2018 (12) TMI 1598 - HC - Income Tax

Addition u/s 68 - whether the appellant had discharged his initial burden in respect of gift/loan received by the appellant? - Transfer through an NRO account - Held that - AO as well as the Tribunal have analysed the materials available, then examined as regards the probabilities of a nephew, a salaried person in United States, extending a gift to his uncle in India, who has extensive business throughout the country with several branches would probablise the theory of gift. The assessee did not place any material before the CIT(A) as to why the alleged additional income earned by the donor by doing consultancy work for a company in UAE was not produced by him before the Assessing Officer. The pre-requisite for accepting a new document at the first appellate stage is that the assesee should show sufficient cause. This is lacking in the instant case. Had the assessee produced the document before the Assessing Officer in all probabilities, an investigation would have been conducted. Considering the income of the donor, a salaried person in United States, AO rightly concluded that the probability of a salaried nephew giving a gift to his uncle, who is an affluent business man is hard to believe. In cases, such as the present one preponderance of probability play a vital role. Thus, the theory of gift was not established by the assessee. The so called transfer through an NRO account was also self-serving because, the amount was transferred through telegraphic transfer and the source of transfer was not established as to how it was relatable to the donor - decided against assessee.

Summary

Issues:
1. Appeal against order under Section 260A of the Income-tax Act, 1961.
2. Unexplained credits under Section 68 of the Act for gift/loan received.
3. Admissibility of additional evidence before the Commissioner of Income Tax (A).
4. Burden of proof on the assessee regarding gift/loan received.
5. Consideration of creditworthiness of the donor.
6. Compliance with Rule 46A of the Income Tax Rules, 1962.
7. Lack of human probability in gift transactions.
8. Lack of proof regarding source of funds for financial transactions.
9. Reliability of account payee cheques in gift transactions.
10. Lack of probability in the nephew's gift to the uncle.
11. Lack of proof regarding additional income earned by the donor.
12. Justification for accepting documents not produced before the Assessing Officer.
13. Lack of sufficient cause for not producing documents before the Assessing Officer.
14. Probability analysis in gift transactions.
15. Lack of establishment of the theory of gift by the assessee.
16. Source of transfer in relation to the donor.
17. Lack of relatability of telegraphic transfer to the donor.

Detailed Analysis:
1. The appeal was filed under Section 260A of the Income-tax Act against the order of the Income-tax Appellate Tribunal regarding unexplained credits under Section 68 for a gift/loan received by the assessee.

2. The Assessing Officer treated the gift and loan received from the assessee's nephew as unexplained credits under Section 68, leading to the addition of the amount to the total income.

3. The appellant contended that the gift was received through banking channels, supported by a gift deed and bank account details of the donor, arguing that the addition was based on suspicion.

4. The CIT(A) allowed the appeal, emphasizing the genuineness of the transaction and the satisfaction of all conditions, while the Tribunal reversed this decision citing lack of proof regarding the nephew's income and the source of funds for financial transactions.

5. The Tribunal held that the gift lacked human probability and the creditworthiness of the donor was unproven, leading to the quashing of the alleged gift.

6. The Court analyzed Rule 46A of the Rules, highlighting the burden of proof on the assessee to justify not producing documents before the Assessing Officer, which was not adhered to in this case.

7. The Court referred to previous decisions and emphasized the lack of establishment of the theory of gift by the assessee, especially in relation to the source of transfer in the gift transactions.

8. The lack of relatability of the telegraphic transfer to the donor and the absence of sufficient cause for not producing documents before the Assessing Officer were key factors in dismissing the appeal and answering the substantial questions of law against the assessee.