S.68- cash credit – foreign gifts. Judgment popularly referred as case of P.Mohankala deserves a reconsideration in view of facts found by Tribunal which were analyzed in a reasonable manner by High Court.

[DEV KUMAR KOTHARI]

First of all it is necessary that citations  and parties in reported Judgements  be  reconciled and synchronized with corresponding  judgment of High Court:

COMMISSIONER OF INCOME-TAX VERSUS P. MOHANAKALA - 2007 (5) TMI 192 - SUPREME COURT

Related judgment of Madras High Court is reported as:

A RAJENDRAN VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX, A. SRINIVASAN VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX, S. BALAJI MANIKANDAN VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX - 2006 (3) TMI 119 - MADRAS HIGH COURT

Note by author:

In citation for case before the Supreme Court only one name of respondent / assessee is mentioned that is P.Mohankala, This gives and impression that this involves only one assessee.

Whereas in  judgments  reported as judgment of High Court, name of P.Mohankala is not mentioned  names of other assesses are mentioned.

 However we find appeal numbers  as given in judgment of the Supreme Court really  cover various cases of other assesse when we read closely judgment of High Court.

This is evident from reading of:

First paragraph of judgment of the Supreme Court read as follows:

“These appeals have been filed against the judgment of the Madras High Court dated March 29, 2006, in T. C (A) Nos. 74 to 76 and 78 to 82 of 2002 whereby the following questions have been answered by the High Court in favour of the assessees and against the Revenue:”

Above T.C (A) nos. 74 to 76 and 78-82  were before the High Court as we can see from question of law mentioned by the High Court in which the same set of TC(A)  are mentioned

From judgment of High Court we notice:

Tax Cases Nos. 74 to 76 of 2002 stand admitted on the following questions of law:

"(a) Whether, on the facts and circumstances, the Income-tax Appellate Tribunal was correct in law to accept the principle of preponderance of probabilities in holding that the claim of the appellant that the sum of Rs. 15,62,500 received by him by way of gifts through normal banking channels was not genuine and that it was liable to be assessed under section 68 of the Income-tax Act, 1961?

(b) Whether in the light of the law established and based on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal is legally justified in concluding that the burden of proof cast on the appellant under section 68 of the Income-tax Act, 1961 has not been discharged and the ingredients for invoking section 68 of the Income-tax Act are present?

(c) Whether, on the facts and circumstances of the case, the conclusion of the Tribunal that the claim of gift is not genuine is reasonable and based on relevant material and not perverse?"

And

T. C. Nos. 78 to 82 of 2002 stand admitted on the following questions of law:

" (a) Whether, on the facts and circumstances, the Income-tax Appellate Tribunal was correct in law to accept the principle of preponderance of probabilities in holding that the claim of the appellant that the sum of Rs. 15,62,500 received by him by way of gifts through normal banking channels was not genuine and that it was liable to be assessed under section 68 of the Income-tax Act, 1961?

(b) Whether in the light of the law established and based on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal is legally justified in concluding that the burden of proof cast on the appellant under section 68 of the Income-tax Act, 1961, has not been discharged and the ingredients for invoking section 68 of the Income-tax Act are present?

(c) Whether, on the facts and circumstances of the case, the conclusion of the Tribunal that the claim of gift is not genuine is reasonable and based on relevant material and not perverse?"

Thus case reported with name of one respondent P.Mohankala is related to other assesses also.

In the above judgment, besides others , the  following judgment was followed:

COMMISSIONER OF INCOME-TAX, DELHI (CENTRAL II) VERSUS MRS. SUNITA VACHANI - 1990 (2) TMI 36 - DELHI HIGH COURT

Dated: - 5-2-1990

In this case the question of law was as follows:

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in cancelling the order under section 263 of the Income-tax Act, 1961, passed by the Commissioner of Income-tax, as a result of failure on the part of the Income-tax Officer to make any enquiries regarding genuineness of the alleged gifts ?"

The High Court held as follows:

“ In our opinion, the Tribunal had, on merits, come to the conclusion that the gifts were genuine. This is a pure, question of fact. The Tribunal has examined the evidence which was available on the record and has arrived at the aforesaid finding. Even though it may be surprising as to how large sums of money are received by a family in India by way of gifts from strangers from abroad, unless there is something more tangible than suspicion, it will be difficult to regard the moneys received in India from abroad as representing the income of the assessee in India. On the facts as existing on the record, we are unable to come to the conclusion that any question of law arises. The petition is dismissed. No order as to costs.”

Following the same lines Madras  High Court in  various case of A.Rajendran and others  deleted additions made for foreign gifts.

On search, and studies  it appears that the Revenue has not challenged judgment in case of Sunita Vachani ,before the Supreme Court.  Therefore, judgment of ITAT and Delhi High Court  in case of Sunita Vachani remained unchallenged and thus accepted by revenue.

Per author:

From above questions of law  in case of A.Rajendran   And P.Mohankala and others we find that in question of law numbered (a) there is difference of amount only and on issues it is similar in all cases.

And question of law numbered (b) and (c) are similar.

We find that the Tribunal has decided appeals in favor of revenue, based on the principle of preponderance of probabilities.

However, the earlier judgment of the same ITAT in case of Sunita Vachani appears to be not considered and not followed. However, that also involved same issue of large sums of gifts received from foreign donors.

This was due to special and specific  circumstances and reasons concurrently  found by The AO, CIT(A) and Tribunal for the reasons that

These were cases of foreign gifts received from donors.

It seems that the Tribunal  was unduly influenced from the fact that father of donor was at some time driver of one of assessee / appellant .

And the fact that assessee assisted and helped father of donor in day to day expenses and also in education of donor seems to have undue influence causing ignoring status of donor at the time of donations / gifts were made.

From these facts it seems that authorities below and  the Tribunal had developed a bias  and therefore, ignored the status of donor at the time of making of gifts when he has become a large industrialist and has also remitted huge capital for investment in India. If those e considered then the amount of gifts will not be huge, rather these can be considered as petty gifts.

Petty or huge are relative terms. A sum of Rs.one lakh can be considered a petty sum for a wealthy man whereas it can be huge sum for a poor or even middle class person.

In statements recorded there were some minor  differences and inconsistencies in names of donors and nicknames but ultimately all were reconciled , explained and  settled and undisputed. It is worth to note that in case of relations different names and nick names are used by various people who are close to each other. Degree of closeness and past period of closeness also causes use of various names and nicknames in personal communications.

There has not been ascertainment of degree of probabilities for accepting or rejecting the case of assessee.

Therefore, the orders of authorities and Tribunal were based on surmise and conjecture.

Per author: even while considering circumstantial evidence , or incidental aspects, or surrounding circumstances a reasonable view is to be applied.

In particular , when  documentary evidences are to be rejected there must be very strong reasons to reject the same based on some verbal statement only or some minor discrepancies found in verbal statement when verbal statements are taken after a long period of time.

In this regard the following provisions of the Indian Evidence Act ae important:

59. Proof of facts by oral evidence - All facts, except the contents of documents, may be proved by oral evidence.

60. Oral evidence must be direct - Oral evidence must, in all cases, whatever, be direct; that is to say;

          Xxxx Some examples and situations are given in section itself. And then a proviso is added as follows:

  Provided also that, if oral evidence refers to the existence or condition of any material thing other than a document, the Court may, if it thinks fit, require the production of such material thing for its inspection.

61. Proof of contents of documents - The contents of documents may be proved either by primary or by secondary evidence. 

In view of author  and on conjoint reading of above provisions of the Indian Evidence Act  the  contents of a document is evidence to prove a fact.

When there is no document, then only oral evidence can be used to prove a fact.

  If oral evidence refers to the existence or condition of any material thing other than a document, the Court may, if it thinks fit, require the production of such material thing for its inspection.

Thus, contents of documents cannot be disproved by any oral statement or evidence.

In view of author the High Court has rightly reversed order of Tribunal. This was not a case of disturbing fact found by Tribunal, rather it was a case of appreciating various facts found by Tribunal based on documents and circumstantial evidences and probabilities. The Tribunal took an unreasonable view by suspecting truth or facts as per records and applied surmise and conjecture to hold that the gifts received were income of assesses.

Applying probability without any documentary or concrete evidence to discard documentary evidences ,to hold  that gifts received and recorded in books of account after having realized cheques or demand drafts deposited in bank accounts,  are not genuine is not as per law and is very unreasonable view.

On the aspect of question of facts and fact found by Tribunal also the High Court has dealt with the matter on consideration of earlier  judgments of the Supreme Court reported in [1961] 41 ITR 135 (Homi jehangir Gheesta v. CIT) wherein, it was held as hereunder:

    "It was further observed that in determining whether an order of the        Appellate Tribunal would give rise to a question of law, the court must read the order of the Tribunal as a whole to determine whether every material fact, for and against the assessee, had been considered fairly and with due care; whether the evidence pro and con had been considered in reaching the final conclusion; and whether the conclusion reached by the Tribunal had been coloured by irrelevant considerations or matters of prejudice."

It was further held in HOMI JEHANGIR GHEESTA VERSUS COMMISSIONER OF INCOME-TAX, BOMBAY CITY - 1960 (9) TMI 8 - SUPREME COURT that in considering probabilities properly arising from the facts alleged or proved, the Tribunal did not indulge in conjectures, surmises or suspicions.

Unquote:

On close reading of the judgment of SC in case of P.Mohankala  and also  search within document author could not find any reference or passages from the judgment in case of HOMI JEHANGIR GHEESTA VERSUS COMMISSIONER OF INCOME-TAX, BOMBAY CITY - 1960 (9) TMI 8 - SUPREME COURT which was applied by the High Court for arriving at reasonable  conclusions of facts found by Tribunal. It was not a case of the High Court reappraising facts or   disturbing the facts found by Tribunal.

Therefore, with due regards , the judgment of the Supreme Court popularly referred as case of P.Mohankala (supra.)  need a review.