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TMI Blog2001 (11) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------- Total Rs. 6,00,000 ------------- ------------------------------------------------------------------------------------------- The confirmative letters were filed in respect of the above cash credits. The Assessing Officer asked the assessee to explain the genuineness of the cash credits in response to which the assessee has submitted as under: (1) The amounts have been received from the creditors who are identifiable. (2) The transactions are through banks and are genuine. (3) The source of amount is gift received by the creditors from persons identifiable. (4) The donors have disclosed these gifts to Income-tax Department and have paid Gift-tax as per law. (5) Gift-tax returns of these donors have been accepted by the Department. (6) The donors have furnished Affidavit confirming the gifts made by them. 2.1 Thereafter, the Assessing Officer asked the assessee to produce the creditors. The guardians of the creditors attended before the Assessing Officer and their statements under section 131 were recorded. It was stated b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uardians were not sure as to whether the donors had ever seen their children. 2.3 In order to get further facts, the Assessing Officer sent a questionnaire to all the 16 donors. Replies were received from 15 persons. The information received indicated that all the donors were farmers of village Siswa and adjoining area in Gujarat. They were not assessed to Income-tax being farmers. The gifts were sent by demand drafts either from Bank of Baroda, Bhadran or State Bank of India, Siswa Branch, Gujarat. They had filed gift tax returns at the advise of Shri Narendrabhai Patel. The D.D. had been purchased simultaneously. These donors had not given any such gifts to their own children or any grand children except two donors, Shri Dayabhai Patel and Shri Madanbhai Patel. Members of the Sable family of Pune had not given any gifts to their children. 2.4 The assessee was also requested to produce the donors for cross examination in his office. Though sufficient opportunity was allowed the donors were not produced by the assessee. However, at the instance of assessee, the camp was held by the Assessing Officer in the Income-tax Office at Anand (Gujarat) between 18 July to 20 July, 1989. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no capacity to make such huge gifts to the outsiders who were not even known to them. The gifts were arranged through Shri Narendrabhai Patel, Accountant of M/s. Fulabhai Govindbhai of Bhadran who are the commission agent of the assessee. Accordingly, the assessee was asked to explain as to why the addition under section 68 not be made. The assessee had submitted that no addition could be made since the confirmative letters had been filed by the creditors. The gifts were admitted by the donors and the same had been disclosed in the return under the Gift-tax Act. The assessee also relied on the various case law reported as Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723 (Bom.), CIT v. Daulatram Rawatmull [1973] 87 ITR 349 (SC), S. Hastimal v. CIT [1963] 49 ITR 273 (Mad.). However, the Assessing Officer was not satisfied with the explanation of the assessee and finally it was concluded by the Assessing Officer that all the gifts were not genuine and the same were arranged through Shri Narendrabhai Patel, accountant of M/s. Fulabhai Govindbhai a Commission Agent of assessee for purchase of Tobacco. There was a systematic tax planning and evidences had been created to give colour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gift-tax Officer and the same were accepted as a matter of policy of the Department without making inquiry. According to him, this fact cannot lead to the inference that gifts were genuine. Hence, he justified the addition made by the Assessing Officer. The learned D.R. has also relied on the decision of Ahmedabad Bench of the Tribunal in the case of ITO v. Dr. Jagdish Kansagara [1998] 66 ITD 381 wherein on similar facts, the Tribunal had rejected the genuineness of the gifts after applying test of human probabilities and the decision of Supreme Court in the case of Sumati Dayal and the decision of Punjab Haryana High Court in the case of Lall Chand Kalra v. CIT [1981] 22 CTR (Punj. Har.) 135 and the decision of Calcutta High Court in the case of CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 465. 5. On the other hand, the learned counsel for the assessee has strongly supported the order of the CIT (Appeals) by raising various submissions. Firstly, it has been submitted by him that all the tests laid down by the Courts have been satisfied. There is no dispute about the identity of the donors. The capacity of the donors cannot be doubted on the basis of material on the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ni S. Sable, Smt. Mangla D. Sable Smt. Seema S. Sable belong to family of Shri Shankar Sable while remaining three partners i.e., S/Shri Govind R. Sable, Rajiv R. Sable Nitin R. Sable belong to another family of Shri Govind Sable. The money has been brought only by the members of Shri Shankar Sable's family. According to him, assessing the cash credits in the hands of firm would amount to taxing the family of Shri Govind Sable without any reason. As far as firm is concerned, the onus has been fully discharged by proving the identity, creditworthiness of the creditor and genuineness of the transactions. The decision of Ahmedabad Bench of Tribunal reported as Dr. Jagdish Kansagara's case is distinguishable on facts since in that case the Tribunal was concerned with the case of donee himself while in the present case the assessee-firm and donees are totally different. 6. Rival submissions of the parties have been considered carefully in the light of case law referred to and the materials placed before us. In order to appreciate the controversy before us, it would be useful to refer to certain settled legal positions. Firstly, in the case of cash credits in the books of assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolve this controversy. According to the test of human probabilities, in our opinion, no person would normally part with his money by way of gift unless there is a personal bond of love and affection between the donor and donee. Such gifts are normally made by relatives and friends irrespective of any occasions. However, sometimes gifts may be made to the strangers out of social obligations on certain occasions such as birth day, wedding ceremonies and other social functions. The quantum of such gifts would depend upon the social relations and the practice prevalent in the society. Sometimes the money is also parted with for charitable purposes. In all the cases there is some bond between the donor and donee either by way of personal love and affection or social obligation or on account of compassionate ground. Therefore, in the absence of such bond, in our opinion, it would be difficult to accept the genuineness of so called gifts in view of the test of human probabilities as approved by the Supreme Court in the case of Sumati Dayal. 7. Before applying the above test to the present case, it would be useful to refer to the undisputed facts which are set out as under: (1) All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he donors and donees. There was also no occasion for making such gifts. Further, it is noted that huge gifts were made by various persons of the same village on the same dates to the strangers which in the normal course is not possible to happen. It is also difficult to believe that the farmers of lower status would give the huge gifts to the children of the family of a very high status. All the action of the donors and donees, in our opinion, are contrary to the human behaviour. The only inference that can be drawn from the facts and surrounding circumstances of the case is that the entire affair was an arranged one through the help of Shri Narendrabhai Patel. Therefore, we are of the view that evidences for making such gifts were created to make believe the existence of the genuineness of the gifts. Our conclusion is also fortified by the decision of the Ahmedabad Bench of the Tribunal in the case of Dr. Jagdish Kansagara wherein it has been held on similar facts that such gifts were not genuine and it has been further held that amounts of gifts could be treated as income of the donees. Similarly, Punjab Haryana High Court in the case of Lall Chand Kalra had held that valid gif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This important aspect goes to indicate only one conclusion that money laundering was done only by one group i.e., Shri Shankar Sable's family. In these circumstances the Assessing Officer should have assessed the parents of the minor children and not the assessee. We are of the considered view that it is the right person which should be taxed. 9.2 In the present case, in our opinion, all the conditions are satisfied by the assessee. There is no dispute about the identity. The Assessing Officer had doubted the capacity of the donors. The assessee is not bound to prove the source of the source. However it has been established by producing the pass-book of the donors that transactions of gift were effected after withdrawing the amounts from their own accounts and the money in their accounts was deposited by cheques which represented the sale proceeds of their agricultural Produce. Since all the transactions are through bank, the genuineness of the transactions between the assessee and the minors cannot be doubted particularly when no inference can be drawn that money of firm was utilised for money laundering. At this stage, it would be useful to refer to the decision of Hon'ble Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be made in the hands of firm. The order of the CIT (Appeals) is therefore, upheld, though on different grounds. The Assessing Officer is at liberty to take action against the right person in accordance with law. 11. In the result, appeal of the revenue is dismissed. Per Chhibber, A.M.--Regretting my inability to persuade myself to the view taken in the order of my learned brother, I proceed to write a dissenting order. 2. The facts of the case have been elaborately given by my learned brother in his order and I need not repeat the same. After discussing the facts in detail and the arguments of both the parties, my learned brother arrived at a judicially correct conclusion in para 8 of his order that, "Therefore, following the above decisions and applying the test of human probabilities, it is held that the gifts in the present case were not genuine." So far so good and I have no dispute to this extent. But having held that the gifts were not genuine, I do not agree with him that the addition of Rs. 6,00,000 is not justified under section 68 of the Act. For this proposition, my learned brother has relied upon the decision of this Bench in the case of Shri Mahavir Nagari Sah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eyond any shadow of doubt not there. The third test, i.e., genuineness of the transaction is the most important test and here, the assessee-firm has failed miserably. It has been conclusively held by my learned brother that the gifts by the said agriculturists are not genuine and once it is held that the gifts are not genuine, it cannot be said that the transactions arc genuine. In fact, the giving of gifts by the said agriculturists was a stage-managed show, because no person would normally part with his hard-earned money by was of gift, unless there is a personal bond of love and affection between the donor and the donee. In the present case it is an admitted fact that the donors had no relation with the donees; even they had not seen the donees, but strangely enough they made the gifts of huge amounts. Thus, the two tests which prove a cash credit as genuine and hence acceptable fail in the case of the assessee-firm. 3. The facts in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. are distinguishable from the facts of the assessee-firm before us. In the case of Mahavir Nagari Sahakari Pat Samstha Ltd. this Bench was dealing with a banking company and there also this Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Dr. Jagdish Kansagara to which one of us (A.M.) was a party, when a rich man approaches a poor man for gift, it is a "queer" behaviour which is contrary to the normal human behaviour and cannot be ignored of. It was further held that it was well-settled law that the taxing authorities can take note of the surrounding circumstances--CIT v. Durga Prasad More [1971] 82 ITR 540 (SC). In Sumati Dayal's case, the Apex Court has held that surrounding circumstances and applying the test of human probabilities is a must. In Lal Chand Kalra's case, before the Hon'ble Punjab Haryana High Court, the donor was a stranger to the assessee and the Hon'ble High Court held that there was no reason why he should make a gift of Rs. 10,000 to the assessee. It was further held in that case that gift from a relative who had other more important liability like marrying four sisters of his own would not be a genuine gift and especially when there was no occasion for such a gift. 4. In Smt P.K. Noorjahan's case, the assessee before the Hon'ble Supreme Court was a Muslim lady who was aged about 20 years during the previous year relevant to the assessment year 1968-69. On November 15, 1967 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Calcutta High Court has observed, "Discretion means sound discretion guided by law. It must be governed by law, not by honour, it must not be arbitrary, vague and fanciful." Again, the same High Court in the case of Hindusthan Sanitary Ware Industries Ltd. v. CIT [1978] 114 ITR 85 has held, "Judicial discretion must be governed by rule, not honour it must be legal as well as regular. The grounds of such exercise must, therefore, appear from the order of the reasoning of the authority." In the case before us, the Assessing Officer has rightly not exercised his discretion, because here is an assessee-firm constituted of rich partners--all coming from higher strata society--who took undue advantage by inducing semi-literate agriculturists who used to sell to the firm their agricultural produce, i.e., tobacco leaves; obviously coming from lower strata of society to make gifts of huge amounts and then guided them in filing Gift-tax returns to give legal tenor to the bogus gifts to the advantage of the assessee-firm (in whose books gifts appeared as credits); its partners and their wards. Such an unethical and dubious practice has to be frowned upon. In essence, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gifts were all arranged through the same person by name Narendrabhai Patel, accountant of a firm by name M/s. Fulabhai Govindbhai which was acting as the commission agent of the assessce in procuring beedi patties. He recorded statements from the Gujarat agriculturists and from the replies given by them held that they had no valid reasons for making any gifts to the minor children of Shankar Sable. For the sake of brevity the Assessing Officer's reasons are not reproduced here. Suffice to state that he held that the gift theory was opposed to human probabilities despite the agriculturists having filed gift-tax returns and paid the tax thereon. He therefore disbelieved the genuineness of the credits and added the same to the income of the assessee-firm. 3. On appeal the CIT (Appeals) accepted the assessee's explanation and deleted the credits from the assessment. The Revenue preferred an appeal to the Tribunal. After discussing the mater elaborately, the learned Judicial Member (JM), who wrote the leading order, for reasons elaborately given therein and relying on the judgment of the Supreme Court in the case of Sumati Dayal, agreed with the Assessing Officer that the gifts were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to exercise of the discretion judicially even as per the parameters prescribed by the Supreme Court. He opined that considering the device adopted by the assessee-firm that of introducing monies into the firm in the guise of gifts which were found to be non-genuine--the Assessing Officer was justified in refusing to exercise the discretion in favour of the assessee. In this view of the matter, he held, differing from the learned, JM that the credits were rightly assessed in the assessee-firm's hands. 5. It is in the above circumstances that the question extracted above has been referred to me for decision. I have heard the rival contentions. Mr. K. Srinivasan, the learned DR, in an able argument before me contended that the learned JM had gone wrong in exercising the discretion vested under section 68 in favour of the assessee after having held that the gift-theory was untrue. He submitted that the explanation given by the assessee-firm cannot be compartmentalised or dissected into genuine and non-genuine parts and that once the gifts have been found to be non-genuine it must follow that the credits are not genuine and that they must be assessed in the hands of the firm. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evi v. CIT [1988] 171 ITR 532 (Punj. Har.) 7. He further contended that the finding of the learned JM that the addition should be made in the hands of Shankar Sable, the father of the minors in whose names the credits appear, is not a proper finding on the facts brought on record and is not a finding necessary for the purposes of section 68. All that was required to be done, within the scope of the section, was to enquire into the explanation of the assessee-firm regarding the nature and source of the credits and if the same is found to be not genuine or unsatisfactory the only option was to add the credits as income. To elaborate if the credits appears in the books of the assessee and if the explanation is not genuine or satisfactory, section 68 leaves no choice in the matter as to who is to be assessed. The section, according to Mr. Srinivasan, clearly says that the credit is to be assessed in the hands of the person in whole accounts it appears. The rationale behind this, according to him, is that such person is the beneficiary of the funds and is therefore liable to be assessed. An enquiry as to who is the real owner of the funds is beyond the scope of enquiry contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercised in a proper and fit case on the basis of the material on record, to bold that though the explanation or a part thereof with regard to the credits is not genuine or satisfactory, the proper person to be assessed is not the assessee but somebody else. This is what the learned JM has held, which, according to Mr. Sathe, was well within the parameters of section 68 as expounded by the Supreme Court in Smt. P.K. Noorjahan's case 10. Mr. Sathe further contended on the strength of the following authorities that once the genuineness of the gifts is accepted there is an end of the matter and no further enquiry is required: 1. CWT ,CIT v. K.N. Shanmughasundarm [1998] 232 ITR 354 (SC) 2. Shanmshuddin Manzoor Haque's case It may be clarified that the above argument was put forth by Mr. Sathe on the assumption that the gifts to the minors by the agriculturists in Gujarat were genuine. When it was pointed out to him that the finding of both the learned Members is that the gifts were not genuine, he submitted that in this respect there is some factual confusion or contradiction in paragraphs 2 and 4 of the learned JM's order. He submitted that in these paragraphs the learned JM h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld. He also submitted that Smt. P.K. Noorjahan's case was rendered under the provisions of section 69 and not section 68 and hence not applicable to the present case. 14. On a careful consideration of the rival contentions I am of the view that the decision of the learned AM is to be upheld. My reasons arc given below: Both the learned Members are agreed that the gifts by the agriculturists in Gujarat to the minor children of Shankar Sable are not genuine. The difference arises only with the regard to the consequence of this finding. The learned JM says that despite this it is still possible to hold that the assessee-firm is not assessable in respect of the credits under section 68. He says that the right person to be taxed is only Shankar Sable because the credits appear only in the accounts of his minor children and it would be unreasonable to hold the assessee-firm liable for the said and that would make Govind Sable, the other partner, assessable in respect of amounts which do not belong to his family. He has held that money-laundering (i.e., conversion of undisclosed income into disclosed income) has been done only by Shankar Sable's family and therefore he is the right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax the "right person". That course, in my opinion, is not envisaged by the section. It would result in a waste of all the effort that had been made by the Assessing Officer. It may possibly open the floodgates if it is to be held that the Assessing Officer exercised his discretion arbitrarily in taxing the credit in the hands of the assessee before him even though the enquiry revealed that the explanation offered by the assessee is not genuine. 16. In Smt. P.K. Noorjahan's case, on which heavy reliance has been placed by both the learned JM as well as the learned counsel for the assessee, the explanation offered by the assessee was not accepted by the income-tax authorities, but the Tribunal held that though the explanation was liable to be rejected, section 69 gave a discretion to the Assessing Officer because of the use of the word "may" and despite rejection of the explanation lie can still hold that the amount of investment is not assessable in the hands of the assessee. The decision of the Tribunal was affirmed by the Kerala High Court whose judgment was affirmed by the Supreme Court. The use of the word "may" in section 68 also therefore must be held to give a discretio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, as already noted by me, the Assessing Officer while acting under section 68 is entitled to stop the enquiry when it is found that the assessee's explanation is not substantiated or satisfactory or is unsupported by evidence or where the evidence adduced has been found to be non-genuine, as in the case before me. He would be acting well within his powers under section 68, including the exercise of the discretion given to him by the section, if he thereafter holds the assessee in whose books the credits appear, liable to tax. No further duty is cast upon him under the section. He cannot thereafter be found fault with for not having exercised his discretion in favour of the assessee or with not having attempted to find the real owner of the monies. To hold otherwise does not appear to my mind to be consistent with the object, tenor and purport of section 68. In my view, it would amount to exlcuding the principle laid down in Smt. P.K. Noorjahan's case a little too far. 18. It was said on behalf of the assessee that the facts found by the Assessing Officer himself showed that there was inherent probability that the monies belonged not to the assessee-firm but to the family of Shan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the Assessing Officer that the gift-theory advanced by the assessee-firm cannot be accepted is genuine. This itself in my opinion justifies the refusal of the Assessing Officer to exercise the discretion vested in him in favour of the assessee in my view, the enquiry in all such cases is limited to examining whether there was material before the Assessing Officer to justify the exercise of his discretion one way or the other. May be the appellate authorities might have on the same material exercised the discretion the other way, but so long as the Assessing Officer's exercise of the discretion is supported by material on record and cannot be considered to be arbitrary, capricious, fanciful or perverse it should not be lightly interfered with Smt. P.K. Noorjhan's case offers guidelines in this regard but in my humble view it cannot be understood as a "carte blanche" to interfere with the Assessing Officer's powers even where the assessee's explanation has been found to be non-genuine, either in part or in full. 20. In the view I have taken, I do not consider it necessary to refer to the various authorities cited by both the sides. The question before me involves a limited e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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