2006 (9) TMI 82 - AT - Income Tax

Income from undisclosed sources - AO contended that gift received by the assessee is not genuine and accordingly added to the gift amount to assessee income - Held that AO contention was correct and allowed

Issues Involved:
1. Whether the Commissioner of Income-tax (Appeals) erred in not upholding the finding of the Assessing Officer that the cash credits introduced by the assessee as gifts remained unexplained and were liable to be taxed under section 68 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Findings of the Assessing Officer:
The Assessing Officer (AO) found that the assessee received two gifts amounting to Rs. 34,66,242 from two NRIs, which were not related to the assessee. The AO questioned the creditworthiness of the donors and concluded that these gifts were bogus, suspecting that the money was the assessee's own unexplained money routed through these individuals to increase his capital for purchasing a house.

2. Appeal to the Commissioner of Income-tax (Appeals):
The assessee appealed to the Commissioner of Income-tax (Appeals), providing various documents to establish the identity and creditworthiness of the donors, including gift letters, bank statements, and certificates from tax consultants. The Commissioner of Income-tax (Appeals) deleted the addition made by the AO, concluding that the gifts were genuine based on the evidence provided.

3. Arguments by the Departmental Representative:
The Departmental representative argued that the gifts were not genuine, citing principles of human probabilities and the lack of substantial evidence to prove the creditworthiness of the donors. The representative relied on case laws such as Sumati Dayal v. CIT and CIT v. Durga Prasad More, emphasizing the need for more tangible proof beyond mere documents.

4. Arguments by the Assessee's Representative:
The assessee's representative reiterated the evidence provided and cited case laws like CIT v. R. S. Sibal and Nemi Chand Kothari v. CIT, arguing that the assessee had successfully established the identity, creditworthiness, and genuineness of the gifts. The representative contended that the AO was not justified in making the addition merely because the donors were not related to the assessee.

5. Tribunal's Analysis and Decision:
The Tribunal examined various case laws and principles related to the genuineness of gift transactions. It emphasized that mere identification of the donor and movement of funds through banking channels were not sufficient to prove the genuineness of the gifts. The Tribunal highlighted the importance of establishing the donor's financial capacity, the relationship between the donor and donee, and the occasion for the gift.

6. Examination of Evidence:
The Tribunal found that the bank statements provided by the assessee did not conclusively prove the creditworthiness of the donors. The statements indicated the movement of funds but did not establish the financial capacity of the donors. The Tribunal noted that the certificate from the tax consultant was insufficient without corroborative evidence.

7. Conclusion on Creditworthiness:
The Tribunal concluded that the assessee failed to establish the creditworthiness of the donors. The bank statements and certificates provided were not adequate to prove that the donors had the financial capacity to make such large gifts.

8. Genuineness of the Gifts:
The Tribunal questioned the genuineness of the gifts, noting the lack of any occasion for the gifts and the absence of a relationship between the donors and the assessee. Applying the test of human probabilities, the Tribunal found it improbable that the donors would give such large amounts merely out of love and affection without any occasion or relationship.

9. Final Decision:
The Tribunal upheld the AO's decision, concluding that the gifts were not genuine and were the assessee's own unexplained money. The Tribunal restored the AO's order and allowed the appeal filed by the Revenue, treating the gifts as income from other sources under section 68 of the Income-tax Act.

Result:
The appeal filed by the Revenue was allowed.

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