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2012 (5) TMI 599 - AT - Income TaxAddition u/s 68 - proof of gifts received - Held that - Behavior of Smt. Swaran Kanta clearly shows that she has been investing her money prudently and keeping the same in the bank. When no cash has been withdrawn how she could have made a gift of 2.00 lakhs. In any case an educated person like a Lecturer having a bank account would not have made gift in the form of cash. Applying the test of human probabilities as enunciated in the case of Hon ble Supreme Court in the case of Sumati Dayal V. CIT (1995 (3) TMI 3 - SUPREME Court) it is difficult to accept this gift. Considering the overall circumstances we are of the opinion that the ld. CIT(A) has correctly held that gifts are not genuine and according we confirm his order. Unexplained capital introduced CIT(A) has correctly disbelieved the story of accumulation of cash which has been made by the assessee just to explain the introduction of cash. If the assessee was really rendering tuition the money would have been deposited in the bank or at least some expenses on account of personal expenses have been shown. Therefore we confirm the order of the ld. CIT(A). Addition u/s 40A(3) - Held that - The payments made by the franchisee-distributor to the principal are only on his (the latter s behalf); it being only entitled to a commission for the services rendered. The question of no separate payment being made by the payee-principal to the payer-agent i.e. toward the remuneration or commission. Thus the provision of s. 40A(3) was found as not applicable in the facts and circumstances of the case. See Koottummal Groups V. ITO 2011 (6) TMI 502 - ITAT COCHIN - Decided in favor of the assessee
Issues:
1. Addition of gifts received from brother and mother-in-law 2. Addition of introduced capital 3. Addition made under section 40A(3) Analysis: Issue 1 - Addition of Gifts Received: The assessee received gifts from her brother and mother-in-law, which were disputed by the Assessing Officer (AO) as non-genuine. The brother's income was found to be meager, making the gift amount implausible. Similarly, the mother-in-law's financial transactions did not support the claimed gift amount. The Tribunal agreed with the AO and upheld the additions, citing lack of credible sources and financial capacity to make such gifts. The Tribunal emphasized the need for genuine sources of gifts and rejected the explanations provided by the donors. Issue 2 - Addition of Introduced Capital: The AO questioned the accumulation of cash claimed as introduced capital by the assessee over the years. The Tribunal noted discrepancies in the cash accumulation story and lack of supporting evidence like bank statements or balance sheets. Despite the assessee's educational qualifications and tuition income, the Tribunal found the explanation unconvincing. The Tribunal upheld the addition of the accumulated cash as introduced capital, emphasizing the lack of verifiable proof for the claimed funds. Issue 3 - Addition under Section 40A(3): The AO added cash payments made to Reliance Communications Infrastructure Ltd. (RCIL) under section 40A(3) due to non-compliance with prescribed limits. The assessee argued that as an agent of RCIL, the cash collected and deposited in the company's bank account should not attract section 40A(3). Citing precedents where similar situations favored the assessee, the Tribunal ruled in favor of the assessee. The Tribunal held that the relationship between the assessee and RCIL was that of principal and agent, exempting the cash payments from section 40A(3) disallowance. In conclusion, the Tribunal partially allowed the appeal, confirming the additions related to gifts received and introduced capital while ruling in favor of the assessee regarding the addition made under section 40A(3). The judgment highlights the importance of substantiating sources of income, maintaining financial records, and complying with tax provisions to avoid additions during assessments.
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