2010 (10) TMI 1066 - AT - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 2,00,000 claimed as gifts by the assessee should be considered as income from undisclosed sources.
2. Whether the assessment process adhered to the principles of natural justice.
3. Validity of the assessment order and the application of mind by the Assessing Officer (AO).

Issue-Wise Detailed Analysis:

1. Whether the amount of Rs. 2,00,000 claimed as gifts by the assessee should be considered as income from undisclosed sources:

Majority View (Learned Judicial Member and Third Member):
- The assessee received Rs. 1,00,000 each from Smt. Manisha Devi Jain and Shri Anil Kumar Jajodia.
- The assessee provided evidence including PAN, balance sheets, income-expenditure statements, and gift deeds to substantiate the gifts.
- Smt. Manisha Devi Jain appeared before the AO but was not examined. She later confirmed the gift via a letter.
- No notice under section 131 was issued to Shri Anil Kumar Jajodia due to an incomplete address, despite the AO having access to his tax details.
- The AO failed to pursue further verification of the donors' capacity and the genuineness of the gifts.
- The Tribunal relied on precedents such as CIT vs. Shree Gopal & Co., Nemi Chand Kothari vs. CIT, and Orissa Corporation (P) Ltd., emphasizing that it is not necessary for the assessee to prove the source of the source.
- The gifts were considered genuine and the addition of Rs. 2,00,000 was deleted.

Dissenting View (Learned Accountant Member):
- The AO and CIT(A) found the gifts to be non-genuine, citing reasons such as the donors' lack of substantial income and high cash in hand.
- The AO observed that the gifts were received in cash and the deposits were made just before the gifts.
- The CIT(A) held that mere filing of PAN and returns below taxable limits does not prove the capacity to gift.
- The learned AM emphasized the need to prove the identity, capacity of the donor, and genuineness of the transaction, which he found lacking.
- The learned AM upheld the addition of Rs. 2,00,000 as the assessee failed to prove the genuineness of the gifts.

2. Whether the assessment process adhered to the principles of natural justice:

- The AO issued notices under sections 143(2) and 142(1) and served them to the assessee.
- The Tribunal found no violation of principles of natural justice as the assessment was completed after hearing the assessee.
- The ground alleging violation of natural justice was rejected.

3. Validity of the assessment order and the application of mind by the Assessing Officer (AO):

- The AO's assessment order dated 31st March 1995 included an addition of Rs. 2,00,000 as undisclosed income without specifying the section under which the income was treated.
- The Tribunal noted a lack of application of mind and a casual approach by the AO in making the addition.
- The Tribunal criticized the AO for not examining Smt. Manisha Devi Jain and not issuing a notice to Shri Anil Kumar Jajodia.
- The Tribunal concluded that the AO's non-application of a judicious mind and unilateral attitude did not justify the addition.

Conclusion:
- The majority view, supported by the learned Judicial Member and the Third Member, concluded that the gifts were genuine and the addition of Rs. 2,00,000 was deleted.
- The appeal of the assessee was partly allowed, with the Tribunal's decision reflecting the majority view on the genuineness of the gifts and the procedural adherence to natural justice.