2013 (1) TMI 232 - HC - Income Tax

Reopening of assessment - unaccounted cash credit with ex-MLA and an Ex-Minister - calling for total salary particulars including all allowances receivedin the capacity of Minster - Held that - The assessee had received a gift of Rs. 22, 76, 750/-in U.S. dollars from an NRI N.Mohan and the assessee had filed two confirmation letters one in December 2006 and another on 10-07-2007 given by the donor stating that he had gifted the above amount to the assessee his close relative. Donor is a man of means owning a software company of a net worth of US 25 million that he had gifted during the year 2002-03 Rs. 2.00 crores to rebuild a government school and got constructed a guest house for Sri Sitaramachandra Swami temple at Bhadrachalam. Copies of the income tax returns filed by the donor in USA were also filed by the assessee. Even though the assessee informed the department that the donor was available in India in December 2006 on account of the death of his mother-in-law and the contact details of the donor in India (address and mobile numbers) the department did not bother to contact him and verify the above facts. In this view of the matter the assessee had discharged the burden cast on him to prove the identity of the creditor the creditworthiness of the creditor and the genuineness of the transaction. Therefore the contention of the Revenue that the said sum ought to be added to the income of the assessee cannot be accepted - no question of law much less a substantive question of law arises for consideration in this appeal - against revenue.

Summary

Issues:
1. Challenge to order under Section 260-A of the Income Tax Act, 1961 regarding assessment year 2003-04.
2. Taxability of allowances received by the assessee.
3. Tax treatment of amount received in U.S. dollars from an NRI.

Analysis:
1. The appeal before the High Court challenged the order under Section 260-A of the Income Tax Act, 1961, related to the assessment year 2003-04. The assessing officer reopened earlier assessments suspecting income chargeable to tax had escaped assessment. The issue revolved around the taxability of allowances received by the assessee, an ex-MLA and Ex-Minister, during the assessment year. The assessing officer brought the allowances received by the assessee to tax, denying any exemption available on such allowances.

2. The primary issue in the appeal pertained to an amount of Rs. 22,76,750/- in U.S. dollars received by the assessee from an NRI and credited to his capital account in the assessment year 2003-04. The assessing officer sought details regarding the receipt of this amount, including nature of the transaction, source, and verification of the transaction. The assessing officer raised concerns about the lack of clarity on the source of funds and the genuineness of the transaction, ultimately determining the amount as taxable income under Section 68 of the Act.

3. The CIT (Appeals) and the assessing officer, in subsequent orders, upheld the addition of the amount to the assessee's income, emphasizing the lack of proof regarding the genuineness of the gift transaction. However, the Income Tax Appellate Tribunal reversed these decisions, considering the confirmation letters from the donor, bank statements, and income tax returns of the donor filed in the USA. The Tribunal found that the assessee had sufficiently proved the identity and creditworthiness of the donor, challenging the assessing officer's conclusion on the genuineness of the gift transaction. The Tribunal also highlighted the failure of the department to contact the donor for verification.

4. The High Court, upon hearing the arguments, noted that the assessee had provided confirmation letters from the donor, detailing the gift and the donor's financial status. The Court observed that the assessee had discharged the burden of proving the identity, creditworthiness, and genuineness of the transaction. The Court found no merit in the Revenue's contention to add the amount to the assessee's income, upholding the Tribunal's decision. The Court concluded that the Tribunal's findings were based on a proper appreciation of the evidence and dismissed the appeal, stating that no substantive question of law arose for consideration.

This detailed analysis highlights the legal journey surrounding the tax treatment of the amount received from an NRI, emphasizing the burden of proof on the assessee and the importance of substantiating the genuineness of transactions in tax matters.