2016 (8) TMI 775 - AT - Income Tax

Addition of income being gift of India Millennium Deposit received as unexplained credit u/s 68 - Held that - We are bound by the positive evidences which are available on record and form a complete chain of events. Here, we accept this gift as genuine because the identity and the creditworthiness of the donor have been established on record. The reason for making this gift is also stated and its genuinity stands proved. Entire evidences, which have been referred to above like the declaration of gift, affidavit of donor, direct letter sent to AO, statement on oath both of donor and the donee, proof of source with further evidence, inter alia, go to prove the claim of the assessee. Therefore, we delete the impugned addition. Further, gift in question does not fall within the ambit of Section 56(2)(v) of the Act and same is exempt - Decided in favour of assessee

Summary

Issues Involved:
1. Addition of ?68,66,375 as unexplained credit under Section 68 of the Income Tax Act, 1961.
2. Taxability of proceeds from India Millennium Deposit (IMD) under Section 56(2)(v) of the Income Tax Act, 1961.
3. Exemption of interest earned on IMD under Section 10(15)(i) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Addition of ?68,66,375 as Unexplained Credit under Section 68:
The main issue in this appeal is regarding the addition of ?68,66,375 on account of a gift received by the assessee in the form of an Indian Millennium Deposit (IMD) bond. The Assessing Officer (AO) questioned the genuineness of the transaction, the identity, and the creditworthiness of the donor. The AO found discrepancies in the dates of transfer of the IMD certificates as provided by the assessee and the information received from the State Bank of India. The AO concluded that the provisions of Section 56(2)(v) were applicable and issued a show cause notice proposing to add the amount as unexplained credit under Section 68, suspecting the transaction to be a Hawala transaction.

2. Taxability of Proceeds from IMD under Section 56(2)(v):
The assessee contended that the IMD certificates were not "any sum of money" and thus did not fall within the ambit of Section 56(2)(v). The assessee argued that the gift was received before the insertion of Section 56(2)(v) by the Finance Act, effective from 01.04.2005. The assessee provided various documents and evidence to prove the genuineness of the gift, including the donor’s Indian Passport, net worth certificate, and affidavit. The Tribunal referred to the ITAT, Agra Bench decision in Avnish Kumar Singh vs. ITO, which established that the identity and creditworthiness of the donor and the genuineness of the gift were satisfactorily proved. The Tribunal held that the gift in question did not fall within the purview of "any sum of money" as envisaged in Section 56(2)(v).

3. Exemption of Interest Earned on IMD under Section 10(15)(i):
The assessee claimed that the interest amount of ?23,65,467 earned on the IMD was exempt under Section 10(15)(i). The Tribunal referred to the relevant notification under Section 10(15)(i), which specified that the India Millennium Deposits issued by the State Bank of India were exempt from tax. The Tribunal concluded that the interest in question was indeed exempt.

Conclusion:
The Tribunal allowed the appeal filed by the assessee. It held that the gift of ?68,66,375 received in the form of IMD did not fall within the ambit of Section 56(2)(v) and was not taxable as unexplained credit under Section 68. Additionally, the interest earned on the IMD was exempt under Section 10(15)(i). The Tribunal emphasized that the assessee had satisfactorily explained the nature and sources of the gift, proving its genuineness beyond doubt. The appeal was pronounced in the open Court on 19th August 2016.