2010 (6) TMI 556 - AT - Income Tax

Addition - Bogus gift - The return of income was accompanied by gift deeds by each of the above said 12 persons - All the donors have admitted by way of affidavit and also some are ready to state on solemn affirmation before the AO that they have made such gifts as stated by the assessee in his return - The burden is on the assessee to rebut the same and if he fails to rebut it, it can be held against the assessee that it was receipt of an income nature - In the instant case, efforts were made by the AO to enquire into the source of funds in the hands of donors and their capacity to give such amount as claimed by the assessee - There is no evidence that there was any business transaction between the donors and the assessee and therefore, it could not be believed that how a stranger would part away his savings to give gifts to any unknown person sacrificing his chances of bettering his/her living conditions with that money - Decided against the assessee

Issues Involved:
1. Whether the addition of Rs. 12 lakhs, being the amount of 12 gifts of Rs. 1 lakh each, should be held as non-genuine?

Issue-wise Detailed Analysis:

Issue 1: Whether the addition of Rs. 12 lakhs, being the amount of 12 gifts of Rs. 1 lakh each, should be held as non-genuine?

Background and Facts:
The assessee, a proprietor of M/s. Shiv Shakti Industries, introduced Rs. 13,27,680 into the capital account, claiming the source to be gifts received from twelve individuals, each gifting Rs. 1 lakh. The AO found these gifts doubtful and required the assessee to prove the identity and capacity of the donors. The assessee provided gift deeds, affidavits, and claimed that the donors were assessed to tax. However, the AO found inconsistencies, such as marginal taxable income of donors, deposits made just before gifting, and lack of any substantial relationship between donors and assessee.

AO's Findings:
The AO observed that the donors had marginal taxable incomes, deposited money in their bank accounts just before gifting, and had petty personal withdrawals. The AO concluded that the gifts were not genuine, suspecting that the assessee's own money was being introduced as gifts to evade taxes. Consequently, Rs. 12 lakhs was treated as the assessee's income from undisclosed sources and added to the total income.

CIT(A) Findings:
The CIT(A) upheld the AO's order, emphasizing that the donors were financially incapable of making such gifts and lacked any significant relationship with the assessee. The CIT(A) found the evidence supporting the gifts to be manufactured.

Tribunal's Division:
The Tribunal had a split decision. The Accountant Member (A.M.) confirmed the findings of the CIT(A), while the Vice President (J.M.) deleted the addition. Due to this difference, the matter was referred under section 255(4) of the Act.

Arguments by Assessee's Counsel:
The counsel for the assessee relied on various judicial precedents, arguing that the identity of the donors was established, the amounts were received by account payee cheques, and the donors were assessed to tax. The counsel cited decisions such as CIT v. Mehrotra Brothers, CIT v. Padam Singh Chouhan, and others to support the genuineness of the gifts.

Arguments by Department's Representative:
The Department's representative supported the A.M.'s order, citing decisions like CIT v. L.N. Dalmia, CIT v. Durga Parsad More, and others, which emphasize the necessity to prove the capacity of the donors and the genuineness of the transaction.

Evaluation by Third Member:
The third member considered the rival submissions and the material on record. The third member noted that the assessee failed to prove the capacity of the donors and the genuineness of the gifts. The surrounding circumstances, such as the financial status of the donors, lack of relationship, and the timing of deposits, indicated that the gifts were not genuine. The third member referred to the Supreme Court decision in P. Mohankala, which states that the burden is on the assessee to prove the genuineness of the transactions.

Conclusion:
The third member agreed with the A.M.'s order, confirming the addition of Rs. 12 lakhs as the assessee's income from undisclosed sources. The decision was based on the lack of credible evidence supporting the donors' capacity and the genuineness of the gifts. The question referred was answered in the affirmative, and the matter was to be decided in conformity with the majority opinion.

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