2011 (2) TMI 866 - HC - Income Tax

Deleting the addition - Undisclosed income u/s 68 - genuine or bogus gifts - The assessee was required to establish that the donor had the means and the gift was genuine, for natural love and affection - The assessee failed to produce the donor as also his bank statement to prove that gift was actually given by the assessee. Financial capacity of the donor was also not established. The assessee, thus, failed to discharge onus which was on him - Reliance has been placed on judgment of this Court, Shri Jaspal Singh v. CIT (2006 -TMI - 13288 - PUNJAB AND HARYANA High Court), wherein in similar circumstances, NRI gift from a stranger was held to be bogus - Hence, the substantial questions of law are, thus, answered in favour of the Revenue and against the assessee.

Summary

Issues:
1. Addition of Rs. 7,50,000/- made by the assessing officer on account of alleged NRE gifts.
2. Addition of Rs. 1,50,000/- made by the assessing officer on account of commission paid for arranging bogus NRE gifts.
3. Addition of Rs. 9,00,000/- made by the assessing officer towards undisclosed income of the assessee under section 68 of the Income Tax Act, 1961.

Issue 1:
The first issue revolves around the assessing officer's addition of Rs. 7,50,000/- on account of alleged NRE gifts received by the assessee. The Tribunal had initially held the gift to be genuine after evaluating the evidence. However, a previous judgment highlighted the requirement for the assessee to establish that the gift was given out of natural love and affection and that the donor had the financial capacity to make such a gift. The Court emphasized the failure of the assessee to provide evidence such as the donor's bank statement or proof of financial capacity, leading to the conclusion that the gift was bogus. The Court ruled that the Tribunal erred in accepting the gift as genuine, especially since the donor had no relationship with the assessee and there was no evidence of natural love and affection. Consequently, the Court held in favor of the Revenue, allowing the appeal and rejecting the genuineness of the NRE gifts.

Issue 2:
The second issue pertains to the addition of Rs. 1,50,000/- by the assessing officer as commission paid for arranging the bogus NRE gifts. The Tribunal had deleted this addition, but the Court's ruling on the first issue, declaring the NRE gifts as bogus, indirectly impacts this issue as well. Since the gifts were deemed non-genuine, the commission paid for arranging them also loses its legitimacy. Therefore, the Court's decision on the first issue indirectly supports the assessing officer's addition of Rs. 1,50,000/-, aligning with the Revenue's stance.

Issue 3:
The final issue involves the addition of Rs. 9,00,000/- by the assessing officer as undisclosed income of the assessee under section 68 of the Income Tax Act, 1961. This addition was deleted by the Tribunal, but the Court's ruling on the first issue, declaring the NRE gifts as bogus, sets a precedent. Since the gifts were found to be non-genuine, the undisclosed income associated with them also loses its legitimacy. Consequently, the Court's decision on the first issue indirectly supports the assessing officer's addition of Rs. 9,00,000/-, aligning with the Revenue's position.

In conclusion, the judgment by the High Court of Punjab and Haryana addressed multiple issues related to alleged NRE gifts, commission payments, and undisclosed income. The Court's detailed analysis emphasized the importance of establishing the genuineness of gifts, the need for evidence of natural love and affection, and the financial capacity of the donor. Ultimately, the Court ruled in favor of the Revenue, disallowing the NRE gifts, commission payments, and undisclosed income, based on the lack of substantiating evidence and the non-genuineness of the transactions.