2014 (12) TMI 641 - HC - Income Tax

Validity of addition u/s 68 Amount claimed to be exempted as gift received from non-resident Indians - Genuineness of transaction not proved by assessee - Held that - The Tribunal was rightly of the view that these two persons are not related to the assessee - They are residing in two different countries - one in Dubai and the other in Singapore - There is no business relation or any other blood-relation between the assessee and these donors and there is no explanation as to why these two unknown persons, who are infact strangers, would give such a huge amount to the assessee as gift - a simple gift-deed on a plain paper has been placed on record and under normal circumstances such a gift-deed can be accepted - However, ongoing through the gift-deed , the Tribunal found that no witnesses are there to identify the execution of the gift-deed in accordance with law - The execution of the gift-deed is not established in accordance to the requirement of law as may be applicable in the countries where the gift-deed is executed. Originally in the transaction there is no mention of the word gift , but thereafter the word gift has been added by way of interpolation Tribunal rightly relied upon Commissioner of Income-Tax Versus P. Mohanakala 2007 (5) TMI 192 - SUPREME Court - for the purpose of applying the provisions of Section 68 of the Income Tax Act, apart from there being a proper identity of the creditor and his credit-worthiness, the genuineness of the transaction should also be established - genuineness of the transaction is not established by the assessee thus, the Tribunal has given cogent reasons for disbelieving the transaction and for holding that the transaction does not amount to a gift as such no substantial question of law arises for consideration Decided against assessee.

Summary

Issues:
Tenability of order disallowing a sum claimed as exempt 'gift' from non-resident Indians under Income Tax Act.

Analysis:
1. The appellant contested the order disallowing a sum of Rs. 1,52,67,939 claimed as a tax-exempt 'gift' from non-resident Indians. The main issue questioned the Tribunal's decision under section 68 of the Income Tax Act, alleging it as perverse and arbitrary.

2. The facts revealed that the assessee received 'gifts' from two non-resident Indians during the financial year 2001-2002. Despite establishing the genuineness and credit-worthiness of the donors, the AO disallowed the 'gifts' for tax payment due to unproven genuineness. The Commissioner (Appeals) later allowed the claim, but the Appellate Tribunal doubted the 'gifts' genuineness, leading to the current appeal.

3. The appellant argued that once the genuineness and credit-worthiness of the donors are proven, the requirements of section 68 are fulfilled. However, the respondent contended that the Tribunal's doubt on the 'gifts' genuineness was reasonable, supported by legal precedents.

4. The Court examined various judgments to determine the essential elements for section 68 compliance: identity of the creditor, genuineness of the transaction, and credit-worthiness of the creditor. Despite establishing the first two, doubts arose regarding the 'gifts' genuineness due to lack of relation between the donors and the appellant.

5. The Tribunal's detailed analysis found discrepancies in the 'gift-deed' execution and added mention of 'gift' in bank certificates, casting doubt on the transactions' nature. Citing legal precedents, the Tribunal concluded the 'gifts' were doubtful, justifying its decision.

6. Relying on the Supreme Court's judgment in a similar case, the Court determined that the Tribunal's finding was reasonable and not arbitrary. As such, no substantial question of law arose for consideration, leading to the dismissal of the appeal.

7. The Court upheld the Tribunal's decision, emphasizing the importance of establishing the genuineness of transactions for tax exemption claims. The detailed analysis and legal precedents supported the Tribunal's doubt on the 'gifts' authenticity, leading to the dismissal of the appeal.