2017 (6) TMI 451 - AT - Income Tax

Addition u/s 68 - genuineness of gift - eligibility of donor - occasion for gifting - Held that - Since, the donor is an NRI, it may be practically impossible for him to travel to India for the recording of a statement and the assessee cannot be made to suffer on that account. The donor has referred in his affidavit to the help extended to the donor s family in his childhood by the father of the donee as a reason for the gift but the Ld. CIT (A) has confirmed the addition on the footing that there was neither any occasion for the gift nor was there any quid pro quo on the part of the assessee- donee. This again, in our opinion, is not a cogent reason for disbelieving the assessee. Further, the department has not demonstrated with any cogent evidences as to how the contentions of the assessee were incorrect. Thus, it is our considered opinion, that on the facts of the case, the assessee had discharged his onus and the onus was on the department to demonstrate with ample evidence as to why the contentions of the assessee were to be disbelieved. Therefore we set aside the order of the Ld. CIT (Appeals) on this issue and direct the AO to delete the addition. - Decided in favour of assessee Disallowance of mould repairs and maintenance - Held that - The assessee has produced copies of invoices/bills of the various amounts debited to the head mould repair and maintenance and it is evident that most of the bills pertain to welding charges. The amounts paid towards welding charges range between ₹ 3000/- and ₹ 12,000/-. The assessee has also produced a copy of the Moulds ledger account under fixed assets which shows purchase of ₹ 1,08,000/- against Bill No. 1264 on 15th of June 2004 which has been duly capitalised by the assessee. The assessee has also filed copies of assessment orders for assessment years 2013 14 and 2012 13 passed under section 143 (3) and has submitted that no such disallowance was made in these respective assessment years. Thus this addition also needs to be deleted as the assessee has been able to demonstrate that these expenses were essentially of revenue in nature and pertained to day to day repairs of the mould and not in the nature of capital expenditure as contended by the Department. - Decided in favour of assessee

Summary

Issues Involved
1. Addition of ?62,91,279/- under Section 68 of the Income Tax Act, 1961.
2. Disallowance of ?1,39,297/- claimed as Mould Repairs and Maintenance Expenses.

Issue-Wise Detailed Analysis

1. Addition of ?62,91,279/- under Section 68 of the Income Tax Act, 1961

The assessee received a gift of two certificates of India Millennium Deposit amounting to $50,000 each from an NRI, which was credited to the capital account. The Assessing Officer (AO) added this amount to the assessee's income under Section 68, citing failure to establish the creditworthiness, identity, and genuineness of the donor. The AO observed that the transaction, despite being through normal banking channels, lacked evidence of any relationship or direct nexus between the donor and the donee. The AO also noted the absence of a gift deed, confirmatory letter, and evidence of any special occasion for the gift.

The CIT (Appeals) upheld the AO's decision, emphasizing the improbability of such a large gift from a non-family member without any special occasion. The CIT (Appeals) also dismissed the assessee's suggestion to record the donor's statement via Skype or videoconferencing, stating it lacked evidentiary value.

However, the ITAT found that the Department's case was built on suspicion rather than concrete evidence. The ITAT cited several judicial precedents, including CIT vs. Ms. Mayawati and CIT vs. RS Sibal, which held that gifts could not be treated as non-genuine merely due to the absence of a special occasion or blood relation. The ITAT noted that the assessee had provided substantial documentary evidence, including the donor's affidavit, passport, and bank certificates, which the Department failed to disprove. The ITAT concluded that the assessee had discharged his onus, and the Department did not provide sufficient evidence to disbelieve the assessee's claim. Therefore, the ITAT directed the AO to delete the addition.

2. Disallowance of ?1,39,297/- claimed as Mould Repairs and Maintenance Expenses

The AO treated the claimed amount for Mould Repairs and Maintenance as capital expenditure, arguing that the expenditure resulted in enduring benefits and was in the nature of a capital asset. The CIT (Appeals) upheld this view, stating that it was not clear whether the expenses were for repairs or new moulds.

The ITAT, however, found that the assessee had provided copies of invoices and bills, which predominantly pertained to welding charges, a deductible expense. The ITAT noted that similar expenses had been allowed in earlier and subsequent years without disallowance. The ITAT also observed that the assessee had capitalized the purchase of new moulds separately. Given the consistent treatment of such expenses in other assessment years and the nature of the expenses, the ITAT concluded that these were revenue expenses related to day-to-day repairs. Therefore, the ITAT directed the AO to delete this addition as well.

Conclusion

The ITAT allowed the appeal of the assessee, directing the AO to delete both the addition of ?62,91,279/- under Section 68 and the disallowance of ?1,39,297/- claimed as Mould Repairs and Maintenance Expenses. The judgment emphasized the importance of concrete evidence over mere suspicion and upheld the assessee's claims based on the provided documentary evidence and consistent treatment in other assessment years.