2005 (7) TMI 36 - HC - Income Tax

Whether Tribunal was correct in holding that the gifts received by the applicant were not genuine and further that they fall under section 68 of the Income-tax Act and were thus correctly added to the income of the assessee? - It is a settled principle of law that under section 68 of the Act if any amount is found credited in the books of account of the assessee the burden lies upon the assessee to prove its nature and source. While proving the same the assessee has to prove the identity of the person, genuineness of the transactions and creditworthiness of the person who has given the money. In the present case, though the identity of the person, who has given the money has been established the assessee has failed to prove the creditworthiness of those persons making the payment of such amount to the assessee. All the authorities found that both the persons, who are alleged to have made the payment had no source and capacity to make such payment - we answer the question referred to us in the affirmative, i.e., in favour of the Revenue and against the assessee

Summary

Issues:
Validity of gifts received by the assessee under section 68 of the Income-tax Act for assessment years 1987-88 and 1988-89.

Analysis:
The case involved gifts of Rs. 20,000 each received by the assessee during the assessment years 1987-88 and 1988-89. The Assessing Officer raised concerns about the genuineness of the gifts, stating that the donors lacked the capacity to make such gifts. The donors confirmed making the gifts, but the Assessing Officer questioned their financial ability. The assessee argued that the gifts were genuine, supported by gift deeds, donor statements, and the donors' financial disclosures during assessment proceedings. The Deputy Commissioner of Income-tax (Appeals) upheld the addition of the gifts to the assessee's income, noting discrepancies in the donors' financial records and their ability to afford the gifts. The Tribunal emphasized that under section 68 of the Income-tax Act, the assessee must prove not only the identity but also the creditworthiness of the donors. The Tribunal found the assessee failed to establish the creditworthiness of the donors, leading to the confirmation of the additions to the assessee's income.

The High Court reiterated the legal principle that under section 68 of the Income-tax Act, the burden lies on the assessee to prove the nature and source of any amount credited in their books. While the identity of the donors was established, the assessee could not demonstrate the creditworthiness of the donors. The court agreed with the Tribunal's findings that the donors lacked the financial means to make the gifts, and the assessee failed to provide evidence to the contrary. Therefore, the court upheld the decision in favor of the Revenue, affirming the addition of the gifts to the assessee's income for the respective assessment years.

In conclusion, the High Court ruled in favor of the Revenue, upholding the addition of the gifts to the assessee's income for the assessment years 1987-88 and 1988-89. The court emphasized the importance of proving the creditworthiness of donors under section 68 of the Income-tax Act, noting that despite establishing the donors' identities, the assessee failed to demonstrate their financial capacity to make the gifts. The decision was based on the evidence on record, and the court found no grounds for interference with the Tribunal's findings.