2010 (10) TMI 905 - AT - Income Tax

Undisclosed income - Third member appointment - difference between the ld' JM and the ld' AM - Addition u/s 68 - Unexplained cash credits u/s 68 - genuineness of the gift not proved - Id. J.M. deleted the addition made u/s 68 while ld. A.M. as opinied that the additions in question have been correctly made by the Assessing Officer and rightly confirmed by the ld. CIT(A) - Whether the lower authorities were justified in considering the amount claimed to have been received as gift by the respective assessees as their income from undisclosed sources? - HELD THAT - Admittedly, the assessee maintains no books of account and that is why the Assessing Officer in his assessment order has also written against the method of account as No A/cs . It is an established position that existence of books of account maintained by the assessee is a condition precedent for addition under section 68. In the case of the assessee, no such books having been maintained, there is no legal scope to intervene provisions of section 68 and as such, in my opinion, the ld. J.M. has rightly deleted the addition made on such premise. For arriving at the conclusion that the gift was not genuine and the same was undisclosed income of the assessee, the department ought to have brought on record evidence for such specific finding. Here in this case the department could not bring on record any evidence except alleging on presumption and suspicion that the gifts were bogus and represented assessee s undisclosed income. In these circumstances, this observation of the department, which was acceded to by the ld. A.M., without any conclusive material cannot lead to the inference that the amount was not gift but undisclosed income of the assessee. Reliance in this regard is placed on the decision of Hon ble Supreme Court in the case of Bedi Co. (P.) Ltd. 1998 (2) TMI 2 - SUPREME COURT and decision of Currency Investment Co. Ltd. 1999 (6) TMI 12 - CALCUTTA HIGH COURT wherein it has been held that when the assessee has disclosed the identity of the parties from whom it purchased shares and to whom it sold the shares, genuineness of the transaction cannot be denied merely because the assessee could not produce the brokers through whom the share were sold. One of the reasons the ld. A.M. took for endorsing the action of the revenue authorities was that summons issued were not complied and neither the parties appeared for examination before the Assessing Officer, nor were they produced by the assessee. The ITAT, Gauhati Bench in the case of India Tyre House 2001 (6) TMI 178 - ITAT GAUHATI has held that the assessee cannot be asked to do something which is beyond its control; assessee has got no legal power to enforce the attendance of his creditors before the Assessing Officer and as such addition on the ground that he had not produced creditors cannot be sustained. Assessee has furnished the copies of Acknowledgement of IT returns for assessment year 2002-03 of all the donors along with challans evidencing payments of tax, computation of income, balance sheet, declaration confirming the gift, etc., in support of her getting the gifts from the respective donors, which are already on record - It is also not disputed that all the donors have filed their returns of income for assessment year 2002-03 and paid taxes accordingly. It is stated at the bar by the learned counsel for the assessee that no proceedings in regard to these returns have been initiated by the department and, therefore, the same are to be considered as accepted in terms of section 143(1) Thus the lower authorities were not justified in stating that the gifts were undisclosed income of the assessee, which was acceded to by ld. A.M. Third member as concurred with the proposed order of ld. J.M. on the common question referred to him. In view of the above, as per majority view, the appeals of the assessees on the issue referred to the ld. Third Member stand allowed

Issues Involved:
1. Addition of undisclosed income under Section 68.
2. Validity of invoking Section 68 in the absence of books of account.
3. Capacity and genuineness of the donors.
4. Compliance with summons under Section 131.
5. Evaluation of evidence and application of judicial precedents.

Issue-wise Detailed Analysis:

1. Addition of Undisclosed Income under Section 68:
The Assessing Officer (AO) added Rs. 9,33,000 and Rs. 8,00,000 as undisclosed income for the respective assessees, treating the gifts as non-genuine. The AO relied on the decision in Sumati Dayal v. CIT, asserting that the substantial gifts from third parties without any occasion and the donors' inadequate income to support such gifts indicated the gifts were not genuine. The CIT(A) upheld the AO's decision, emphasizing the low income and non-taxable status of the donors, thus confirming the addition.

2. Validity of Invoking Section 68 in the Absence of Books of Account:
The assessee argued that Section 68 could not be invoked as no books of account were maintained. The AO's assessment order also indicated "No A/c." The Judicial Member (JM) supported this view, relying on the jurisdictional High Court's decision in Anand Ram Raitani v. CIT, which held that the existence of books of account is a prerequisite for invoking Section 68. The Accountant Member (AM) disagreed, stating that the gifts could not be accepted merely based on the donors' returns showing income below the taxable limit.

3. Capacity and Genuineness of the Donors:
The assessee provided PAN, bank details, financial statements, and affidavits to substantiate the gifts. The JM concluded that the identity, transaction, and capacity were proven, and the AO did not provide reasonable material to falsify the claim. The AM, however, emphasized that the donors' low income and the timing of cash deposits before issuing cheques raised doubts about the genuineness and capacity of the donors. The AM relied on the decision in Sajan Dass & Sons v. CIT, which required proving not only the identity but also the capacity to make a gift.

4. Compliance with Summons under Section 131:
The AO issued summons under Section 131, which were not complied with. The JM noted that the non-compliance did not automatically invalidate the gifts, especially since the assessee provided substantial documentary evidence. The AM argued that the non-compliance with summons was a significant factor in doubting the genuineness of the gifts.

5. Evaluation of Evidence and Application of Judicial Precedents:
The JM relied on various judicial precedents, including Orissa Corpn. (P.) Ltd. v. CIT and Nemi Chand Kothari v. CIT, to support the assessee's claim. The AM distinguished these cases, stating they were not applicable to the present facts. The AM also referred to the Third Member decision in Ashok Kumar Narwania v. ITO, which emphasized the need to prove the donors' capacity and the genuineness of the transaction.

Separate Judgments by Judges:
The JM concluded that the assessee had proven the genuineness of the gifts based on the provided evidence and judicial precedents. The AM disagreed, stating that the gifts were not genuine due to the donors' low income and the suspicious timing of cash deposits. The Third Member concurred with the JM, emphasizing that Section 68 could not be invoked without books of account and that the assessee had provided sufficient evidence to substantiate the gifts.

Final Decision:
As per the majority view, the appeals of the assessees were allowed, and the additions made by the AO were deleted. The decision emphasized the need for books of account to invoke Section 68 and recognized the substantial evidence provided by the assessees to prove the genuineness of the gifts.

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