2007 (3) TMI 223 - HC - Income Tax

Addition u/s 68 - Gifts received - Failure to discharge onus of proving the credit-worthiness - Tribunal deleted the addition on account of gifts alleged to have been received - HELD THAT - There is nothing on record to show as to what was the financial capacity of the donors; what was the credit-worthiness of the donors; what kind of relationship the donors had with the assessee; what are the sources of funds gifted to the assessee and whether they had the capacity of giving large amount of gift to the assessee. Further, the assessee was asked to appear in person before the Assessing Officer, however, he never appeared. Since, the assessee did not prove the genuineness of the transaction nor he established the identity of the donor, nor the capacity of donor to make gift, as such the Income-tax Appellate Tribunal was wrong in deleting the addition on account of gift alleged to have been received by the assessee. Accordingly, the present appeal filed by the Revenue is accepted and the impugned order passed by the Income-tax Appellate Tribunal is set aside. The substantial question of law is answered in the negative, in favour of the Revenue and against the assessee.

Summary

Issues Involved:
- Appeal under section 260A of the Income-tax Act against the order dated September 23, 2005 for the assessment year 1995-96.
- Whether the Income-tax Appellate Tribunal was correct in law in upholding the order of the Commissioner of Income-tax (Appeals) deleting the addition of Rs. 20 lakhs on account of gifts alleged to have been received by the assessee.

Analysis:
1. The appeal was filed by the Revenue challenging the order passed in I. T. A. No. 2468/Delhi/2002 for the assessment year 1995-96 under section 260A of the Income-tax Act. The substantial question of law framed was regarding the correctness of upholding the deletion of the addition of Rs. 20 lakhs on account of alleged gifts received by the assessee.

2. The case involved the assessment of the assessee's income for the year 1995-96. The Commissioner of Income-tax (Central-2), New Delhi set aside the original assessment directing a re-examination of the gifts received by the assessee. The Assessing Officer subsequently completed the assessment under section 144 of the Act, adding Rs. 20 lakhs to the assessee's income as the gifts were not adequately substantiated.

3. The Commissioner of Income-tax (Appeals) later held that the gifts were genuine and deleted the addition made by the Assessing Officer. The Revenue, dissatisfied with this decision, appealed to the Income-tax Appellate Tribunal, where the appeal was dismissed.

4. The arguments presented by the Revenue focused on the failure of the assessee to establish the financial capacity and credit-worthiness of the donors, as well as the lack of natural love and affection between the donors and the assessee. The Revenue cited relevant case law to support its position.

5. Conversely, the assessee's counsel argued that the gifts were duly declared and supported by evidence such as gift deeds, affidavits, passport copies, and bank certificates. Citing relevant case law, the assessee's counsel contended that the onus lay on the assessee to establish the identity and capacity of the donors, which was adequately done in this case.

6. The High Court analyzed previous judgments emphasizing the importance of establishing the genuineness of gifts by proving the identity and capacity of the donors. In the absence of sufficient evidence regarding the financial capacity, credit-worthiness, and relationship between the donors and the assessee, the Tribunal's decision to delete the addition of Rs. 20 lakhs was deemed incorrect.

7. Consequently, the High Court accepted the appeal filed by the Revenue, setting aside the Tribunal's order. The substantial question of law was answered in favor of the Revenue and against the assessee, highlighting the importance of establishing the genuineness and capacity of donors in cases involving substantial gifts.