Kaushal H. Patel vs Income Tax Officer

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Akil Abdul Hamid Kureshi, J.—The assessee has preferred these appeals challenging the judgment of the Income-tax Appellate Tribunal dated January 4, 2013, raising the following questions for our consideration:

"A. Whether, in facts and in the circumstances of the case the Income-tax Appellate Tribunal has erred in law in upholding the addition of Rs. 8,76,000 under section 68 of the Act in spite of the fact that the appellant herein duly proved the creditworthiness of the depositor and the genuineness of the gifts by way of adequate documentary evidence?

B. Whether, in the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has erred in requiring the appellant herein to prove the source of the donors and their capacity to make gifts?"

Brief facts are as under:

For the assessment year 2005-06 in the return filed, the assessee had declared an income of Rs. 4.68 lakhs (rounded off). During the scrutiny assessment, the Assessing Officer noticed that in the bank account of the assessee, during the year under consideration, the following amounts were deposited through bank cheques/drafts:

The Assessing Officer noticed that on the next day of the deposit, the assessee had given the amount as loan to a company. He, therefore, called upon the assessee to explain the receipts of the amount and its source asking him to show cause why in the absence of an explanation, such amount should not be added to the total income as unexplained cash credit under section 68 of the Income-tax Act, 1961 ("the Act" for short). The assessee perhaps for want of time could not furnish full details. The Assessing Officer framed the assessment on 31st December and added such amount in the income of the assessee.

The assessee preferred an appeal before the appellate authority. The assessee produced details of four donors who had, according to the assessee, given gifts of the said amount. After calling for the remand report, the Commissioner of Income-tax (Appeals), accepted the assessee''s case partially and believed the genuineness of the gifts in the case of two donors. However, in the case of other two donors on the premise that their signatures in the confirmation letters did not match with the signatures in their passports, he disbelieved the assessee''s theory of having received such gifts from such persons.

Aggrieved by the order of the appellate authority, the assessee as well as the Revenue, both approached the Tribunal. The Tribunal allowed the appeal of the Revenue and rejected that of the assessee. The assessee has, therefore, challenged the decision of the Tribunal by filing these appeals.

Learned counsel, Shri Soparkar, for the appellant vehemently contended that the assessee established the genuineness of the transactions and creditworthiness of the donors. In that view of the matter, the Tribunal ought to have accepted the factum of the gifts. He submitted that the Tribunal committed serious error in rejecting the case of the appellant when the assessee had given full explanation for the amounts received.

In our opinion, however, the Tribunal has considered the materials on record and come to the conclusions which are purely factual in nature. The Tribunal considered several factors to come to the conclusion that the transactions were not genuine and the so-called donors did not have the capacity to give such large gifts. In that view of the matter, though the identity of the donors was established, two other important elements, namely, that of the genuineness of the transactions and the creditworthiness of the donors, according to the Tribunal, were not established. The Tribunal noted as under:

"12. In the present case, it is seen that the four donors are not related to the donors and the assessee belong to the same community. However, the learned authorised representative could not substantiate the relationship by bringing any material on record.

The assessee has placed in paper book the copy of the income-tax return of Shri Dilip Patel one of the donors, for the calendar year 2004 filed in the USA at pages 24 to 27 of the paper book. On perusing the same, it is seen that at page 26 is schedule A - itemized deductions and under which it is indicated that during the year Mr. Dilip Patel has given gifts of US $251. However, in the present case, the gift made by Shri Dilip Patel to the assessee works out to over US $10,000 which thereby means that the gift given by Shri Dilip Patel to the assessee has not been reflected in the income-tax return filed by him. The schedule of itemized deduction for other three donors is not on record.

The assessee has placed in paper book the copies of income-tax returns filed by the three donors in the USA. From the copies of the income-tax returns of the donors filed in the USA for the calendar year 2004 it is seen that the donors have filed their income-tax returns jointly with their spouse which appears to be as per the prevailing tax laws in the USA. The details and other facts with respect to the donors that emerge from the returns of income filed by them are as under:

Perusal of the details the above chart reveals as under:

(a) In the case of Shri Ramanbhai Patel though the gift given is of Rs. 8,70,000 (equivalent to US $ 20233), only the copy of confirmation, passport and certificate of the bank issuing demand draft is on record. The copy of his income-tax return is not on record and, therefore, in his case, the capacity to gift cannot be proved.

(b) In the case of Shri Suresh Patel it can be seen that in the income-tax return he has stated that he is unemployed and has filed return of income jointly with his wife and the total joint income after payment of tax is US $1741 and he has said to have given a gift of US $10349 to the assessee. Thus, the gift appears to be far in excess of the after tax income for the year earned by the assessee jointly with his wife.

(c) In the case of Shri Dilip Patel, his total joint income along with his wife after payment of taxes is US $42523. He is stated to have given gift of US $10267 to the assessee. The gift thus works out to 24 per cent of their joint income. Further, the details of their income-tax return at page 26 of the paper book reveals that they have stated to have given aggregate gift of US $251 in the year. Thus, their total gifts as reported in their income-tax return is of US $251. In the present case, Shri Dilip Patel has stated to have given gift of over US $10,000 to the assessee which, therefore, leads to the conclusions that the gift to the assessee has not been disclosed by them in the return of income.

(d) In the case of Shri Vipul Patel his joint total income along with his wife after payment of taxes for the calendar year 2004 is US $34764. The gift of US $10023 to the assessee thus amounts to around 29 per cent of their joint income after payment of tax.

Before us nothing has been brought on record to prove the relationship between the donor and donee that necessitated the love and affection which could result into giving the gift.

We have also noted that the part relief granted by the learned Commissioner of Income-tax (Appeals) was in cryptic manner quote ''Regarding other two donors, in the remand report, since the Assessing Officer has not given any finding, the general observations of the Assessing Officer that the credits were not genuine has to be rejected in respect of these two donors, as the initial onus of the appellant stands discharged'' unquote. The reason given for granting relief in respect of the impugned two donors appears to be non-convincing especially when the Assessing Officer has given findings of facts; hence the remand report ought to have been considered along with the assessment order."

The principal factors that the Tribunal took into consideration were that the donors were not related to the assessee, they were mainly stated to be belonged to the same community and there was no occasion for the donors to give such sizable gifts to the assessee. More significantly, the resources available to the donors did not justify such sizable gifts. In the case of Ramanbhai Patel, gift was worth US $20233. His income-tax return was not produced. The Tribunal, therefore, concluded that his capacity to give such gift was not established. In the case of Suresh Patel he was stated to be unemployed. He filed his return jointly with his wife declaring a total income after tax at 1745 US$. He had given gift of 10349 US $. In the case of third donor, Dilip Patel, he had given gift worth 10267 US $. In the return, he had not disclosed such gifts and only declared aggregate gift of 251 US $. In the case of the last donor, Vipul Patel, his total income jointly with his wife after tax was 34764 US $ out of which he gave nearly 30 per cent i.e., 10023 US $ as gift to the assessee. Such being the facts, the Tribunal in our opinion, rightly came to the conclusion that the amounts in question were correctly treated by the Assessing Officer as income of the assessee.

In addition to relying on the decisions of the High Courts, the Tribunal relied on a decision of the apex court in the case of Commissioner of Income Tax Vs. P. Mohanakala, . In such decision, in the context of section 68 of the Act, the apex court observed that in cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory, there is prima facie, evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same and if he is fails to rebut it, it can be held against the assessee that it was a receipt of an income nature. It was also a case where though amounts were received through banking channels, the Assessing Officer in view of the facts held that the gifts were not real and treated the receipts as income applying section 68 of the Act. The apex court held that the fact that money came by bank cheques and were credited through banking transactions by itself was not of any significance and reversed the decision of the High Court which had upset the factual findings of the Tribunal. In the present case also, we find that the assessee failed to render an explanation for such sizable cash credits in the accounts. The Tribunal has assessed the facts in proper perspective and come to the conclusion which cannot be stated to be perverse. No question of law, therefore, arises. Both the tax appeals are, therefore, dismissed.