2008 (2) TMI 887 - AT - Income Tax

Nature of 'gifts' Transaction is cash credits u/s 68 or not? - whether the authorities were justified in treating the gifts stated to have been received from 13 persons, as assessee's own income from undisclosed sources or not? - HELD THAT - It is established beyond doubt that the donors were possessed of the funds and they were well and sufficiently entitled to alienate the same by way of gift or otherwise. We have examined each and every case and find that even after making the gifts in question, they were left with sufficient fund. In this respect, the facts in this year are entirely different. In order to come out of the ambit of s. 68, the assessee has to prove prima facie three ingredients viz. (i) identity of the person concerned; (ii) his capacity and (iii) genuineness of the transaction. There is no dispute that all the 13 persons who are the transferors and donors were existing persons and subject-matter of transfer is the 'movable asset' available with them in the form of credit balances in their respective bank accounts. The transfer was voluntary as no coercion of any kind has been alleged. All the transferors/donors have given their confirmatory letters to this effect and further stated the same on oath through sworn evidences. All of them had sent confirmation letters, directly to the AO and in such confirmation letters they have urged that the information about the gifts is available in the records of the AOs (having jurisdiction in their respective cases) and the same may be called for, if such further verification is considered necessary. It is also very relevant to mention here that for a 'gift' in order to be valid, should not necessarily emanate from a relative. Under the IT Act, no such condition has been laid down. On the other hand, if we probe into the legislative intent, it will become clear that a ceiling of ₹ 25,000 had been imposed on acceptance of gifts from non-relative by insertion of cl. (xii) in sub-s. (24) of s. 2 of the Act and by corresponding insertion of cl. (v) in sub-s. (2) of s. 56 effective from 1st Sept., 2004. As the said section is prospective, it can safely be inferred that prior to 1st Sept., 2004, there was no legislative hindrances in accepting the gifts from non-relatives, without any limit. As the transactions in question fall during the financial year 2001-02, the gift received from non-relative, will not come in the way of acceptability of the same under the IT Act. It will be seen that all the three ingredients of cash credit as envisaged in s. 68 stand fully satisfied. The identity of the donors stands fully established even with reference to their income-tax particulars and the letters written by them directly to the AO, the remittances had originated from their own bank accounts wherein sufficient funds were found already credited. The genuineness of the transaction is not only supported by the said bank statements but also by the certificates issued by the bankers concerned which are construable as evidence under s. 5 of the Bankers' Evidence Book, 1891. Thus, on the facts of the present case, the provisions of s. 68 also cannot be applied to the sums aggregating ₹ 47 lakhs. We, therefore, conclude that subject-matter of transfer through gifts from 13 donors to the donee was the movable asset belonging, to the donors themselves. Therefore, the receipts, in the hands of the appellant are in the nature of 'gifts' which are not exigible to tax as the same does not fall in any of the charging section under the IT Act. Therefore, we hold that the transactions covering the receipts are 'gifts' in nature which are valid also in the eyes of law and the gifts not being fallen within the charging provisions of IT Act, no tax could have been levied on the appellant, with reference to such receipts. The additions made/sustained by the authorities below, are, therefore, deleted. Ad hoc disallowance out of expenditure claimed under the heads vehicle expenses, mobile expenses and telephone expenses - disallowances as have been made by the AO and sustained also by the learned CIT(A), are 10 per cent of the total claim. No information about the availability of any vehicles with the assessee and telephone connections has been placed on record. In such a situation, the element of personal user in these services cannot be ruled out. There is, therefore, no justification for any deviation and accordingly we uphold the order passed by the learned CIT(A) on this score. In the result the appeal is partly allowed as stated above and announced in the open Court.

Issues Involved:
1. Validity of the assessment order dated 29-3-2005.
2. Treatment of gifts aggregating Rs. 47 lakhs as the assessee's income from undisclosed sources.
3. Ad hoc disallowance of vehicle, mobile, and telephone expenses.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order Dated 29-3-2005:

The appellant challenged the validity of the assessment order dated 29-3-2005, arguing that a regular assessment had already been completed on 18-8-2003 under Section 143(1). The appellant contended that the subsequent order under Section 143(3) was void ab initio. The appellant relied on the case of KIM Royal Dutch Airlines v. Asst. Director of IT (2007) to support the argument that once an enquiry is initiated, it must result in either acceptance of the return or a regular assessment.

The Departmental Representative countered that the communication dated 18-8-2003 was merely an intimation under Section 143(1) and not a regular assessment order. The Tribunal agreed with this view, citing CIT v. Gujarat Electricity Board (2003), which established that an intimation under Section 143(1) does not preclude a subsequent regular assessment under Section 143(3). The Tribunal concluded that the order dated 29-3-2005 was within the limitation period and legally valid, dismissing the appellant's ground.

2. Treatment of Gifts Aggregating Rs. 47 Lakhs as Assessee's Income from Undisclosed Sources:

The appellant argued that the gifts received from 13 persons totaling Rs. 47 lakhs were genuine and should not be treated as income from undisclosed sources. The Departmental Representative referred to a previous Tribunal order in the case of the appellant's son, where similar gifts were found to be unaccounted money routed through gifts.

The Tribunal examined the evidence provided for each donor, including confirmation letters, affidavits, bank statements, and Income-tax returns. The Tribunal noted that the donors were identified, had the capacity to make the gifts, and the transactions were genuine, supported by bank certificates admissible under the Bankers' Book Evidence Act, 1891.

The Tribunal also addressed the issue of a statement given by one of the donors, Shri Nathmal Lohia, which contradicted his earlier statement. The Tribunal emphasized the importance of cross-examination to uphold natural justice principles. The Tribunal found the gifts to be valid under the Transfer of Property Act, 1872, and not exigible to tax under the Income Tax Act.

The Tribunal concluded that the gifts were genuine and deleted the additions made by the authorities.

3. Ad Hoc Disallowance of Vehicle, Mobile, and Telephone Expenses:

The appellant contested the ad hoc disallowance of 10% of vehicle, mobile, and telephone expenses. The Tribunal upheld the disallowance, noting the likelihood of personal use and the lack of evidence to the contrary.

Conclusion:

The appeal was partly allowed. The Tribunal upheld the validity of the assessment order dated 29-3-2005 and the ad hoc disallowance of vehicle, mobile, and telephone expenses. However, the Tribunal deleted the additions related to the gifts, recognizing them as genuine and not taxable under the Income Tax Act.

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