2010 (12) TMI 1083 - AT - Income Tax

Addition made on account of difference in opening balance Held that - In the assessee s paper book there are several entries and assessee tried to explain that this difference exists from the year 1998-99 - these documents were not examined by Assessing Officer and even the CIT(A) has recorded his finding that the assessee could not explain thus in the interest of justice let these documents be placed before Assessing Officer so he can find out exactly whether the difference is explained or not and accordingly decide this issue the matter remitted back to the AO Decided in favour of Assessee. Addition made u/s 68 of the Act Addition of gift made Held that - The assessee received two gifts and the assessee has filed details in respect of said gift received with the Assessing Officer - in the case of Smt. Ritaben Hirpara the papers should be examined at the level of AO and decide whether the donor has capacity or creditworthiness to give the gift - that they have substantial incomes but AO is free to note the creditworthiness of the donor - As regards to identity genuineness of transactions both are established by assessee before the lower authorities - to ascertain creditworthiness of the donor the matter remitted back to the AO. Nothing has been brought in respect of creditworthiness of the donor except confirmation - This being a gift from a non-resident Indian and this document will not suffice to prove the three ingredients as mentioned u/s.s68 of the Act - assessee is only able to prove identity and genuineness of the said transaction but her capacity or creditworthiness of the donor he has not made any attempt to file the details - the gift received from Mrs. Varshaben Patel having no relationship with the assessee and particularly that the creditworthiness of donor is not established and same cannot be accepted as explained - the addition of the gift upheld added as unexplained u/s.68 of the Act Decided partly in favour of Assessee.

Summary

Issues:
1. Difference in opening balance with M/s. Deep Polymers
2. Disallowance of expenditure
3. Addition of gifts received by the assessee

Issue 1: Difference in opening balance with M/s. Deep Polymers

The appeal arose from the Commissioner of Income-tax (Appeals) confirming the Assessing Officer's addition of Rs.63,314 on account of alleged opening difference with M/s. Deep Polymers. The Assessing Officer found a difference in closing balances between the assessee's and M/s. Deep Polymers' accounts, leading to the addition as undisclosed income. The CIT(A) upheld this decision, stating the appellant failed to reconcile the accounts over a long period. The ITAT directed the documents to be examined by the Assessing Officer to determine if the difference is explained, setting aside the issue for further investigation.

Issue 2: Disallowance of expenditure

The next issue concerned the disallowance of expenditure amounting to Rs.30,976. The Senior Counsel for the assessee did not pursue this issue due to the small amount, leading to its dismissal as not pressed. It was clarified that this dismissal would not set a precedent for future or past years.

Issue 3: Addition of gifts received by the assessee

The final issue revolved around the addition of gifts totaling Rs.6,50,501 received by the assessee under section 68 of the Income-tax Act. The assessee received two gifts in 2003 from individuals residing in the USA and the UK. The assessee provided various documents to prove the genuineness, identity, and creditworthiness of the donors. The ITAT found that while the first gift from the USA donor was adequately supported with documentation, the gift from the UK donor lacked sufficient evidence of creditworthiness. As a result, the addition of the gift from the UK donor was confirmed, while the issue regarding the gift from the USA donor was remanded to the Assessing Officer for further examination.

In conclusion, the ITAT partially allowed the assessee's appeal for statistical purposes, directing further investigation into the issues of the gifts received. The judgment highlighted the importance of providing comprehensive documentation to substantiate transactions and emphasized the burden of proof on the assessee in such cases.