2007 (5) TMI 262 - AT - Income Tax

Addition u/s 68 - Cash Credits - genuineness of the gifts and creditworthiness of the donors - Onus to prove - HELD THAT - Considering the facts, we are inclined to hold that the assessee has discharged the initial burden to prove the gifts and thereafter the burden did shift to the AO who also seems to have taken some steps by issuing summons to the donors but in our opinion he could have followed up the same by tracing them through their AOs and have them examined which would have helped matters. On the evidence adduced by the assessee, it is difficult to doubt the creditworthiness of the donors and the sources of the gifts and the genuineness of the transactions. In our opinion, each case has to be decided on its own facts, since no two cases may be identical. The general principle which could be culled from the authorities is that it is for the assessee to lead evidence to prove the identity and creditworthiness of the donors and the genuineness of the gifts. No single factor can be said to clinch the issue in favour of the assessee or against him and the entire evidence has to be assessed on a wholesome basis. It has been held in several authorities, including the judgment in CIT vs. Anil Kumar 2007 (3) TMI 223 - DELHI HIGH COURT on behalf of the Department that mere identification of the donor and the movement of the monies through banking channels are not sufficient to prove the genuineness of the gifts and that it is also necessary for the assessee to show the financial capacity and creditworthiness of the donors, their relationship with the assessee, the sources of the gifts and their capacity to give such large amounts to the assessee. Thus, in addition to establishing the identity of the donors and the fact that the monies came through bank accounts, the assessee was able to discharge the initial burden of showing the source of the gifts and the financial capacity of the donors and was also able to point out that the donors were also assessed to income-tax. Taking the evidence adduced by the assessee overall, we hold that the Departmental authorities were not justified in adding the amount as the income of the assessee. We delete the same and allow the appeal with no order as to costs.

Issues Involved:
1. Genuineness of the gifts received by the assessee.
2. Creditworthiness of the donors.
3. Burden of proof regarding the genuineness and creditworthiness.
4. Adequacy of the evidence provided by the assessee.
5. Actions taken by the Assessing Officer (AO) to verify the claims.

Issue-wise Detailed Analysis:

1. Genuineness of the Gifts:
The assessee, the late S.K. Katyal, received two gifts of Rs. 2,50,000 each from Sudhir Duggal and Satish Kumar Dhingra. The AO questioned the genuineness of these gifts, as the donors did not appear before him despite summons. The assessee provided affidavits from the donors, copies of their bank accounts, and proof of filing IT returns to establish the genuineness of the gifts. However, the AO and the CIT(A) were not convinced, noting that the donors' whereabouts were unknown and the pattern of deposits suggested the cheques were deposited merely to facilitate the gifts.

2. Creditworthiness of the Donors:
The AO and CIT(A) doubted the creditworthiness of the donors. The CIT(A) observed that the donors had cheque deposits in their accounts just before issuing pay orders to the assessee, indicating possible facilitation for the gifts. The assessee argued that the donors were men of means, assessed to income tax, and had substantial incomes and assets. The Tribunal found that the donors had sufficient financial capacity, as evidenced by their IT returns, wealth tax returns, and bank statements.

3. Burden of Proof:
The Tribunal emphasized that the initial burden of proof lies on the assessee to establish the identity and creditworthiness of the donors and the genuineness of the gifts. The Tribunal concluded that the assessee had discharged this burden by providing sufficient documentary evidence, including affidavits, identity proofs, and financial documents of the donors. The burden then shifted to the AO to disprove the assessee's claims, which was not successfully done.

4. Adequacy of Evidence Provided by the Assessee:
The assessee provided affidavits from the donors, their voters identity cards/PAN cards/Ration cards, copies of their IT and wealth tax returns, and bank account statements. The Tribunal found this evidence sufficient to establish the identity and creditworthiness of the donors and the genuineness of the gifts. The Tribunal noted that there was no material to suggest that the cheques deposited in the donors' accounts emanated from the assessee.

5. Actions Taken by the AO:
The AO issued summons to the donors, but Satish Kumar Dhingra did not appear, and Sudhir Duggal was not available at the given addresses. The Tribunal noted that the AO did not impose any penalty on Dhingra for non-compliance and did not take further steps to verify the donors' records through their respective AOs. The Tribunal held that the AO could have traced the donors through their AOs and examined them, which would have helped in verifying the genuineness of the gifts.

Conclusion:
The Tribunal concluded that the assessee had provided sufficient evidence to establish the identity and creditworthiness of the donors and the genuineness of the gifts. The Tribunal held that the Departmental authorities were not justified in adding the amount of Rs. 5 lacs as the income of the assessee. The appeal was allowed, and the addition was deleted.

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