2011 (2) TMI 532 - HC - Income Tax

Deleting the addition - Bogus or genuine gifts - the assessee was unable to show that there was either any occasion or any relationship or there existed any natural love and affection with the donor to have gifted the amount as claimed by the assessee - Further, the assessee was also required to substantiate that the donor had the means and the gift was genuine which he had failed to establish - As per the judgment of this Court in Jaspal Singh Versus Commissioner of Income-Tax. (2006 -TMI - 13288 - PUNJAB AND HARYANA High Court), the finding recorded by the Tribunal stands vitiated and cannot be sustained. Accordingly, the questions of law are answered in favour of the revenue and against the assessee.

Issues:
1. Determination of substantial questions of law regarding deletion of additions made by the assessing officer under the Income Tax Act, 1961.
2. Consideration of whether the alleged gifts received by the assessee from Non-resident Indians were genuine.

Issue 1:
The appeal was admitted to determine whether the ITAT was correct in confirming the deletion of additions made by the assessing officer under Section 68 of the Income Tax Act, 1961. The additions pertained to Rs.10,00,000 credited as a foreign gift from a stranger and Rs.2,00,000 as commission paid for arranging the gifts. The CIT(A) had deleted these additions, leading to the revenue's appeal. The primary question was the genuineness of the gifts and the legitimacy of the commission paid for obtaining them.

Analysis:
The assessee, engaged in the manufacturing business, declared an income of Rs.56,000 for the assessment year 1995-96. A survey revealed a credit of Rs.10,00,000 as a foreign gift from a Non-resident Indian, which the assessing officer treated as income from undisclosed sources. Additionally, Rs.2,00,000 was added for hawala premium. The CIT(A) deleted these additions, a decision upheld by the ITAT, prompting the revenue's appeal. The crux was the genuineness of the gifts and the legitimacy of the commission paid, leading to a thorough examination of the facts and circumstances.

Issue 2:
The central consideration was whether the alleged gifts received by the assessee from Non-resident Indians, with whom no relationship existed, were genuine. This issue was approached in light of a recent judgment by the Court in a similar case. The judgment emphasized the need for the assessee to prove the genuineness of the gifts, including establishing the donor's financial capacity and the existence of natural love and affection. Failure to meet this burden of proof could render the gifts as bogus, as seen in previous judicial precedents.

Analysis:
The Court referred to a previous judgment highlighting the necessity for the assessee to prove the genuineness of gifts from strangers, especially Non-resident Indians. The burden of proof rested on the assessee to establish the donor's financial capacity and the existence of natural love and affection. In the absence of such proof, the gifts could be deemed as bogus. The Court reiterated that mere identification of the donor and transaction through banking channels was insufficient to establish the genuineness of gifts. The failure to demonstrate a legitimate reason for the gifts and the donor's financial capacity led to the conclusion that the gifts were not genuine.

In conclusion, the Court found that the assessee failed to prove the genuineness of the gifts received from Non-resident Indians, as the necessary elements such as natural love and affection, relationship, and donor's financial capacity were not established. The Tribunal's decision was deemed erroneous, and the questions of law were answered in favor of the revenue. Consequently, the appeal was allowed, upholding the additions made by the assessing officer under the Income Tax Act, 1961.

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