2014 (12) TMI 672 - AT - Income Tax

Addition of undisclosed income u/s 68 Gift received from brother Genuineness of transaction Held that - Huge amount of ₹ 1,66,01,834/- was received from the assessee s brother, Shri Sudeep Thomas through banking channel assessee claimed that since Shri Sudeep Thomas has given the amount to the assessee who is his brother for the purpose of purchase of residential property - This amount received from the bank account of Shri Sudeep Thomas with ADCB Bank, Dubai was transferred to the bank account of the assessee in India - There is sufficient balance in the bank account of Shri Sudeep Thomas and being so, the capacity of Shri Sudeep Thomas to lend that much amount to the assessee cannot be doubted as he was employed as Consultant Engineer in an oil field in Dubai and he was also Managing Director of his own company - the real nature of the transaction should be ascertained by the AO and the assessee is required not only to prove the identity of the credit but is also required to prove the capacity of the creditor to lend the money and the genuineness of the transaction - assessee has been able to prove the identity of the creditor by furnishing the confirmation letter. The genuineness of the transaction is not proved - The receipt of money through banking channel is not sufficient to prove the genuineness of the credit - huge amount was deposited into the bank account of Shri Sudeep Thomas before transferring the same to the assessee s bank account - assessee was not able to produce any bank account details of Shri Sudeep Thomas from where he has received such amount - as per sec. 68, the assessee is required to explain the capacity of the lender to advance money to the assessee to the satisfaction of the AO - the addition made u/s. 68 of the Act is warranted - The onus is on the part of the assessee to prove the creditworthiness of assessee s brother, genuineness of the transaction, and identity of the creditor. Merely because confirmation letter from the creditor was furnished that funds were transferred to the assessee s bank account, it will not prove the genuineness of the transactions as decided in CIT vs. P. Mohanakala 2007 (5) TMI 192 - SUPREME Court - the order of the CIT(A) is upheld Decided against assessee.

Summary

Issues Involved:

1. Whether the gift of Rs. 1,66,01,834 received by the assessee from his brother is genuine and should not be added as undisclosed income under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Genuineness of the Gift and Addition as Undisclosed Income under Section 68:

The primary issue revolves around the genuineness of the gift amounting to Rs. 1,66,01,834 received by the assessee from his brother and whether it should be added as undisclosed income under Section 68 of the Income Tax Act.

Facts and Observations by the Assessing Officer:

The Assessing Officer (AO) required the assessee to furnish evidence supporting the gift. The assessee claimed the gift was made through proper banking channels and provided bank account copies for verification. However, the AO observed that the assessee failed to establish the creditworthiness of his brother, despite multiple opportunities. The AO noted that there were cash deposits or cheque deposits in the brother's bank accounts just before making parts of the gift. The creditworthiness was not established as salary slips were not furnished. The AO concluded that the gift should be treated as cash credit in the hands of the assessee.

CIT(A) Findings:

On appeal, the CIT(A) observed that the assessee did not furnish salary slips from any employer, despite specific queries. The CIT(A) noted that even if the monthly salary of 25,000 dirhams was considered, the total annual income would be insufficient to justify the gift of 11,50,510 dirhams. The CIT(A) concluded that the brother did not have the capacity and creditworthiness to advance such a huge gift.

Legal Principles and Precedents:

The CIT(A) referred to Section 68, which places the onus on the assessee to explain the entry of any sum credited in the books of account. The assessee must establish the existence, ability, and creditworthiness of the third party and prove the genuineness of the transaction. The CIT(A) cited various judicial decisions supporting this principle, including those from the Supreme Court and High Courts.

Tribunal's Analysis and Conclusion:

The Tribunal noted that the assessee received the amount through banking channels and provided confirmation letters and bank statements. However, the Tribunal emphasized that the receipt of money through banking channels alone does not prove the genuineness of the credit. The assessee failed to explain the source of the credits in the brother's bank account and did not provide detailed statements of assets, liabilities, balance sheets, or cash flow statements of the brother.

The Tribunal agreed with the AO's observation that the assessee's brother's employment details and consultation services were not substantiated with evidence. The Tribunal highlighted that the onus is on the assessee to prove the creditworthiness of the lender and the genuineness of the transaction. The Tribunal found that the assessee failed to discharge this onus and upheld the addition under Section 68.

Final Judgment:

The Tribunal dismissed the appeal filed by the assessee, confirming the addition of Rs. 1,66,01,834 as undisclosed income under Section 68 of the Income Tax Act.

Pronouncement:

The judgment was pronounced in the open court on 12-12-2014.