2009 (1) TMI 322 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 6,00,000 and Rs. 7,40,000 from the assessee's income as gifts from NRE accounts.
2. Allegation of the gifts being Havala transactions.
3. Allegation of money laundering and sham transactions.
4. Deletion of addition of Rs. 21,000 from the assessee's income.
5. Claim of the CIT(A)'s order being perverse and deserving cancellation.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 6,00,000 and Rs. 7,40,000:
The Revenue challenged the deletion by CIT(A) of Rs. 6,00,000 and Rs. 7,40,000, credited to the assessee's bank account on 7th Sept., 1993, and 1st Oct., 1993, respectively, purportedly as gifts from NRE accounts. The AO required the assessee to produce the alleged donors, Smt. Badrun-nisan Hanfi and Shri Habib-ur-Rehman, but they were not produced. The AO noted several inconsistencies and concluded that the gifts were not genuine. The CIT(A) held that the amounts were received through account payee cheques and confirmed by donors, thus there was no reason to doubt the claim. However, the Tribunal found that the assessee failed to prove the identity and creditworthiness of the donors and the genuineness of the transactions, reversing CIT(A)'s order and restoring the AO's addition.

2. Allegation of Gifts Being Havala Transactions:
The AO suspected that the gifts were Havala transactions, noting that the assessee had no familiarity with the account holders and failed to produce them despite multiple opportunities. The Tribunal agreed, emphasizing that the assessee did not establish a nexus between the money deposited in the NRE accounts and the donors, and the identity of the donors was not convincingly proved.

3. Allegation of Money Laundering and Sham Transactions:
The AO invoked the Supreme Court decision in McDowell & Co. Ltd. vs. CTO, concluding that the transactions were in the nature of money laundering and sham. The Tribunal upheld this view, noting that the assessee could not establish the genuineness of the gifts, the voluntariness of the act, or any natural love and affection between the donors and donee. The Tribunal emphasized that the gifts appeared to be a pretence for tax evasion.

4. Deletion of Addition of Rs. 21,000:
The AO added Rs. 21,000 to the assessee's income, noting that the assessee could not explain the source of this amount used for purchasing property. The CIT(A) deleted this addition, accepting the assessee's explanation. However, the Tribunal found that the assessee failed to convincingly explain the source of Rs. 21,000, thus reversing CIT(A)'s decision and restoring the AO's addition.

5. Claim of CIT(A)'s Order Being Perverse:
The Revenue contended that CIT(A)'s order was perverse and should be cancelled. The Tribunal agreed, finding that CIT(A) had ignored the AO's detailed findings and the surrounding circumstances that indicated the non-genuineness of the gifts. The Tribunal held that the CIT(A) relied on extraneous grounds and failed to consider the material evidence, thus reversing CIT(A)'s order and restoring the AO's additions.

Conclusion:
The Tribunal concluded that the assessee failed to prove the identity and creditworthiness of the donors and the genuineness of the transactions. The gifts were deemed non-genuine, and the additions made by the AO were restored. The appeal filed by the Revenue was allowed.