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2008 (5) TMI 641 - HC - Income TaxAdditions in the income u/s 68 - transferable bonds gifted by the NRI to resident - bonds were purchased against US dollars - doubt the genuineness of the gift - Burden to prove the nature and source of the transaction - Maturity amount credited in the bank account of the assessee - Exemption 5(iiie) of the GT Act by the Finance (No. 2) Act of 1991 - whether the said amount can be treated as the income of the assessee for the year under consideration? - HELD THAT - Sec 68 came up for consideration before the various High Courts. The Courts have held that assessee has to prove three conditions; (1) identity of the creditor; (2) capacity of such creditor to advance money; and (3) genuineness of the transactions. Shankar Industries vs. CIT 1978 (3) TMI 91 - CALCUTTA HIGH COURT ; C. Kant Co, vs. CIT 1980 (6) TMI 21 - CALCUTTA HIGH COURT ; Jalan Timbers vs. CIT 1996 (8) TMI 83 - GAUHATI HIGH COURT . In the case of ss. 68 and 69 of the Act, the assessee has to prove the nature and source of the deposit or investment, as the case may be. As held by the various High Courts and apex Court in Sreelekha Banerjee vs. CIT 1963 (3) TMI 47 - SUPREME COURT , CIT vs. P. Mohanakala 2007 (5) TMI 192 - SUPREME COURT to prove the nature and source, the assessee has to prove the identity of the person, the genuineness of the transaction and capacity to pay. If all the aforesaid three conditions are proved the burden shifts on the Revenue to prove that the amount belongs to the assessee. CIT vs. United Commercial Industrial Co. (P) Ltd. 1989 (5) TMI 18 - CALCUTTA HIGH COURT , M.A. Unneeri Kutty vs. CIT 1991 (9) TMI 31 - KERALA HIGH COURT . W e are of the view that there is no reason to doubt the genuineness of the gift by Sri K.C. Kapadia to the assessee. In any view of the matter, the assessee was able to establish the nature and source of the money. The nature and source of the money found deposited in the bank account of the assessee were the maturity amounts of the four bonds which were purchased by Sri K.C. Kapadia on 1st Oct., 1998. Therefore, so far as year under consideration is concerned, the nature and source are fully established. There is no evidence to show that the deposit in the bank account was the income from other sources of the assessee for the year under consideration. Therefore, Order of the CIT is liable to be set aside and it is held that that ITO has erred in treating the maturity amount of the four Resurgent India bonds as an income from other sources in the AY 2004-05. In the result, writ petition is allowed. The impugned order of the CIT is set aside. There shall be no order as to costs.
Issues Involved:
1. Validity of the CIT-I, Lucknow's order dated 12th June 2007 under Section 264 of the IT Act, 1961. 2. Confirmation of the assessment order dated 12th June 2007 for the assessment year 2004-05. 3. Legitimacy of the short-term capital loss claimed by the petitioner. 4. Genuineness of the gift received in the form of Resurgent India Bonds. 5. Establishing the identity and creditworthiness of the donor. 6. Interpretation and application of Sections 68 and 69 of the IT Act, 1961. Detailed Analysis: 1. Validity of the CIT-I, Lucknow's Order: The petitioner challenged the order of the CIT-I, Lucknow, dated 12th June 2007, which confirmed the assessment order passed by the ITO, Lucknow, for the assessment year 2004-05 and rejected the revision petition. The CIT-I upheld the addition made by the ITO, treating the maturity amount of Rs. 26,78,504 from the Resurgent India Bonds as income from other sources. 2. Confirmation of the Assessment Order: The assessment order dated 12th June 2007 was confirmed by the CIT-I, Lucknow. The petitioner had shown a short-term capital loss of Rs. 1,76,957.63 in the return for the assessment year 2004-05. The ITO added Rs. 26,78,504 to the income of the petitioner, treating it as income from other sources, due to the failure to establish the identity and creditworthiness of the donor. 3. Legitimacy of the Short-Term Capital Loss: The petitioner filed the return showing a short-term capital loss and claimed the receipt of Rs. 26,78,504 as a gift in the form of Resurgent India Bonds from an NRI, Shri Kishore Chhagan Lal Kapadia. The ITO questioned the legitimacy of this claim due to the inability to verify the identity and creditworthiness of the donor. 4. Genuineness of the Gift: The petitioner received the bonds as a gift from Shri Kishore Chhagan Lal Kapadia, an NRI. The bonds were purchased against US dollars, and the maturity amount was deposited in the petitioner's bank account. Despite the confirmatory letter from the donor, the ITO and CIT-I doubted the genuineness of the gift due to the returned letters sent to the donor's address and the lack of additional evidence. 5. Establishing the Identity and Creditworthiness of the Donor: The ITO and CIT-I questioned the identity and creditworthiness of Shri Kishore Chhagan Lal Kapadia. The letters sent to the donor's address were returned unserved, and the petitioner could not provide an alternative address. The Chief Manager, SBI, NRI Branch, Mumbai, confirmed the transfer of bonds but could not provide additional documents due to their destruction in a flood. The court held that the identity of the donor was established through the application for the bonds and the confirmatory letter. 6. Interpretation and Application of Sections 68 and 69 of the IT Act, 1961: The court discussed the interpretation of Sections 68 and 69, which deal with unexplained cash credits and investments. The petitioner argued that the burden of proof shifted to the Revenue once the initial explanation was provided. The court cited various judgments, emphasizing that the assessee must prove the identity, capacity, and genuineness of the transaction. The court concluded that the petitioner had established the nature and source of the deposit, and the Revenue failed to provide evidence to the contrary. Conclusion: The court held that the assessing authority was not justified in treating the amount of Rs. 26,78,504 as income from other sources for the assessment year 2004-05. The petitioner had successfully established the nature and source of the deposit, which was the maturity amount of the bonds purchased by the donor in 1998. The impugned order of the CIT dated 12th June 2007 was set aside, and the writ petition was allowed. There was no order as to costs.
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