2009 (7) TMI 857 - AT - Income Tax

Addition - Bogus gift - The identity of the donor is not in doubt - The genuinity of gift is proved because it was made through a draft and admitted by both parties - The source of gift has also been explained with the help of possible and feasible evidences which are available on the record - The possibilities and realities of life come only thereafter, and when the adverse possibilities are also found to be explained there should be an end of these possible realities , otherwise no gift would be or can be treated as genuine, as the reality of life, in this era is that even a father would not give a gift to his son - The credit under reference is stated to be a gift, and which can only flow from a person who is close to the donee; the only basis for the same being natural love and affection it is the latter that appears to be the case, with the assessee furnishing the donor s account statement in the books of the said concern, and which would only be through the donor, while it is clear that the said concern had closed shop at the stated address, and the same did not represent its current address - The said account statement stands relied upon only by the assessee itself and, secondly only in establishment of its claim in respect of the donor s creditworthiness, so that this argument is fallacious in the least, particularly as in the context of serious doubts raised on the donor s creditworthiness on the basis of the material on record, and the inability of the assessee and, therefore, also the donor, to establish the antecedents of the source of the funds with the donor; given his income level - source of the gift is the receipt through a cheque of ₹ 2,46,000 received by the donor from the Balaji Trading Corporation, Delhi, and a cash amount of ₹ 3,500 - decided in the favour of the assessee

Issues Involved:
1. Addition of Rs. 2.5 lakhs as unexplained income under Section 68 of the IT Act, 1961.
2. Identity and creditworthiness of the donor.
3. Genuineness of the gift transaction.

Detailed Analysis:

1. Addition of Rs. 2.5 Lakhs as Unexplained Income under Section 68 of the IT Act, 1961:
The primary issue in this case was whether the sum of Rs. 2.5 lakhs received by the assessee, allegedly as a gift from an individual, should be treated as unexplained income under Section 68 of the IT Act, 1961. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] had both added this amount to the assessee's income, questioning the genuineness of the gift and the creditworthiness of the donor.

2. Identity and Creditworthiness of the Donor:
The assessee provided substantial documentation to establish the identity and creditworthiness of the donor, including:
- A declaration of gift dated 21st April 2002.
- The donor's affidavit confirming the gift.
- The donor's PAN card and proof of being an income-tax assessee.
- Statements of income and expenditure, and balance sheets for different years.
- A photocopy of the donor's ration card.
- A copy of accounts of the donor in the books of Balaji Trading Corporation, Delhi, and his balance sheet as on 31st March 2001.

The donor, Shri Rakesh Walia, appeared before the AO and confirmed the gift. He explained that he received a cheque for Rs. 2,46,000 from Balaji Trading Corporation and deposited Rs. 3,500 in cash, which was then used to prepare a draft of Rs. 2,50,000 in favor of the assessee.

3. Genuineness of the Gift Transaction:
The AO and CIT(A) did not accept the gift as genuine, citing several reasons:
- The donor's financial status was low, with a monthly income of less than Rs. 5,000.
- The donor had no significant assets or investments.
- The donor's bank account showed minimal activity, with the draft being funded by a recent receipt from Balaji Trading Corporation.
- There was no close relationship between the donor and the donee, raising doubts about the motive behind the gift.

The Tribunal examined the evidence and found that the identity of the donor was not in doubt, and the factum of the gift was established through multiple documents and statements. The Tribunal noted that the gift was made through a draft and was admitted by both parties. The source of the gift was also explained with a complete sequence of events.

Separate Judgments:

Judgment by Hari Om Maratha, J.M.:
The Judicial Member (JM) accepted the gift as genuine, emphasizing the numerous pieces of evidence forming a complete chain of events. The JM noted that the donor had explained the occasion for the gift, citing an obligation to the assessee's father. The JM concluded that the identity and creditworthiness of the donor were established, and the genuineness of the gift was proved. The JM allowed the appeal, deleting the addition of Rs. 2.5 lakhs.

Judgment by Sanjay Arora, A.M.:
The Accountant Member (AM) disagreed, highlighting several inconsistencies and doubts regarding the donor's financial capacity and the genuineness of the transaction. The AM noted that the donor's financial status did not support the ability to make such a gift and questioned the lack of close relationship between the donor and the donee. The AM upheld the addition of Rs. 2.5 lakhs as unexplained income under Section 68.

Judgment by R.P. Garg, Senior Vice President (Third Member):
The Third Member agreed with the JM, concluding that the gift was genuine and the assessee had satisfactorily explained the nature and source of the credit. The Third Member emphasized that the donor had confirmed the gift and provided a plausible reason for it. The Third Member allowed the appeal, deleting the addition of Rs. 2.5 lakhs.

Conclusion:
Based on the majority view, the Tribunal accepted the gift as genuine, and the appeal of the assessee was allowed. The addition of Rs. 2.5 lakhs as unexplained income under Section 68 was deleted.

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