2016 (9) TMI 380 - AT - Income Tax

Addition in respect of gift receipt - genuineness of gift received from outside India - Held that - In the matter of gifts, assessee is required to discharge the onus of submitting complete detail of gifts before the AO. He should have established (i) the identity of the donor; (ii) credit worthiness of the donor; (iii) genuineness of the transaction; (iv) occasion (v) relationship of the donor and donee; (vi) evidence of natural love and affections. The human probability has to be considered as to why donor is prompted to give gift to the assessee. This question is required to be answered because as contrary to loan, in the case of gift, donor loses his hard earned capital in favour of the donee for ever whereas in the case of loan the creditor retains the right to recover the money from the assessee. Therefore, onus is heavier on the assessee in a case of gift as compared to the case of credit. In case of credit, if identity of the creditor is known and creditworthiness of the creditor is established then onus is shifted to the Revenue to show that credit is not genuine. But in the case of gift all the three ingredients are necessary to be established by the assesses and merely by giving evidence of identity and credit worthiness of donor, genuineness cannot be taken to be established automatically, therefore, test of human probability assumes importance so as to show that there were reasons which prompted the donor to forgo his hard earned capital in favour of the donee. In view of the above we hold that assessee has failed to prove that gift is genuine. Accordingly, we confirm the addition - Decided against assessee

Summary

Issues:
- Addition of ?5 lakhs in respect of gift receipt by the appellant
- Confirmation of the gift received by the appellant as unexplained under section 68 of the Income Tax Act

Analysis:

1. Issue: Addition of ?5 lakhs in respect of gift receipt by the appellant
The appellant contested the addition of ?5 lakhs as a gift, arguing that it was incorrect both factually and legally. The Assessing Officer (AO) required the appellant to produce the donor for cross-examination to establish the identity, creditworthiness, and genuineness of the gift. However, the appellant failed to produce the donor or provide any documentary evidence supporting the creditworthiness and genuineness of the gift. The Commissioner of Income-tax (Appeals) upheld the transaction of the gift as unexplained under section 68 of the Act, as the appellant could not explain why the draft for the gift was purchased in cash instead of debiting the donor's bank account, despite the donor having a bank account.

2. Issue: Confirmation of the gift received by the appellant as unexplained under section 68 of the Income Tax Act
The appellant argued that the gift was received via a Demand Draft (DD) and that the donor had admitted to giving the gift during a recorded statement. The appellant claimed that the identity, creditworthiness, and genuineness of the donor were established, as evidenced by the DD being encashed in a bank where the appellant held an account. However, the authorities highlighted that the DD was made through cash and not the donor's bank account, and no bank statement of the donor was provided. The Tribunal found that the appellant failed to prove the genuineness of the gift, emphasizing the importance of establishing the donor's motives for giving the gift and the need for complete details of the gift transaction.

3. Conclusion
The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals), stating that the appellant had not provided sufficient evidence to prove the genuineness of the gift. The Tribunal emphasized the significance of establishing the identity, creditworthiness, and genuineness of the donor in gift transactions. As the appellant failed to meet the burden of proof regarding the gift's genuineness, the addition of ?5 lakhs was confirmed, and the appeal was dismissed. The Tribunal highlighted the importance of human probability in gift transactions and the heavier onus on the assessee to prove the genuineness of gifts compared to credit transactions.