2014 (8) TMI 688 - HC - Income Tax

Genuineness of gift - Whether the Tribunal is right in holding the gifts as genuine from 26 parties who were merely passing on the accommodation entries not only for the assessee but for other persons also Held that - An enquiry into the matter was got conducted and it was found that the donors were not financially capable to make the gifts of such huge amounts in favour of the assessee and they had no relations nor was there any occasion to make the gift - unaccounted cash of the assessee was first deposited in different accounts in an organized manner, from where transfer entries were given to the donors, who at the same time made entries in favour of the assessee by way of bank drafts - the cash was paid by the assessee for depositing the same in the respective accounts of the donors and the cheques/ demand drafts were obtained for the amounts claimed as gifts - The gifts were found to have been made without any occasion or out of love and affection and it were rightly considered by the AO as not genuine - The capacity of the donors had not been established because they were found to be persons of small means as compared to the assessee. 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 error while ordering the deletion - the addition of the gift amount is maintained Decided partly in favour of Revenue.

Issues Involved:
1. Genuineness of the gifts received by the assessee.
2. Capacity of the donors to make the gifts.
3. Relationship and occasion for the gifts.
4. Addition of 10% premium to the income of the assessee.

Detailed Analysis:

1. Genuineness of the Gifts Received by the Assessee:
The primary issue in this case revolves around the genuineness of the gifts amounting to Rs. 26 lakhs received by the assessee from ten different donors. The Tribunal had initially deleted the additions made by the Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) (CIT(A)), asserting that the gifts were genuine. The Tribunal noted that the gifts were received through cheques/account payee demand drafts, and the assessee had provided gift deeds, complete addresses of the donors, and evidence of their regular income-tax assessments. However, the High Court observed that merely showing the movement of the gift amount through banking channels and identifying the donors was insufficient to prove the genuineness of the gifts. The Court emphasized that the assessee must also establish the donors' financial capacity and the genuineness of the transaction.

2. Capacity of the Donors to Make the Gifts:
The High Court scrutinized the financial capability of the donors. The AO had conducted inquiries and found that the donors lacked the financial means to make such large gifts. It was noted that in some cases, the donors had deposited substantial amounts in their accounts shortly before making the gifts, indicating that the funds might have been provided by the assessee. For instance, Vinod Kumar had deposited Rs. 17,03,000 in his account on the same day he issued a bank draft of Rs. 5 lakhs to the assessee. Similarly, Vinod Garg made a gift from an account that had received funds from another person. The Court concluded that the donors' financial capacity was not established, and the gifts were not genuine.

3. Relationship and Occasion for the Gifts:
The Court highlighted the lack of any relationship or occasion for the donors to make such substantial gifts to the assessee. The AO had found that the donors were neither related to the assessee nor had any occasion to part with such large sums. For example, Vishal Malhotra, one of the donors, admitted that he had no relation with the assessee and made the gift on his mother's advice. The Court reiterated that a genuine gift must be supported by a relationship, occasion, and the donor's financial capacity. The absence of these factors led to the conclusion that the gifts were not genuine.

4. Addition of 10% Premium to the Income of the Assessee:
The AO had also added an amount equivalent to 10% of the alleged gifts as a premium paid to middlemen for procuring bogus entries. The Tribunal had deleted this addition, and the High Court upheld this deletion. The Court found no basis for the assumed addition of 10% premium, as it was not substantiated by evidence.

Conclusion:
The High Court concluded that the Tribunal had erred in deleting the additions made by the AO and CIT(A). The Court emphasized that the assessee failed to prove the genuineness of the gifts, the financial capacity of the donors, and the existence of any relationship or occasion for the gifts. Consequently, the Court allowed the appeal in favor of the Revenue, maintaining the addition of the gift amount but disallowing the assumed addition of 10% premium. The judgment underscores the importance of proving the genuineness of transactions, the financial capacity of parties involved, and the necessity of a legitimate relationship or occasion for gifts in income tax assessments.

← Previous Next →