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TMI Blog2008 (11) TMI 437X X X X Extracts X X X X X X X X Extracts X X X X ..... and Shri Prateek Agrawal S/o Shri Prem Prakash Agrawal Rs. 4,00,000 on the basis of deposit received by the assessee in his personal name but he failed to appraise the fact that assessee is not required to prove the source of source in any case when the depositors are regular assessee. 5.Because the addition of Rs. 15,770 out of Telephone and Vehicle Expenses is upheld by the CIT Appeal as per order of Ld. Assessing Officer which is remissive and against facts. 6.Because the order of Ld. CIT (Appeal) is against the facts, provisions of statute and contrary to law of equity and natural justice." 2. The main issue involved in this appeal is that the Ld. CIT(A) has confirmed an addition of Rs. 2 lakhs made by the Assessing Officer being gifts received by the assessee, and not treated as genuine by the Assessing Officer and that he has also confirmed an addition of Rs. 8 lakhs being loan received by the assessee from his grandsons who have received gift from different ladies. The facts of the case are as under : 3. The assessee declared income of Rs. 2,66,209 for the assessment year 2002-03. The return was processed under section 143(1) on 29-11-2002. The case was selected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... She did not file return of income thereafter on the ground that the income was below taxable limit. She had stated that she gave gift to assessee amounting to Rs. 70,000 on 10-7-2001 through banker s cheque in the financial year 2001-02. Source was claimed as past savings kept in almirah. Gift was given without any occasion. She did not have any relationship with the donee. She did not have any bank account either singly or in joint name. She did not own any movable or immovable property. For doing the above work, her husband owns a house. She has two sons. She did not give any gift to either her sons or to the husband or to her brother. It was also stated that her husband is working in office of Shri Virendra Kumar Gupta, who is counsel of the assessee. He is getting a salary of Rs. 36,000 per year. Her household expenditure is claimed at Rs. 60,000. Smt. Suman Srivastava - She had stated that she is doing embroidery, tailoring, painting and tuition. She filed return of income for the assessment years 1998-99 to 2001-02 in which income was declared at Rs. 41,400, Rs. 51,150, Rs. 51,200 and Rs. 80,800 respectively from above sources. She did not file return of income thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gifts are given between near relatives on specific occasions whereas here the alleged gifts had been given without any occasion and without any motive. The donor did not have any relationship with the donee. Besides assessee who are well educated and well settled in business and having substantial income and have sound economic position in the society had not given any gift to any of the alleged donors and their family." 6. The Assessing Officer gave show-cause notice to the assessee against which assessee explained as under : "( a )All the above three ladies are Income-tax assessees. ( b )The gifts had been received through account payee banker s cheque. ( c )Copy of gift deed are filed already with acceptance letter. ( d )All the above ladies were summoned by Income-tax Officer for statement. ( e )All the ladies were cross examined by the Income-tax Officer and they stated following facts : ( i )They confirmed that they are Income-tax assessees. ( ii )They confirmed that they have made gift to Shri KM. Agarwal. ( iii )They stated their source of income and stated that they have filed their Income-tax return to the Income-tax Office, Lakhimpur Kheri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Mere filing of return of income itself did not indicate that the persons who filed the return had creditworthiness particularly when there is no bank account nor any books of account or documents to indicate the correct state of affairs. The ITI s report as well as statements recorded by the Assessing Officer placed on file reveal that these ladies are from one family and residing in the house of Shri K.K. Srivastava who is assistant of Shri Krishna Mohan Agarwal, the assessee. The annual income of the ladies is nominal. The language of section 68 shows that it is general in nature and applies to all credit entries in whomsoever names they may stand that is whether in the name of the assessee or a third party. It is a long accepted principle of law that an assessee is obliged to explain the nature and source of cash credits in his accounts and in the absence of satisfactory explanation on his part, the Assessing Officer can proceed to treat the amount of cash credits/gifts in question as representing the tax payer s income. The three ladies who have gifted substantial amount, have no bank account, but gifted the amount through the banker s cheques. There is no evidence of the sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mohit Agarwal v. Dy. CIT [IT Appeal No. 282 (All.) of 2006 A.Y. 2000-01] 12. In the present case, the Ld. DR submitted, there is a clear design which does not make the gifts genuine. All the three ladies are relatives of Shri K.K. Srivastava, Assistant of Shri Virendra Kumar Gupta, counsel of the assessee. All these ladies had filed return of income showing the sources of income as embroidery, knitting, tailoring, painting and tuition. Returns of income were filed at nominal income to build up capital and to transfer money to the assessee. The donors are persons from very poor family whereas the assessee is rich man having turnover of nearly Rs. 5 crores whereas the ladies are from family having meager income, husbands of the ladies are employed at very low salary, they do not own any movable or immovable property, they had not given any gift to their own family members. There is no occasion for giving such gifts to the assessee. Further there is no reciprocity proved i.e. the donee has not given any gift to any of the donor s family members. Acquaintance is also not proved. There is no evidence of any love and affection or bondages which could prompt anybody to give gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whose rent is Rs. 1,200 per month. The gift was given without any occasion. Smt. Sandhya Gupta - She stated that she is doing the work of tailoring, embroidery and tuition. She filed return of income for the assessment years 2000-01 and 2001-02 in which she declared income of Rs. 49,450 and Rs. 81,150 respectively. Subsequently, return was not filed as income was considered below taxable limit. She stated that she has given gift of Rs. 1 lakh on 10-10-2001 to Shri Gaurav Agarwal through cheque from her past savings. She has one son and her husband is working in a private firm on a salary of Rs. 3,000 per month. She has five brothers and two sisters. They too have their children. She did not give any gift to anyone of them except gift below Rs. 500 on marriage or birthdays. She does not own any movable or immovable property. Her husband also does not own any such property. She is living in a rented house at Rs. 700 per month. She claimed that she has bank account in Allahabad Bank, Lakhimpur Kheri. Smt. Munni Mishra - She stated that she is doing the work of embroidery, knitting, tailoring and tuition earning annual income of Rs. 12,000 from this work and Rs. 8,000 from tui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 30,000 to Rs. 40,000. She filed return of income for the assessment years 2000-01 and 2001-02 on a income of Rs. 49,400 and Rs. 82,140 respectively. She did not file return of income thereafter as income was below taxable limit. She claimed that she has given a gift of Rs. 1 lakh to Shri Mohit Agarwal. The source is claimed to be past savings. She did not own any movable or immovable assets in her name. She has three daughters and other relatives to whom she has not given any gift. Her family members have also not received any gift from Shri Mohit Agarwal or his family members. ( c ) Smt. Beena Saxena - She stated that she is doing work of tailoring, embroidery and knitting. Annual income is Rs. 40,000 to Rs. 45,000. She declared income of Rs. 49,400 and Rs. 81,660 respectively for assessment years 2000-01 and 2001-02. She did not file return thereafter as income was below taxable limit. It is claimed that she gave gift of Rs. 1 lakh to Shri Mohit Agarwal through account payee cheque on 10-10-2001 out of her past savings. She had a bank account in her name. She did not own any movable or immovable property in her name. She has two sons and one daughter who are studying. Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 lakh through cheque to Shri Prateek Agarwal on 25-10-2001. She opened a bank account in Urban Cooperative Bank on 29-7-2001, deposited cash of Rs. 1 lakh and was gifted to Shri Prateek Agarwal by cheque. She has two sons who are studying. She also has brothers, mother, sister-in-law to whom she has not given any gift. She does not own any movable or immovable property. She lives in a parental house. She or her family members never received any gift from Shri Prateek Agarwal or his family members. Her husband is running a small Parchoon shop earning annual income of Rs. 15,000 - Rs. 20,000 per year. The household expenses are Rs. 4,500 to Rs. 5,000 per month. Smt. Geeta Rastogi - She stated that she is doing work of tailoring, knitting, embroidery and earning annual income of Rs. 30,000 to Rs. 40,000. She filed return of income for the assessment years 2000-01 and 2001-02 and declared income of Rs. 49,130 and Rs. 81,460 respectively. For subsequent assessment years returns were not filed as income was below taxable limit. Her household expenditure was Rs. 40,000 per annum. She stated to have given gift of Rs. 1 lakh to Shri Prateek Agarwal on 25-8-2001. She has two children, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occasion for gift. Smt. Anwar Sultana - She was not produced. As per affidavit, she gave a gift of Rs. 1 lakh to Shri Arpit Agarwal S/o Shri Prem Prakash Agarwal, son of Shri Krishna Mohan Agarwal, assessee, through cheque on 9-7-2001 from Urban Cooperative Bank, Lakhimpur Kheri. She also gave gift of Rs. 30,000 to Shri Prateek Agarwal, son of Shri Prem Prakash Agarwal. Smt. Krishna Devi - She stated that she is doing the work of embroidery, knitting, tailoring and earning Rs. 30,000 to Rs. 40,000 per year. Return of income was filed for assessment years 1996-97, 1997-98, 2000-01 and 2001-02 on an income of Rs. 35,750, Rs. 40,750, Rs. 49,330 and Rs. 81,840 respectively. Subsequently, returns were not filed as income was below taxable limit. She gave a gift of Rs. 32,000 on 9-7-2001 to Shri Prateek Agarwal and another gift of Rs. 1 lakh to Shri Arpit Agarwal. She claims that she knew the assessee and his family for about 10-12 years. There is no relationship. There was no occasion for gift. She had two sons and one daughter and five brothers but did not give any gift to them. Her husband is working in a private firm on a salary of Rs. 2,000 per month. She did not have any mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a valid gift relationship and occasion are not required. Moreover, above ruling and following rulings clearly support my contention regarding gifts received by me and gifts received by Gaurav Agarwal, Prateek Agarwal and Mohit Agarwal could not be added in my income under section 68 of the Income-tax Act. ( a ) Commissioner of Income-tax v. Orissa Corporation (F) Ltd. 159 ITR 78 ( b ) CIT v. S. Ghosal, 106 ITR Calcutta ( c ) S. Haslimal v. CIT 49 ITR 273 " 19. The Assessing Officer did not accept these contentions and held that gifts are not genuine and hence, the loans. He, accordingly, treated the sum of Rs. 8 lakhs as income of the assessee. 20. The ld. CIT(A), following his decision in respect of gift of Rs. 2 lakhs, confirmed the order of the Assessing Officer in treating the gifts to grandsons and then loan to assessee as not genuine. His final judgment is as under : "I have heard the counsel for the appellant, considered the written submission filed by the counsel, report of the Assessing Officer and have gone through the assessment order. I have considered the issue of credit entries, while deciding the grounds of appeal bearing Nos. 1 and 2. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d so many similarities one could find in the case of all the donors such as their financial capacity, their sources of income, no relationship, no occasion, giving gifts at the same time, none of them have received any gift from the assessee and his family. Further once assessment is done under section 143(1), the question that such gifts are accepted as genuine would not arise. Even if the creditor receives money and its source is not found genuine then addition could be made in the hands of the assessee as credits not proved. The ld. DR then relied on the same authorities as he had mentioned in respect of gift of Rs. 2 lakhs. He further referred to the decision in the case of Rajeev Tandon ( supra ) decided by the Hon ble Delhi High Court which is confirmed by Hon ble Supreme Court. He also referred to the decision of Hon ble Supreme Court in CIT v. P. Mohanakala [2007] 291 ITR 278 , on the issue of genuineness of transactions and for taking into consideration surrounding circumstances before drawing conclusion whether transaction of gift would be genuine or not. He then referred to the decision of Allahabad Bench of the Tribunal in the case of Ishrawati Devi v. ITO [20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (AT) 313 in the aforesaid case department has not got the enquiry made through Income-tax Inspector as is done in the case of assessee. The Ld. D.R. has also mentioned in the case law Commissioner of Income-tax v. P. Mohanakala 291 ITR 278 - In aforesaid case the gift was received from NRI and the name of donor was changed from Arivanthopatan to Sampath Kumar. This was major reason for addition of gift, so the fact is not similar to the assessee." 25. We have considered the rival submissions and the material on record. In our considered view, the gifts so received by the assessee or his grandsons could not be said to be genuine. The reasons are that in all these cases, the donors are persons of low income group and do not have any capital or asset. There is no evidence on record to show how they build up capital. Even though identity of the donors is proved, but creditworthiness is not established. Creditworthiness is established by showing the balance sheet and capital account filed by them in the Income-tax return. It has to be shown how the capital was lying with the donors and what is immediate source of money gifted and after giving gift or loan, how much was left w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se which would prompt them to give gifts to the assessee or his grandsons. ( vi )There is no evidence of any occasion wherein assessee or his grandsons might have received gifts from any of their own relations, acquaintances and close friends. There is no reason to believe as to what prompted these ladies to come forward to give gift to the assessee or his grandsons. ( vii )There is also no reciprocity. It is not claimed that assessee or his sons or his grandsons gave any gift to any of the donors or to their family members even though donors are persons of no means and living in comparatively poor conditions. In fact, these gifts are flowing from poor to riches. 26. Thus, a design is apparent when we look at the identity of the donors, their sources of income, their filing of return showing almost similar income, none of them considering to gift the money to their own sons and daughters or their parents or parents-in-law, none of them having creditworthiness of any extent to create semblance of belief that they could give gift. 27. In our considered view, under section 68 what is required to be seen in addition to identity and creditworthiness, the genuineness of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant indicia in this regard, viz., whether the partnership is formed between the assessee and his wife and children or substantially limited to them, whether the personal asset is sold by the partnership firm soon after it is transferred by the assessee to it, whether the partnership firm has no substantial or real business or the record shows that there was no real need for the partnership firm for such capital contribution from the assessee. All these and other pertinent considerations may be taken into regard when the Income-tax Officer enters upon a scrutiny of the transaction, for in the task of determining whether a transaction is a sham or an illusory transaction or a device or ruse, he is entitled to penetrate the veil covering it and ascertain the truth." Hon ble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540 observed as under : "Though an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where a party relied on self-serving recitals in documents, it was for that party to establish the truth of those recitals: the taxing authorities were entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solely on the fact that every step in the transaction is legally valid or correct." In McDowell Co. Ltd. v. CTO [1985] 154 ITR 148 , the Hon ble Supreme Court observed as under : "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges." In Chain Sukh Rathi v. CIT [2004] 270 ITR 368 , the Hon ble Rajasthan High Court held that even occasion is relevant for finding out whether gift is genuine. If there is no occasion, gift cannot be accepted as genuine. 29. It is unbelievable that persons who do not have even meagre capital and having petty sources of income would part away their almost entire capital to a rich man for the alleged acquaintance for which there is no evidence. The assessee is not reported to have given any gift or help to these donors or to their family, either in the past or even in future, even though the donors have claimed to have gifted their prac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e men of worth. In all the three cases, money is deposited in cash in their bank account. It is deposited only on the same day when cheques/drafts are issued. All the gifts are taken on the same day as if there was some programme or function on the date of the gift at the premises of the assessee. All the three persons are of humble means. If the donors had any real savings they could have utilised it for the welfare of their own family or to augment their income. It is not expected from the persons having practically no capital left to part away their precious money to a person who is already very rich as compared to the donors. ****** 31. Though the individual factors, like relationship, occasion, non-giving gifts by the donors to the kiths and kins or by the donors to the kiths and kins, donee not giving any help to the donors at any time or the donors are men of petty means may not carry enough weight individually but when they are put together and viewed as a whole then one discovers the reality. 32. Picture that emerges is that it is only a make-belief affair. All these factors put together leave no doubt in our mind that it is a fit case where form has to be ignored an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the income of the assessee from other sources. ****** 18. We are of the opinion that unless the bank statement are supported by any other corroborative evidence to establish the financial capacity of the donors the bank statements do not prove the creditworthiness of the donors for showing that they were financially sound for making such gifts because the bank statements merely indicate the movement of the funds and not the creditworthiness of the account holder. We cannot ignore that in case of NRE donors the Assessing Officer is handicapped in verifying the creditworthiness of the donor in comparison to an Indian donor because in case of Indian donors after examining the donors and questioning them the Assessing Officer can conveniently verify the creditworthiness but in case of foreign donors he cannot do so and has to simply depend upon the documents filed by the assessee." 33. The above judgment in the case of Rajeev Tandon v. Asstt. CIT [2007] 294 ITR 488 was confirmed by the Hon ble Delhi High Court, wherein the Court appreciated the fact that donors had no connection with the assessee and gifts were made to the assessee because he needed money to buy house. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the donee who are apparently much richer chose to sit quietly and did not feel giving gift to the donee ? Why not, in the present case, father of the minors or their grandfather bestowed their love and affection on the minors by giving gifts to them out of their capital ? Why capital (in the form of gifts) migrated from capital less persons to capital rich people ? These donees or their family had not shown any love and affection towards donors or their family in the past. Accordingly, we are of the view that there is no basis to treat the gifts as genuine but apparently it is a case of procuring gifts by his own accounted money by the assessee. Once gifts are not proved as genuine, the question of holding that minors could lend their money to grandfather is also not believable. 36. As a result, we confirm the addition of Rs. 2 lakhs being the gift directly shown to have received by the assessee. We also confirm the addition of Rs. 8 lakhs being the loan received by the assessee from the grandsons out of the gifts received by them. Once gifts are not genuine, question of lending money to the grandfather as genuine does not arise. In this regard, we refer to certain decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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