2016 (9) TMI 1496 - AT - Income Tax

Unexplained cash credit u/s. 68 - establishment of identity of the creditor, his capacity to advance the loan and the genuineness of the transaction - HELD THAT - AO in the present case has found fault with the capacity of the donors to give the gift in question to the Assessee. As we have already observed, the burden cast on the assessee stands discharged the moment the assessee proves the identity of the creditor, his capacity to lend and the genuineness of the transaction. The assessee cannot be further required to prove the source of the source of the money out of which gift was given as laid down by the Hon ble Madras High Court in the case of S.Hastimal Vs. CIT 1962 (12) TMI 60 - MADRAS HIGH COURT . In the present case, as already seen that the donors been accepted. The source of the donors cannot therefore be gone into in the assessment of the Assessee. Therefore, of the view that the addition made u/s.68 in the facts and circumstances of the present case cannot be sustained. The same is directed to be deleted. The appeal of the Assessee is allowed.

Summary

Issues:
Consideration of addition of cash gifts under section 68 of the Income Tax Act, 1961.

Analysis:
The only issue in this appeal is whether the Commissioner of Income Tax (Appeals) was justified in confirming the addition of a sum of ?3 lakhs under section 68 of the Income Tax Act, 1961. The assessee, an individual, received cash gifts of ?1 lakh each from family members. The Assessing Officer (AO) raised concerns about the high net profit rates declared by the donors, leading to summons being issued to them. One donor appeared and provided details, while the others did not. The AO concluded that the creditworthiness of the donors was not proven, and the source and genuineness of the gifts were questionable due to lack of evidence. Consequently, the AO treated the gift amount as unexplained cash credit under section 68. On appeal, the CIT(A) upheld the AO's decision, prompting the assessee to approach the Tribunal.

Upon review, the Tribunal noted that the donors were close relatives of the assessee, justifying the gifts. The critical aspect was the creditworthiness of the donors. The returns filed by the donors showing the gifts and the source of funds had been disclosed in their income tax returns, which the AO of the donors did not question. The Tribunal emphasized that once the identity of the creditor, their capacity to lend, and the genuineness of the transaction are established, the burden shifts to the department. In this case, the assessee had prima facie discharged the burden under section 68 by providing relevant documents. The Tribunal cited legal precedent to support that the assessee need not prove the source of the source of the money for the gift. As the donors' capacity had been accepted, the Tribunal ruled that delving into the donors' sources was unwarranted. Consequently, the addition under section 68 was deemed unsustainable and directed to be deleted, allowing the assessee's appeal.

In conclusion, the Tribunal allowed the appeal of the assessee, overturning the addition of the cash gifts under section 68 of the Income Tax Act, 1961.