2005 (4) TMI 258 - AT - Income Tax

Summary

Issues Involved:
1. Validity of notice under section 148.
2. Genuineness of the gifts received by the assessee's minor daughters.
3. Capacity of the donor to make the gifts.
4. Treatment of the gifts as the assessee's undisclosed income.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 148:
The assessee contended that the notice issued under section 148 was invalid because all material facts were disclosed in the return of income, which was duly processed under section 143(1)(a). The Ld. CIT(A) and the Assessing Officer (AO) justified the notice on the grounds that the gifts were found bogus in the gift-tax assessment of the donor, which led to the initiation of proceedings under section 147/148, indicating that the income had escaped assessment.

2. Genuineness of the Gifts:
The AO and Ld. CIT(A) held that the gifts received by the assessee's minor daughters were not genuine, based on the donor's statement that he did not make any gifts to anyone, including his own family members. The assessee argued that the gifts were made out of love and affection, on the occasion of Karan Bedhan Sanskar, and were received through account payee cheques. The AO, however, did not accept this explanation, considering the gifts as the assessee's own income.

3. Capacity of the Donor to Make the Gifts:
The donor's capacity to make the gifts was questioned. The AO recorded that the donor's only source of income was from property, which was barely sufficient for his household expenses. The donor admitted that he had not made any gifts to anyone, including his sister or children, and did not know the names of the donees. The assessee failed to provide evidence to prove the donor's capacity to make the gifts, and the AO concluded that the donor did not have sufficient means to make such gifts.

4. Treatment of the Gifts as the Assessee's Undisclosed Income:
The AO treated the gifts as the assessee's undisclosed income, arguing that the assessee utilized his own income by changing its character through gifts. The Ld. CIT(A) upheld this view, stating that the assessee could not establish the genuineness of the gifts or the donor's capacity. The assessee's argument that the gifts were genuine and made out of love and affection was not accepted, and the addition of Rs. 20,200 was confirmed.

Separate Judgments by the Judges:
Accountant Member's Judgment:
The Accountant Member disagreed with the AO and Ld. CIT(A), stating that the gifts were received through cheques, the donor was related to the donees, and the gifts were made on a specific occasion. He emphasized that the AO did not prove that the assessee's undisclosed income was deposited in the donor's account. He concluded that the AO was not justified in considering the gifts as non-genuine and deleted the addition made by the AO.

Vice President's Judgment:
The Vice President upheld the AO's and Ld. CIT(A)'s findings, noting that the donor had no capacity to make the gifts and had denied making any gifts. He emphasized that the assessee did not provide evidence to prove the donor's capacity and that the gifts were genuine. He concluded that the addition of Rs. 20,200 was justified and dismissed the appeal.

Third Member's Judgment:
The Third Member agreed with the Vice President, stating that the assessee failed to discharge the onus of proving the donor's capacity to make the gifts. He noted that the donor denied making any gifts and had no money to do so. The Third Member upheld the addition, stating that the assessee's claim of gifts was not established and the amount represented the assessee's undisclosed income.

Conclusion:
The appeal was ultimately dismissed, confirming the addition of Rs. 20,200 as the assessee's undisclosed income, based on the donor's lack of capacity to make the gifts and the failure of the assessee to prove the genuineness of the gifts.