2014 (7) TMI 509 - AT - Income Tax

Levy of penalty u/s 271(1)(c) of the Act Invocation of section 68 of the Act Held that - The onus to prove the credit on the parameters is on the assessee, the discharge or not so thereof in the facts and circumstances of the case is largely a matter and, consequently, subject to a finding, of fact - the assessee s case as totally unproved - The only reason advanced by the assessee for the gifts is that he being a young man of 28 years, on the threshold of his career as a real estate developer, was helped with these funds - True, it could be, but only from very close and near and dear ones who would completely identify themselves with the assessee and his success - Surely, a gift under these circumstances would not be made to a strangers or relative stranger or perhaps even acquaintance but only to one with whom the donor enjoys a high level of personal relationship and emotional bonding - No relationship, however, has been specified in the instant case for any donor. Even the immediate source of the funds with the donors has not been explained, except in the case of Ram Lakhan Singh, Mumbai, in which case the same, i.e., the retirement funds, in almost their totality, disprove the assessee s case rather than establishing the creditworthiness - for the three members of the Verma family, the amount gifted, as apparent from the bank accounts furnished, are sourced from loan funds - Apart from the legal issue of whether the same would qualify as a gift, which could only be of one s own property, i.e., over which one has absolute rights, including of disposition, as well as the proprietary issue in-as-much as the bank had advanced funds only for business purposes, it raises serious doubts qua the genuineness of the gifts, besides in no manner establishing the credit-worthiness of the donors, if not actually disproving it the credits claimed to be gifts, as unproved on the anvil of section 68 of the Act Decided against Assessee. Inaccurate particulars furnished Penalty u/s 271(1)(c) of the Act Held that - The genuineness of the gifts, again, remain completely unproved in the absence of any personal relationship being claimed, much less proved - the credits only represent laundering of his money by the assessee, masqueraded as gifts - The statutory presumption u/s. 68 is that the receipt is of income nature - no exception is forthcoming on the basis that the income, so brought to tax, is deemed as the assessee s income, section 68 being in fact only a rule of evidence thus, the levy of penalty is upheld Decided against Assessee.

Summary

Issues Involved:
1. Maintainability of invoking Section 68 of the Income Tax Act, 1961.
2. Levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Maintainability of Invoking Section 68 of the Income Tax Act, 1961:

The primary issue in the quantum proceedings was whether the invocation of Section 68 of the Income Tax Act, 1961, was maintainable in the facts and circumstances of the case. Section 68 deals with unexplained cash credits in the books of accounts, which are deemed as the assessee's income if the nature and source of the credits are not satisfactorily explained.

The assessee received gifts totaling Rs. 42.01 lacs from nine persons, of which gifts from two donors were accepted as genuine. The remaining gifts, amounting to Rs. 38.01 lacs, were scrutinized based on the identity and creditworthiness of the donors and the genuineness of the transactions. The Assessing Officer (A.O.) found these gifts to be non-genuine due to lack of relationship, occasion, and credible source of funds, leading to their addition as unexplained income under Section 68.

The Tribunal emphasized that the burden of proof lies on the assessee to establish the identity, creditworthiness of the creditor, and the genuineness of the transaction. The assessee failed to provide satisfactory explanations or evidence in support of the gifts, which were deemed non-genuine based on the principle of human probability and the surrounding circumstances. The Tribunal upheld the A.O.'s findings, concluding that the credits were unproved and rightly added as income under Section 68.

2. Levy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961:

In the penalty proceedings, the assessee contended that an incorrect claim does not amount to furnishing inaccurate particulars of income, thus not warranting penalty under Section 271(1)(c). However, the penalty was levied and sustained on the grounds that the gifts were unproved and the assessee failed to furnish a plausible explanation.

The Tribunal noted that the findings regarding the capacity of the donors and the genuineness of the gifts were factual and persuasive in the penalty proceedings. The assessee did not improve its case at any stage, and the explanation provided was deemed unsatisfactory. The Tribunal highlighted that the statutory presumption under Section 68 is that the receipt is of income nature unless satisfactorily explained. The Tribunal confirmed the levy of penalty, finding no legal or factual infirmity, and upheld the penalty at 100% of the tax sought to be evaded.

Conclusion:

The Tribunal dismissed the assessee's appeals, confirming the addition of unexplained income under Section 68 and the levy of penalty under Section 271(1)(c). The judgment emphasized the importance of providing satisfactory explanations and evidence to substantiate claims of gifts, failing which the statutory presumptions and penalties under the Income Tax Act would apply.