2014 (8) TMI 632 - HC - Income Tax

Revision order passed by CIT u/s 263 Genuineness of gift Onus to prove the identity of parties - Held that - The Commissioner is empowered to exercise jurisdiction where he is satisfied that the order of the AO is erroneous in so far as it is prejudicial to the interests of the Revenue - Following the decision in Malabar Industrial Co. Ltd. v. CIT 2000 (2) TMI 10 - SUPREME Court - the pre-requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue - Mere identification of the donor and showing the movement of the gift amount through banking channels is not enough to prove the genuineness of the gift - Since the claim of gift is made by the assessee, the onus lies on him not only to establish the identity of the person making the gift but also his capacity to make a gift and that it has actually been received as a gift. Relying upon Tirath Ram Gupta v. CIT 2006 (9) TMI 166 - PUNJAB AND HARYANA HIGH COURT - a gift cannot be accepted as such to be genuine, merely because the amount has come by cheque or draft through banking channels, unless the identity of the donor, his creditworthiness, relationship with the donee and the occasion are proved - Unless the recipient has proved the genuineness thereof, the gift can very well be treated to be an accommodation entry of the assessee s own money, which is not disclosed for the purpose of taxation - The Tribunal has fallen into an error while setting aside the order of the CIT asking for fresh assessment - However, there is no dispute of the fact that the donor, Smt. Kamlesh Ahuja, was the real aunt of the assessee and the amount of ₹ 1 lakh, as gifted by her can only be excluded from the purview of fresh assessment proceedings Decided in favour of Revenue.

Issues Involved:
1. Validity of the Tribunal's cancellation of the CIT's order under Section 263 of the Income-tax Act.
2. Genuineness of the gifts amounting to Rs. 21 lakhs received by the assessee.
3. Application of Section 263 of the Income-tax Act.
4. Interpretation of "erroneous and prejudicial to the interests of the Revenue."

Issue-wise Detailed Analysis:

1. Validity of the Tribunal's Cancellation of the CIT's Order under Section 263 of the Income-tax Act:
The Revenue appealed against the Tribunal's order dated July 13, 2007, which set aside the CIT's order under Section 263 of the Income-tax Act. The Tribunal had found that the assessee had discharged the primary onus of proving the genuineness of the gifts, and the Assessing Officer had completed the assessment without doubting the veracity of the transaction, making it beyond the scope of revisional proceedings. The Tribunal concluded that the original assessment proceedings were not erroneous, leaving no scope for the CIT to invoke Section 263 of the Act.

2. Genuineness of the Gifts Amounting to Rs. 21 Lakhs Received by the Assessee:
The CIT issued a notice under Section 263 of the Act to the assessee, questioning the maintainability of the gifts amounting to Rs. 21 lakhs received from various donors. The assessee argued that the gifts were genuine, provided explanations about the donors, and claimed that the donors were income-tax assessees, family friends, and relatives. Despite multiple opportunities, the assessee failed to produce satisfactory evidence to establish the relationship, occasion, and creditworthiness of the donors, leading the CIT to pass an order under Section 263, holding the assessment order erroneous and prejudicial to the interests of the Revenue.

3. Application of Section 263 of the Income-tax Act:
Section 263 empowers the Commissioner to revise an order if it is erroneous and prejudicial to the interests of the Revenue. The CIT found the assessment order prima facie erroneous and intended to examine the genuineness of the gifts. The assessee's failure to provide sufficient evidence regarding the donors' identity, capacity, and relationship led to the CIT's decision to cancel the assessment order and direct a fresh assessment. The Tribunal's view was that the original assessment was not erroneous, thus outside the scope of Section 263.

4. Interpretation of "Erroneous and Prejudicial to the Interests of the Revenue":
The court referred to various judicial pronouncements, including the apex court's decision in Malabar Industrial Co. Ltd. v. CIT, which established that for the CIT to exercise jurisdiction under Section 263, the order must be both erroneous and prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue" means that the lawful revenue due to the State has not been realized. The court emphasized that mere identification of the donor and movement of the gift amount through banking channels is insufficient to prove the genuineness of the gift. The assessee must establish the donor's identity, capacity, relationship, and occasion for the gift.

Conclusion:
The court concluded that the Tribunal erred in setting aside the CIT's order. The assessment order was found to be erroneous and prejudicial to the interests of the Revenue, particularly concerning the gifts from strangers. However, the gift of Rs. 1 lakh from the assessee's real aunt, Smt. Kamlesh Ahuja, was excluded from fresh assessment proceedings. The substantial question of law was answered accordingly, and the Tribunal's order was set aside.

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