2016 (7) TMI 103 - AT - Income Tax

Addition u/s 68 - gifts received from two donors - bonafides and genuineness of gifts - Donors financial capacity to make the gift not established - Held that - Statement of donors when read with underlying documents & return of donors etc. does not foster any confidence on the bonafides of the gift . Donors have meager resources to be assigned any capacity to gift such sizeable amount as claimed having regard to the capital available, yearly withdrawals made, yearly income generated etc. Gifts were given without there being any occasion to do so. Resources/capacity of donors for making such gifts does not exist at all. Such gifts by donors are clearly not befitting of a normal human conduct and are outside the bounds of rationality. Admittedly there is no blood relations between the donors and the assessee. The donors appear to be mere acquaintances. It is difficult to visualize that a person of this grim financial background will venture into giving a voluntary gift to the tune of ₹ 5 lacs or 7 lacs which is equivalent to his income of nearly 4 to 5 years. The purported gift would lead to almost total erosion of the capital of the person concerned. Apparently, the overall behaviour of the so called donors is thus very intriguing and does not accord with ordinary human conduct. When seen in totality, facts and circumstances are squarely against the assessee. Logical conclusion that follows from above is that the claim of receipt of gift from these 2 parties remains unproved and explanation offered in respect of credit towards gifts received is not credible or satisfactory. The credit in the form of gift is thus rightly assessed to tax as deemed income of the assessee. We also find merit in the alternative contention of AO that the Gift so made falls within the ambit of section 56(2)(v) which provides that the recipient of gift from a non-relative is assessable to tax. Assessee failed to show as to how section 56(1)(v) not applicable in the instant case. CIT(A) in our view, has rightly endorsed the contention of AO on applicability of S. 56(1)(v) also. - Decided against assessee.

Summary

Issues Involved:
1. Bonafides and genuineness of gifts received from two donors aggregating to ?12,00,000.
2. Applicability of Section 68 of the Income-tax Act, 1961.
3. Applicability of Section 56(1)(v) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Bonafides and Genuineness of Gifts Received:
The assessee received gifts amounting to ?12,00,000 from two donors, Shri Mohan Dattaraya Pandit and Shri Kamalakar Moreshwar Bokil. The Assessing Officer (AO) scrutinized the financial capacity of the donors and found discrepancies. Shri Pandit initially issued a cheque which bounced due to insufficient funds and later gave ?5,00,000 in cash. Shri Bokil claimed to have given ?7,00,000 in cash. Both donors were summoned under Section 131 of the Act, and their statements revealed that they lacked the financial capacity to make such large gifts. The AO noted that the donors did not have any substantial relationship with the assessee to justify such gifts and concluded that the explanation for the cash credits was unsatisfactory, invoking Section 68 of the Act.

2. Applicability of Section 68 of the Income-tax Act, 1961:
The AO invoked Section 68, which pertains to unexplained cash credits. The AO observed that the donors' financial backgrounds did not support their capacity to make such large gifts. The financial data showed meager resources, and there were no significant investments or bank balances to justify the gifts. The AO concluded that the gifts were not genuine, citing the Supreme Court decisions in Sumati Dayal vs. CIT and CIT vs. P. Mohanakala, which emphasize the need for credible evidence to substantiate the source of funds.

3. Applicability of Section 56(1)(v) of the Income-tax Act, 1961:
The AO also considered the alternative application of Section 56(1)(v), which taxes gifts received from non-relatives if they do not fall under specified exceptions. The AO noted that the gifts were from non-relatives and credited in the financial year 2005-06, relevant to the assessment year 2006-07. The CIT(A) upheld this view, and the assessee failed to provide any substantial argument against the applicability of Section 56(1)(v) during the appeal.

Tribunal's Conclusion:
The Tribunal, after considering the rival submissions and material on record, upheld the findings of the AO and CIT(A). The Tribunal noted that the donors' statements and financial data did not inspire confidence in the genuineness of the gifts. The donors lacked the financial capacity, and there was no plausible reason for the gifts. The Tribunal concluded that the assessee failed to discharge the onus of proving the genuineness of the transactions under Section 68. Additionally, the Tribunal found merit in the alternative application of Section 56(1)(v), as the gifts were from non-relatives and the assessee did not address this issue adequately.

Final Judgment:
The appeal of the assessee was dismissed, and the additions made by the AO under Sections 68 and 56(1)(v) were upheld. The Tribunal pronounced the order on June 08, 2016.