Unexplained investment in properties.
2. Addition on account of gifts received.
3. Charging of interest under section 234B.

Issue-wise Detailed Analysis:

1. Unexplained Investment in Properties:

Search and seizure operations under section 132 of the Income-tax Act were conducted, during which various documents were found indicating the assessee and his minor children received gifts and made investments in properties. The Assessing Officer (AO) observed that the rental income from these properties was disproportionately high compared to the investment shown, suggesting suppressed documented investment. The AO applied provisions of Rule 3 of Part (b) of the 3rd Schedule to the Wealth-tax Rules to determine the fair market value and made additions based on the difference between this value and the documented investment. The assessee contended that all properties were supported by proper conveyance deeds and that no incriminating material was found during the search to indicate understated investments. The CIT(A) provided partial relief, agreeing that the valuation depends on market factors and cannot solely rely on stamp duty valuation. The Tribunal found no merit in the AO's additions, citing the Supreme Court's decision in K.P. Varghese v. ITO, which places the onus on the department to prove any consideration over and above the sale deed. The Tribunal directed the deletion of all additions made under 'Unexplained investment'.

2. Addition on Account of Gifts Received:

The AO made additions based on gifts received by the assessee and his children from two donors, Naresh Jain and Anil Jain, who were neighbors without any close relationship. The AO recorded the donors' statements and examined their financial capacity, concluding that the gifts were not genuine and were instead the assessee's own income. The CIT(A) upheld this view, emphasizing that genuine gifts usually flow from close relations and are associated with occasions. The Tribunal agreed with the lower authorities, noting that the donors lacked the financial capacity to give such large sums and that the transactions were designed to avoid tax liability. The Tribunal dismissed the assessee's appeals regarding the addition on account of bogus gifts.

3. Charging of Interest under Section 234B:

The Tribunal upheld the CIT(A)'s decision that interest under section 234B should be calculated from the date of the order under section 143(1) or 153A, whichever is later. This was in line with the Co-ordinate Bench's decision in the case of Dinesh Jain and the ITAT Hyderabad Bench's decision in Srinivasa Resorts Ltd. The Tribunal directed the AO to recompute the interest accordingly.

Conclusion:

All the appeals of the assessee and revenue were allowed in part. Additions made under 'Unexplained investment' were deleted, additions on account of bogus gifts were upheld, and the method for calculating interest under section 234B was confirmed.