2016 (6) TMI 561 - HC - Income Tax

Addition u/s 68 on unexplained cash credit - gift receipt - Held that - The assessee cannot be asked to prove the source of source. Moreover, Gift Tax Act nowhere provides that a gift by somebody who is not creditworthy is not a gift. The Tribunal instead of addressing itself to the requirement of Section 68 of the Act, has adopted an approach which is unwarranted in law. See SMT. NEELAMBEN GOPALDAS AGRAWAL Versus INCOME TAX OFFICER 2015 (6) TMI 135 - GUJARAT HIGH COURT . We therefore are of the opinion that the question raised in the present appeal is required to be answered in favour of the assessee

Summary

Issues:
1. Addition of ?2,20,000 under Section 68 of the I.T. Act
2. Requirement to prove the source of source under Section 68
3. Failure to exercise discretionary powers under Section 68
4. Ignoring the alternative plea to work out peak credit

Analysis:

Issue 1: Addition of ?2,20,000 under Section 68 of the I.T. Act
The case involved the assessee receiving ?2,20,000 advanced by an individual through cheques collected from devotees. The Assessing Officer added this amount as unexplained cash credit under Section 68, as creditworthiness and genuineness were not proved. Despite the appellant's submission of confirmations and details, the Commissioner of Income Tax (Appeal) and the Tribunal upheld the addition. The Court referred to precedents emphasizing that the primary onus is on the assessee to explain the nature and source of credit, but not the source of the source. The Tribunal's failure to consider established identity and genuineness led to the Court ruling in favor of the assessee.

Issue 2: Requirement to prove the source of source under Section 68
The Court reiterated that the assessee cannot be asked to prove the source of source, as per precedents and the provisions of Section 68. The Tribunal's unwarranted approach in questioning the motivation behind the gift and donor's financial details was deemed irrelevant to establishing the genuineness of the transaction. The Court emphasized that once the primary onus is discharged by the assessee, it is up to the revenue to take appropriate action if unsatisfied with the source of funds in the donor's hands.

Issue 3: Failure to exercise discretionary powers under Section 68
The Tribunal's failure to exercise discretionary powers under Section 68, despite the appellant's advanced age and the impossibility of the amount being his income, was highlighted. The Tribunal's decision to confirm the addition without considering strong factors supporting the explanation tendered by the assessee was deemed erroneous. The Court emphasized that the primary onus was discharged by the assessee, and the Tribunal's approach was not in line with the law.

Issue 4: Ignoring the alternative plea to work out peak credit
The appellant's alternative plea to work out peak credit instead of adding the entire amount was ignored by the Tribunal. The Court referenced similar cases where the Tribunal upheld the deletion of additions when transactions were deemed genuine and creditworthy. The Court found that the Tribunal's decision was unwarranted and ruled in favor of the assessee based on established facts and legal precedents.

In conclusion, the Court ruled in favor of the assessee, overturning the Tribunal's decision and answering the substantial questions of law in favor of the assessee and against the revenue. The judgment emphasized the importance of establishing identity and genuineness in transactions under Section 68 of the I.T. Act and clarified the assessee's burden of proof in such cases.