2016 (3) TMI 238 - AT - Income Tax

Revision u/s 263 - Claim of receipt of gift - Section 56 v/s 68 - Held that - Section 56 of the Act grants exemption for bringing into tax such income under the head income from other sources. But, however, section 68 of the Act contemplates that with respect to any credit in the books, it is an obligation cast upon the assessee to explain the credit as appearing in the books of the assessee to the satisfaction of the A.O. by establishing the identity and creditworthiness of the creditors and genuineness of the transaction. This initial and primary burden is cast upon the assessee u/s 68 of the Act to establish the identity and creditworthiness of the donor and to substantiate that the transaction is genuine. Thus, both the sections viz. Section 56 and 68 of the Act operate in different field whereas Section 56 of the Act deals with computation of the income of the tax payer under the head Income from other sources which provides relief in case of receipts from close relatives as defined u/s 56 of the Act while Section 68 of the Act is placed under Chapter VI of the Act which deals with Aggregation of income and set off or carry forward of loss and Section 68 of the Act cast primary onus on the assessee to explain nature and source of cash credit as appearing in the books of the assessee to the satisfaction of the AO and failure to explain the cash credit to the satisfaction of the AO shall lead to computation of income from undisclosed sources under the head Income from other sources . Thus, in our considered view based on the facts as emanating from the records, the A.O. has not made any enquiry or verification before accepting the gift of ₹ 1.48 crores received by the assessee from his maternal uncle, Mr Chimanlal Mehta and has merely accepted the submissions of the assessee with respect to receipt of said gift and the Pr. CIT has rightly invoked the provisions of section 263 of the Act directing the A.O. to make proper enquiry and reframe the assessment. The case laws relied upon by the assessee are not applicable in this case as in the instant appeal, the AO has not made any inquiries or verification which should have been made to satisfy the ingredients of Section 68 of the Act and has merely accepted the submissions of the assessee with respect to the gift of ₹ 1,48,00,000/- received by the assessee from his maternal uncle . - Decided against assessee

Summary

Issues Involved:
1. Legitimacy of the Principal Commissioner of Income Tax's (Pr. CIT) decision to set aside the assessment order for re-examination of the gift transaction.
2. Whether the Assessing Officer (AO) conducted adequate inquiry and verification regarding the gift received by the assessee.
3. Applicability of Section 263 of the Income Tax Act in this case.

Issue-wise Detailed Analysis:

1. Legitimacy of the Pr. CIT's Decision:
The Pr. CIT issued a notice for revision of income under Section 263 of the Income Tax Act for the assessment year 2010-11, questioning the gift of Rs. 1,48,00,000 received by the assessee from his maternal uncle. The Pr. CIT observed that the AO did not properly verify the capacity and creditworthiness of the donor nor the genuineness of the transaction. The Pr. CIT held that the AO failed to examine the gift with regard to identity, creditworthiness, and genuineness, thus making the assessment erroneous and prejudicial to the interest of the Revenue. Consequently, the Pr. CIT set aside the assessment order and directed the AO to re-examine the gift transaction.

2. Adequacy of Inquiry and Verification by the AO:
During the assessment proceedings, the assessee submitted documents to support the gift claim, including an affidavit from the donor, bank statements, and a CA certificate. The AO accepted these submissions without further inquiry or verification. The Tribunal noted that the AO did not make any further inquiries or verification regarding the identity and creditworthiness of the donor and the genuineness of the gift, which is a mandate under Section 68 of the Act. The Tribunal emphasized that the AO merely accepted the submissions made by the assessee without conducting the necessary verification, thereby failing to fulfill the primary onus cast by law on the assessee.

3. Applicability of Section 263 of the Income Tax Act:
The Tribunal referred to Explanation 2 to Section 263, which states that an order passed by the AO shall be deemed erroneous and prejudicial to the interests of the Revenue if it is passed without making inquiries or verification that should have been made. The Tribunal highlighted that the amendment to Section 263 is declaratory and clarifies that orders passed without necessary inquiries or verification are erroneous and prejudicial to the Revenue. The Tribunal cited the Supreme Court's decision in Malabar Industrial Company Limited v. CIT, which held that if the AO accepts entries without inquiry, the order is deemed erroneous and prejudicial to the Revenue.

Conclusion:
The Tribunal upheld the Pr. CIT's order invoking Section 263, directing the AO to re-examine the gift transaction. The Tribunal dismissed the appeal filed by the assessee, affirming that the AO's failure to conduct necessary inquiries and verification rendered the assessment order erroneous and prejudicial to the Revenue. The Tribunal emphasized that both Sections 56 and 68 of the Act operate in different fields, with Section 68 casting a primary onus on the assessee to explain the nature and source of cash credits to the AO's satisfaction. The Tribunal concluded that the AO did not fulfill this obligation, justifying the Pr. CIT's invocation of Section 263.