2007 (5) TMI 192 - SC - Income Tax

Whether Tribunal was correct to accept the principle of preponderance of probabilities in holding that the claim of the appellant that the sum received by way of gifts through normal banking channels was not genuine and that it was liable to be assessed u/s 68 - Whether the conclusion of the Tribunal that the claim of gift is not genuine is reasonable and based on relevant material and not perverse - HC committed error in disturbing the concurrent findings of fact - Appeal of revenue allowed

Summary

Issues Involved:
1. Application of the principle of preponderance of probabilities in assessing the genuineness of gifts under Section 68 of the Income-tax Act, 1961.
2. Burden of proof under Section 68 of the Income-tax Act, 1961.
3. Reasonableness and material basis of the Tribunal's conclusion regarding the genuineness of the gifts.

Detailed Analysis:

Issue 1: Application of the Principle of Preponderance of Probabilities

The core issue was whether the Income-tax Appellate Tribunal was correct in law to accept the principle of preponderance of probabilities in holding that the claim of the appellant regarding the sum of Rs. 15,62,500 received as gifts through normal banking channels was not genuine. The Tribunal, after examining the evidence and circumstances, concluded that the gifts were not genuine and were liable to be assessed under Section 68 of the Income-tax Act, 1961.

Issue 2: Burden of Proof Under Section 68

The second issue was whether the Tribunal was justified in concluding that the burden of proof cast on the appellant under Section 68 of the Income-tax Act, 1961, had not been discharged. Section 68 stipulates that if any sum is found credited in the books of an assessee and the assessee offers no satisfactory explanation about the nature and source thereof, the sum so credited may be charged to income-tax as the income of the assessee. The Tribunal found that the explanation offered by the assessees was not satisfactory, thereby shifting the burden of proof onto the assessees to prove the genuineness of the credits, which they failed to do.

Issue 3: Reasonableness and Material Basis of Tribunal's Conclusion

The third issue was whether the Tribunal's conclusion that the claim of gift was not genuine was reasonable and based on relevant material, and not perverse. The Tribunal, along with the Assessing Officer and the Commissioner of Income-tax, found that the gifts were not real and were merely apparent. The authorities noted inconsistencies in the statements provided by the assessees and the donor, Sampathkumar, who had aliases such as Ariavan Thotan and Suprotoman. The authorities concluded that the transactions were not genuine gifts but were compensatory payments, as suggested by the letters exchanged, which indicated a materialistic relationship rather than one based on love and affection.

High Court's Reversal and Supreme Court's Conclusion

The High Court reversed the findings of the Tribunal and other authorities, stating that the reasons assigned were in the realm of surmises, conjectures, and suspicions. The High Court re-appreciated the evidence and substituted its own findings, which the Supreme Court found to be an overreach of its jurisdiction under Section 260A of the Act. The Supreme Court held that the High Court should not have interfered with the concurrent findings of fact arrived at by the lower authorities, as these findings were based on proper appreciation of the material and surrounding circumstances.

The Supreme Court emphasized that once the explanation offered by the assessees is found unsatisfactory, the sums credited in the books may be charged to income-tax as the income of the assessees. The burden is on the assessees to offer a reasonable explanation, which they failed to do. The Supreme Court allowed the appeals preferred by the Revenue Department, reinstating the findings of the Assessing Officer, the Commissioner of Income-tax, and the Tribunal.

Conclusion

The Supreme Court concluded that the High Court erred in re-appreciating the evidence and substituting its own findings for those of the Tribunal and other authorities. The concurrent findings of fact by the lower authorities were based on proper appreciation of the material and surrounding circumstances, leading to the conclusion that the so-called gifts were not genuine. The appeals by the Revenue Department were allowed, and the High Court's judgment was set aside.