2015 (10) TMI 1017 - HC - Income Tax

Addition under Sections 68 and 69 - non establish the claim a sum of US 6 lacs received as a gift - Tribunal held that the Assessee had established the source of the gift as well as the creditworthiness of the donor and, accordingly, deleted the addition - whether the assessee had proved the capacity of the donor? - Held that - Insofar as the issue regarding discrepancy in the statement of the donor is concerned, we find that the same is not material in determining the question of the genuineness of the gifts or the capacity of the donor. Insofar as the failure on the part of the donor to provide his business details, details of his assets, bank accounts and his agreements with his associates and other information is concerned; clearly, a donor could not be expected to share such details, which understandably may be considered as confidential. The Assessee as well as the donor had sworn statements indicating their close relationship going back several years. The certificate dated 26th March, 1997 issued by Blackfin and the statement of account of the donor in the books of Blackfin clearly indicated that the donor had access to the funds necessary for making the gift in question. The rent deed relating to a hotel in Dubai also indicated that the donor was a person of means. The donor himself had affirmed that his annual income was 3-4 million dollars. Plainly, the above material could not be ignored by the AO. The donor himself was under no obligation to subject himself to the inquisition by the AO. The Tribunal had considered the above and had concluded that the Assessee had discharged the burden. The AO on the other hand had not identified any material that was available with the Assessee, or should have been available with the Assessee, and had been withheld by him. In our opinion, the Tribunal rightly considered the issue in its correct perspective while holding that the Assessee had discharged his burden. Insofar as the professional consultancy fee received from Blackfin is concerned, the Assessee had produced a copy of the agreement as well as the letter of termination. The agreement itself was in force for a period of six months and in terms of the agreement, the Assessee was to receive a sum of US 1,20,000 against, which the Assessee had received a sum of US 1,16,833. Whilst the receipt of the consultation fee indicated that the Assessee had rendered certain services, the Tribunal rejected the conclusion that this could cast a doubt on the nature of the amount received by the Assessee as a gift. The agreement was only for a period of six months and the Assessee had affirmed that except for the said arrangement it had no connection with Blackfin. Further the discrepancy in the amount received by the Assessee as consultancy fees and the amount receivable in terms of the agreement could not possibly be a ground for doubting the amount of gift as consultancy fees.The alleged ledger showing withdrawal of US 10,000 as fee would also be considered as insufficient for treating the gift in question as income. The Tribunal had evaluated the material and evidence on record and had concluded that the Assessee had discharged its burden of justifying the receipt in question as gift. On the other hand that the AO had no material or had not collected any evidence to reject the claim made by the Assessee. Apart from doubting and questioning the material produced by the Assessee, the AO had not produced any positive evidence which could lead to the inference that the amount received by the Assessee was not gift.The findings of the Tribunal are based on sufficient material and cannot be stated to be perverse - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 1,87,38,100 to the taxable income of the Assessee under Sections 68 and 69 of the Income Tax Act.
2. Whether the ITAT was correct in law in deleting the addition.
3. Whether the order passed by the ITAT is perverse in law and on facts when ITAT had observed that the Assessee had proved the capacity of the donor.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 1,87,38,100 to the taxable income of the Assessee under Sections 68 and 69 of the Income Tax Act:

The Revenue's appeal under Section 260A of the Income Tax Act, 1961, contested an order by the Income Tax Appellate Tribunal (ITAT) which deleted an addition of Rs. 1,87,38,100 made by the Assessing Officer (AO) to the Assessee's taxable income. The AO had added this amount, asserting that the Assessee failed to establish that a sum of US $6 lacs received was a gift. The Assessee's appeal to the Commissioner Income Tax (Appeals) [CIT(A)] was also rejected. However, the Tribunal found that the Assessee had established the source of the gift and the creditworthiness of the donor, thus deleting the addition.

2. Whether the ITAT was correct in law in deleting the addition:

The High Court examined whether the Tribunal's decision to delete the addition was based on cogent material and sustainable in law. The Tribunal had determined that the Assessee had discharged the burden of proving the identity of the source and the capacity of the donor. The Tribunal's findings were considered findings of fact, which could not be interfered with unless found to be perverse or not based on any material.

3. Whether the order passed by the ITAT is perverse in law and on facts when ITAT had observed that the Assessee had proved the capacity of the donor:

The High Court analyzed the material that persuaded the Tribunal to accept the Assessee's claim that the amount received was a gift. The donor had appeared before the AO, affirmed the gift, and provided evidence of his financial capacity. The Assessee had also produced a letter from the donor and a notarized certificate from Blackfin confirming the remittance. The Tribunal found this material sufficient to discharge the Assessee's burden.

The AO had raised concerns about discrepancies in the statements of the donor and the Assessee, the donor's failure to provide detailed business information, and the Assessee's receipt of consultancy fees from Blackfin. However, the Tribunal considered these discrepancies immaterial and noted that the donor was not obligated to disclose confidential business details. The Tribunal concluded that the Assessee had provided enough evidence to justify the receipt as a gift.

The High Court noted that the AO's decision was based on suspicion and lacked positive evidence to reject the Assessee's claim. The Tribunal's findings were based on sufficient material and were not perverse. Consequently, the High Court upheld the Tribunal's decision, answering the questions of law against the Revenue and in favor of the Assessee. The appeal was dismissed.