2012 (9) TMI 482 - SC - Income Tax

Gift from NRIs - Department queried about financial capacity of the donors to make the gift(s) - Held that - As the ITAT has only stated that the two donors were assessed to tax at Singapore but not at all answered about the financial capacity of the donors this not answer the query raised by the Department. The burden is on the assessees to show that the amount received by purported gift(s) from the two donors was a gift in the legal sense who contended that no opportunity was given to prove their case - the impugned Orders of the High Court and the ITAT is set aside and ITAT is directed to re examine - open to the assessees to produce relevant evidence in the light of case of Commissioner of Income Tax vs. P. Mohanakala 2007 (5) TMI 192 - SUPREME COURT transactions though apparent were held to be not real ones. May be the money came by way of bank cheques and was paid through the process of banking transaction but that itself is of no consequence - in favour of Revenue by way of remand.

Summary

Issues:
1. Concerns regarding the financial capacity of donors to make gifts.
2. Invocation of Section 68 of the Income Tax Act, 1961.
3. Burden of proof on the assessees.
4. Failure to consider evidence by the High Court.
5. Opportunity to prove the case not given.
6. Setting aside of orders by the High Court and ITAT.
7. Direction to ITAT to re-examine the case.
8. Reference to relevant judgment in the case of Commissioner of Income Tax vs. P. Mohanakala.

Analysis:
1. The judgment deals with civil appeals concerning Assessment Years 1994-1995 and 1995-1996. The main issue revolves around the purported gifts received by the assessees from two NRIs, with the Department questioning the financial capacity of the donors to make such substantial gifts.

2. The Department invoked Section 68 of the Income Tax Act, 1961, which places the burden on the assessees to prove that the amounts received as gifts were genuine and not undisclosed income. The Income Tax Appellate Tribunal (ITAT) did not address the query raised by the Department regarding the donors' financial capacity adequately.

3. The burden of proof lies on the assessees to demonstrate that the gifts were indeed given in the legal sense. However, the assessees failed to provide evidence showing that the donors had sufficient funds in their accounts to make such significant gifts in foreign currency.

4. The High Court summarily dismissed the appeal without considering the crucial aspect of the donors' financial capacity. This failure to evaluate essential evidence led to the setting aside of the orders by the High Court and the ITAT.

5. The learned counsel for the assessees contended that they were not given a fair opportunity to prove their case, emphasizing the importance of presenting relevant evidence to support their claims.

6. Consequently, the Supreme Court set aside the impugned orders and directed the ITAT to re-examine the matter, specifically focusing on whether the donors had the financial capability to make the gifts in question.

7. The judgment also referenced a relevant precedent, the case of Commissioner of Income Tax vs. P. Mohanakala, to guide the ITAT in reassessing the case and to allow the assessees to produce necessary evidence to substantiate their claims.

8. As a result, the civil appeals filed by the Department were allowed, with no order as to costs, indicating a favorable outcome for the Department based on the need for a thorough re-examination of the financial aspects of the gifts received by the assessees.