2012 (10) TMI 292 - HC - Income Tax

Undisclosed Income - gifts received from non Resident Indians (NRI) from their Non Resident External accounts - Held that - In the present case the confirmatory letters addressed by the donors to the assessee were identically worded, typed on the same typewriter, the donors seemed were not related to the assessee, the aggregate gifts received by the family of the appellant was over Rs.35 lacs and all gifts were made allegedly out of love and affection for the appellant and/or her family members. Further, no circumstances have been indicated by the appellant before the authorities or during the hearing before us as to what was the occasion for apparent strangers to advance an amount aggregating Rs.35 lacs to the appellant s family as gifts. There is a concurrent finding of fact by the AO and the Tribunal that the amounts shown as gifts were not genuine gifts, but were mere credits taken so as to evade payment of income tax. Further, as gifts are not income being a capital receipt and not subject to income tax its disclosure or non disclosure is of no consequence for the purpose of the Act. It is only on account of search that documents were unearthed / found which showed that the gifts were not genuine, but only a method to convert the appellant s unaccounted money into regular income. Therefore, the non genuine gifts to the appellant was undisclosed income and covered by the definition provided in Section 158B(b). Consequent to the amendment in 2002 to Section 158BB documents and/or information available with the assessing officer and relatable to evidence found during the search is certainly evidence which can be used to compute the undisclosed income for the block period - In fact Parliament realizing the difficulty for the Revenue to prove its case to the hilt provided under Section 158BB(3) of the Act that the burden of proving to the satisfaction of the Assessing Officer that any income had already been disclosed is on the assessee. Further, sub section (2) of section 158BB in terms provided that section 68 relating to cash credits would apply to block assessment and in such cases also it is for the assessee to satisfactorily explain to the AO, the source of the credit found in the books of an assessee - against assessee.

Summary

Issues Involved:

1. Taxability of gifts received from Non-Resident Indians (NRIs) as 'undisclosed income'.
2. Validity of the conclusion that the gifts were purchased by the appellant.
3. Burden of proof regarding the genuineness of the gifts.
4. Determination of gifts as non-genuine based on evidence.
5. Allegation of money laundering through gifts.
6. Uniformity in confirmatory letters from donors.
7. Double taxation of commission receipts.

Detailed Analysis:

1. Taxability of Gifts from NRIs as 'Undisclosed Income':

The primary issue was whether the gifts received by the appellant from NRIs through their NRE accounts during the assessment years 1993-94, 1994-95, and 1995-96 should be considered 'undisclosed income' under Section 158B(b) of the Income Tax Act. The appellant argued that these gifts were recorded in the regular books of account and disclosed in the returns of income filed before the search, and no incriminating material was found during the search. However, the court held that the gifts were not genuinely received but were a method to convert unaccounted money into regular income. The court emphasized that mere mentioning of an amount as a capital receipt does not amount to disclosure of income, as capital receipts are not taxable.

2. Validity of Conclusion on Purchased Gifts:

The appellant contended that there was no evidence to suggest that the gifts were purchased and that the donors' identities and capacities were proven through passports and bank passbooks. The court, however, upheld the Tribunal's conclusion that the gifts were not genuine, based on the surrounding circumstances and the improbability of such large gifts being given without any occasion or relation.

3. Burden of Proof on Genuineness of Gifts:

The appellant argued that the burden of proof had shifted to the Assessing Officer after she had produced copies of passports, bank passbooks, and confirmatory letters from the donors. The court disagreed, stating that the burden of proving the genuineness of the gifts remained with the appellant, especially since the gifts were shown as capital receipts, which are not taxable. The court also noted that the Assessing Officer was not required to prove the case with mathematical precision but rather on the balance of probabilities.

4. Determination of Gifts as Non-Genuine:

The Tribunal's decision that the gifts were non-genuine was based on the identical wording of confirmatory letters, the donors being seamen with no relation to the appellant, and the lack of any occasion for such large gifts. The court supported this conclusion, noting that the appellant's explanation for the identical letters was not convincing and was raised only in a rejoinder before the Tribunal.

5. Allegation of Money Laundering:

The Tribunal concluded that the gifts were a money-laundering device because the confirmatory letters, gift deeds, and other documents were obtained simultaneously with the cheques for gifts. The court upheld this conclusion, emphasizing that the surrounding circumstances and the improbability of such large gifts from unrelated individuals supported the finding of money laundering.

6. Uniformity in Confirmatory Letters:

The Tribunal noted that the confirmatory letters from different donors were identically worded and typed on the same typewriter. The appellant explained that she had prepared these letters for tax records. However, the court found this explanation unconvincing and upheld the Tribunal's finding that the uniformity of the letters indicated that the gifts were not genuine.

7. Double Taxation of Commission Receipts:

The appellant argued that the commission receipts of Rs. 2,42,870 should not be separately added to the income in view of the cash seized amounting to Rs. 40,98,735, which was sufficient to cover the undisclosed income. The court did not consider this issue, as it was not raised before the Tribunal, and held that it did not arise for consideration.

Conclusion:

The court dismissed the appeal, affirming the Tribunal's decision that the gifts received by the appellant from NRIs were non-genuine and constituted undisclosed income. The court also upheld the Tribunal's findings on the burden of proof and the improbability of such large gifts from unrelated individuals. The appeal was dismissed with no order as to costs.