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2007 (3) TMI 659 - AT - Income TaxAdditions made u/s 68 - Gifts received from three different persons - creditworthiness and genuineness of gifts - income from dealing in zarda and cigarettes - HELD THAT - In all the three cases, money is deposited in cash in their bank account. It is deposited only on the same day when cheques/drafts are issued. All the gifts are taken on the same day as if there was some programme or function on the date of the gift at the premises of the assessee. All the three persons are of humble means. If the donors had any real savings they could have utilised it for the welfare of their own family or to augment their income. It is not expected from the persons having practically no capital left to part away their precious money to a person who is already very rich as compared to the donors. Thus, we cull out the following relevant factors in the case of the three gifts (1) There is no relationship between the donors and donee. The donors are strangers to the assessee. No evidence is filed as to how they are known to each other. Only in one case, the assessee is stated to be maternal aunt of the donor and a distant relation. (2) There is no occasion for making gifts. (3) There is no evidence that there was any love and affection or friendship between the donors and donee so that it could motivate the person to gift practically his entire capital, like precious money received as retirement benefit of the husband. (4) There is no evidence that there was any business transaction between the donors and the assessee as it is not believable that a stranger would part away his lifetime savings by giving gifts to unknown person sacrificing his chances of improving his living conditions with that money. (5) Most of the donors had given gifts of their entire capital. (6) All the persons had meagre withdrawals to support their large family. They had very nominal income. None of them are assessed to tax whereas donee has turnover of Rs. 2 crores and more. Thus gifts are flowing from persons of humble means to the rich assessee. (7) There is no evidence that the assessee or his family has given gifts to the members of the donor s family at any time. The entire transaction of gifts is apparently unusual as behaviour of the donors is queer. (8) In one case, friendship is claimed. In another case, a relationship is claimed. According to us, it is only an alibi to show a motive for giving gift. It could happen only in the income-tax world where capital and source of income of persons of humble means are transferred to rich persons with multiple source of income. The flight of capital from rags to riches in the form of such gifts can happen only to save income-tax. There is nothing in these transactions to inspire confidence about their genuineness. The gifts are undoubtedly bogus. The hon ble Supreme Court in Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. 1985 (8) TMI 272 - SUPREME COURT . A credit could not be held to be satisfactorily explained if depositor did not have resources to make deposits. Our view is supported by the decision of the hon ble Kerala High Court in ITO v. Diza Holdings (P.) Ltd. 2001 (11) TMI 52 - KERALA HIGH COURT . The mere fact that the transactions were through bank is not conclusive. Further, where the Assessing Officer is satisfied that the creditor is not telling the truth, the onus is shifted back to the assessee. It is not for the Assessing Officer to find out the exact source of the money belonging to any other person. It is for that person to prove such source. Though the individual factors, like relationship, occasion, non-giving gifts by the donors to the kiths and kins or by the donors to the kiths and kins, donee not giving any help to the donors at any time or the donors are men of petty means may not carry enough weight individually but when they are put together and viewed as a whole then one discovers the reality. Picture that emerges is that it is only a make-belief affair. All these factors put together leave no doubt in our mind that it is a fit case where form has to be ignored and one has to go into the substance of the whole transaction. The substance is that the gifts are not genuine but it is the unaccounted money of the assessee, which has flown in the form of the gifts. As the assessee is the beneficiary of this money, it is safely inferred that it was her unaccounted money which has come back to her in the form of gifts to inflate the capital without paying taxes. As a result, we uphold the order of the ld CIT (A) and hold that the gifts are not genuine and that creditworthiness of the donors is not proved and therefore, additions have to be made u/s 68 of the Act. The appeal filed by the assessee is, therefore, dismissed.
Issues Involved:
1. Legitimacy of gifts received by the assessee from three individuals. 2. Applicability of Section 69 versus Section 68 for additions. 3. Creditworthiness and genuineness of the donors. 4. Legal precedents and their applicability to the case. Detailed Analysis: 1. Legitimacy of Gifts Received by the Assessee: The assessee, engaged in wholesale trading of zarda and cigarettes, reported receiving gifts from three individuals: Smt. Sharda Devi (Rs. 2,00,000), Sri Deonath Mishra (Rs. 50,000), and Sri Janardan Prasad Chaurasia (Rs. 2,50,000). The Assessing Officer (AO) scrutinized these gifts and found inconsistencies. For instance, Smt. Sharda Devi deposited Rs. 80,000 in cash on the same day she issued a cheque for Rs. 2,00,000 as a gift. Similar patterns were observed for the other two donors, leading the AO to conclude that the funds were actually the assessee's own money, thus making additions under Section 69. 2. Applicability of Section 69 versus Section 68 for Additions: The assessee argued that since they maintained proper books of account, Section 69 (unexplained investments) was not applicable, and the AO should have invoked Section 68 (unexplained cash credits). The Commissioner of Income-tax (Appeals) (CIT(A)) considered the additions under Section 68, examining the identity, creditworthiness, and genuineness of the gifts. The Tribunal upheld that the CIT(A) had the authority to consider the addition under Section 68, even though the AO had invoked Section 69, supported by Section 292B, which allows rectification of procedural errors. 3. Creditworthiness and Genuineness of the Donors: - Smt. Sharda Devi: A widow with a meager pension, who deposited Rs. 80,000 in cash before gifting Rs. 2,00,000. The CIT(A) found it implausible that she would part with her pensionary benefits to a wealthy assessee. - Sri Deonath Mishra: A police constable with a large family, who deposited Rs. 50,000 in cash before issuing a gift cheque. The CIT(A) found no credible evidence of his capacity to make such a gift. - Sri Janardan Prasad Chaurasia: A retired havildar with a pension of Rs. 3,750, who deposited Rs. 2,50,000 in cash before gifting the same amount. The CIT(A) found no plausible explanation for the source of this cash. The Tribunal noted that all three donors were of humble means, and the transactions were unusual and against human probabilities. The gifts appeared to be a conduit for the assessee's unaccounted money. 4. Legal Precedents and Their Applicability: The assessee cited various cases to argue that the AO should not question the source of the source once the identity and transaction through banking channels were established. However, the Tribunal distinguished these cases, noting that in the present case, the donors lacked the financial capacity to make such gifts. The Department cited cases such as Sajan Dass and Sons v. CIT and Ram Lal Agrawal v. CIT, which supported the view that mere identification and banking channels are insufficient if the creditworthiness is not established. The Tribunal agreed that tax authorities are entitled to look into the surrounding circumstances to ascertain the true nature of transactions. Conclusion: The Tribunal upheld the CIT(A)'s order, confirming that the gifts were not genuine and the creditworthiness of the donors was not proven. The additions were justified under Section 68, and the appeal filed by the assessee was dismissed. The judgment emphasized the importance of evaluating the substance over the form of transactions, especially when dealing with potential tax evasion schemes.
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